Bankruptcy and Evolution in Markets
I have been watching a lot of Planet Earth on Discovery Channel lately. If you not seen it, its a great show that basically goes across different habitats throughout the world and shows how different animals interact and essentially, survive. It find that it really helps put things into perspective. Its hard not to draw comparisons to markets and economics as both are very important evolutionary mechanisms for companies, and mankind.
Yesterday, someone on Twitter wrote, “Capitalism without bankruptcy is like Christianity without Hell.”. I thought that was a great quote, and drawing on my recent Planet Earth habit, I would wager to say its like evolution without competition for survival. In nature, if species aren’t put into competition to survive, they will not adapt. In markets, bankruptcy is death. The predators tear companies apart, and thus only the most fit companies survive. In order for an evolution to exist in an economy their must be failure and our system that is bankruptcy. It is the most important mechanism we have in the markets. Failure is not only good but it is necessary for our economy to survive.
I bring this up because there were two news stories this morning that made me think of this:
First, the obvious one – it appears that Obama is likely to force the automakers into bankruptcy. This was a long time coming and something that should be healthy in the long term for the American economy (and by “healthy” I don’t mean “fun”, “good for stock markets”, and “good for the unions”).
In the other story, Jamie Dimon, the head of a great predator who has now found himself to be prey, JP Morgan, in has called on regulators to create a uniform way to handle failing companies that would avoid “great confusion” in markets. He says, “The first goal should be to regulate financial institutions so they don’t fail.”
On one end, nature seems to be taking its course, as predators appear to be circling once-fit beasts. On the other end the top of the food chain is trying to change the laws of nature to increase his chance of survival. Perhaps he smells the blood in the air.