bankruptcy

Hostess is dead. The bakery company stopped production in November, and has been trying to sell off its divisions since. Lucky for folks like Twinkie-obsessed Tallahassee, played by Woody Harrelson in Zombieland (2009), the much-beloved synthetic pastries may again appear in stores this summer.

And not as a zombie product, but as the real, edible confection we’ve known all our lives.

How? Not through any demented reanimation or infection process. This has nothing to do with zombies.

Instead, it has everything to do with the normal workings of capitalism:

In a joint bid, Metropoulos & Co and Apollo Global Management are paying $410m (£275m) for the bankrupt company.

The offer had originally been planned to set the floor for an auction, which Hostess boss Greg Rayburn had predicted would be “wild and woolly.”

In fact, a court filing showed that no other offers were submitted.

In America, today, it’s still possible for bankrupt companies to sell off their productive capacity — including names, recipes, logos and the like — to meet the debts prioritized by the courts.

The latter is entirely natural, not Zombieland-horrific.

Much of the hysteria over “too big to fail” comes from misunderstanding the nature of the deaths of once-successful businesses. Laid-off workers can and do find new work as more efficient companies step in, and the capital goods of a bankrupt company can still have value, and can be bought and re-employed more efficiently in other companies.

Indeed, keeping inefficient firms going by subsidy and special favor puts them into a zombielike existence — not the Zombieland re-animated dead kind, but pre-Romero, old-fashioned voodoo zombies. These sluggards serve slowly and creepily.

Better acclimate ourselves to capitalism’s “circle of life” than the horrorshow that is “too big to fail” in the United States of Zombiel… Bailouts.

This is Common Sense. I’m Paul Jacob.

America’s bailout economy started many administrations ago, but really went Big Time under President George W. Bush . . . and then went Enormity Time with President Barack Obama.

The Washington Post provides the latest in bailout news by noting an inter-departmental squabble:

The Special Inspector General for the Troubled Asset Relief Program said Treasury approved all 18 requests it received last year to raise pay for executives at American International Group Inc., General Motors Corp. and Ally Financial Inc. Of those requests, 14 were for $100,000 or more; the largest raise was $1 million.

Though this is all quite scandalous, don’t expect policies to change or heads to roll — barring a joint Tea Party/Occupy uprising. The nature of the modern “regulatory” state is clear: government bureaus are quickly captured by the industries they aim to regulate. It’s an old story. The revolving door between business and bureaucracy is as well-established as between journalism and politics.

So why do we have bailouts?

1. They show that politicians are “doing something”;
2. They mimic the welfare state logic of “helping the poor” (if, with caustic irony, by stuffing the wallets of the rich);
3. They aggrandize the showy machinations of the legislative and executive branches at the expense of the branch of government designed to handle massive business failure, the courts.

Perhaps Americans shouldn’t have voted in either an MBA grad (Bush) or a constitutional lawyer (Obama). Maybe what the country needs is a bankruptcy lawyer in the White House.

This is Common Sense. I’m Paul Jacob.

Stockton, California, had seen a flurry of new home projects right up till the mortgage market crash. But, boy, did that come to a screeching halt. The crash led to foreclosures, which led to lower revenues from property taxes for the city. And though the city tried some spending cuts, they haven’t been enough. The Stockton City Council just voted, six to one, to seek federal bankruptcy protection.

Reasons for the bankruptcy, however, are not confined to reduced revenues. Add “soaring pension costs” and “contractual obligations” to the list of disaster factors.

And it’s pensions and medical insurance that make up the elephant’s share of “contractually obligated” must-pays. We’ll see if official bankruptcy will allow the city to get out from under that mess. The Chapter 9 plan includes dropping medical benefits for currently fully-covered retirees.

Who’s to blame? Politicians who negotiate really cushy deals for their (our) employees. The contracts obligate future taxpayers to pay out huge pensions for future retirees, rather than being funded (through insurance and investment) at the time of salary disbursement. The problem is that politicians love to make promises others must keep. Specifically, in this case, they contract defined benefit pensions not defined contribution pensions.

It makes no sense to do this, of course. It encourages irresponsibility, and is (to use a buzzword that should be used often against its usual purveyors) unsustainable. As proven by the Stockton bankruptcy.

Stockton is, so far, the largest American city to go belly up. We can expect further such busts, since the cause of Stockton’s problems — under-funded pensions coupled with full-coverage, gold-plated, lifelong health insurance for government retirees — remain endemic throughout the country.

This is Common Sense. I’m Paul Jacob.

Central Falls, Rhode Island, is not a large city. It is a town of under 20,000 people. And its government is broke, facing likely bankruptcy.

Municipal bankruptcies are not common. But they might become so. Why? The blame is easy to place: the proverbial gun-under-the-table contracting foisted on small localities by state governments.

That’s what happened in Central Falls, anyway.

Even the New York Times has an idea of the underlying problem:

The city, just north of Providence, is small and poor, but over the years it has promised police officers and firefighters retirement benefits like those offered in big, rich states like California and New York. These uniformed workers can retire after just 20 years of service, receive free health care in retirement, and qualify for full disability pensions when only partly disabled.

Walter Olson, of the Cato Institute, elaborates on this account: “‘Promised’ is a word of art here, because the city wasn’t really making all of these concessions on a voluntary basis. . . .” The concessions to unions were, instead, forced on the town by “public-sector arbitration” (which has almost nothing to do with private arbitration) that has led to a widespread “crisis in municipal finance,” which, the Times states, has brought one in four Rhode Island municipalities to the brink.

Olson makes the reasonable case that public-sector employee unions are a very bad idea to begin with. The end comes either with serious reform or bankruptcy.

This is Common Sense. I’m Paul Jacob.

A humungous national debt. Growing state federal government budget deficits. Social Security and Medicare, running out of funds. All very frightening. But look out: The costs of public employee pensions are walloping city and state budgets — pushing a number of California cities into bankruptcy.

Though the stock market tumble hasn’t helped, the basic problem lies squarely with politicians. They like to increase future benefits to gain political support from public employee unions; they then underfund their lavish promises, the better to hide the fiscal reality from today’s taxpayers.

Politicians keep running from the problem, but a website called PensionTsunami.com won’t let them hide. The site, run by Californian Jack Dean, offers a steady stream of horror stories:

• A new report calls the Kansas Public Employee Retirement System “bankrupt.”
• A Rye, New York, city manager makes $198,000 a year while still collecting a pension for the same job.
• The chief actuary for the California Public Employees Retirement System admits that current pension costs are “unsustainable.”

All across the country, politicians consistently fail to act. Californians are lucky: They have the voter initiative. The California Foundation for Fiscal Responsibility, a group whose board includes Mr. Dean, is planning a statewide initiative to prevent their approaching tsunami.

This is Common Sense. I’m Paul Jacob.

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