If you have been paying attention to the presidential campaign here in the United States the past few weeks, or have even watched a television commercial in the past few months, chances are you have heard President Obama attack Mitt Romney for his position on the auto companies. In the past 7 days at the gym I have seen over 100 campaign ads and more than half of them quote Romney as saying “Let Detroit Go Bankrupt.”
When the financial panic began in 2008, both Romney and Obama stated that they wanted the auto industry to go through a managed bankruptcy in order to remain competitive, viable companies. In fact, Obama actually did take the companies through a managed bankruptcy and provided substantial government loans to help them through it. The only difference between Obama’s plans and Romney’s, is that Romney would have had private companies issue the loans, rather than the government. Either way- the bankruptcy was extremely effective, the government loans were quickly repaid, and the auto industry is back on its feet again.
There are two different things that come to mind when I read the stories from the campaigns about “letting Detroit go bankrupt.” First- is the stigma that still follows the word “bankruptcy” and second- the reality of bankruptcy being an amazing financial tool for companies and individuals to get back on their feet.
A few months ago, I blogged about ‘the sigma’ that filing bankruptcy seems to create. It is a complete myth. See the article here: The Stigma.
Millions of people file for bankruptcy every year. Many famous people (my hero- Abraham Lincoln included) at some point in their life file for bankruptcy protection. The point- bankruptcy is a financial decision, not a moral one. Filing for bankruptcy says nothing about you as a person or the value you have to the people around you. In fact, for many people, filing for bankruptcy is the last step they have to protect their ability to provide for their family.
The most important lesson we can learn about the auto industry filing for bankruptcy is that bankruptcy can rescue you from financial ruin, just like it did the auto industry. Bankruptcy gives you the ability to discharge your debts and to get a fresh start. If its good enough for the American car- then why not you and your family?