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Assassination and Bankruptcy

posted by Stephen Lubben

How's that for a catchy title?

I was inspired by an interesting post over at Lawfare, where the author notes that the term "assassination" has a specialized meaning in legal circles – namely, it involves an unlawful killing – whereas in the popular imagination the term basically refers to any sort of covert killing, particularly those with national security implications.

"Bankruptcy" is another such term. For lawyers, bankruptcy invokes a legal process to solve overindebteness. In the United States, its a court-supervised process under the Bankruptcy Code.

But in the press and other general contexts, bankruptcy is often used as a synonym for insolvency. Der Spiegel is one of the worst offenders, routinely referring to Greece, the United States, and other sovereigns "going bankrupt."  

"Not possible," I say to myself while reading.

But we can expect a lot more of this loose use of the term going forward, especially as we approach the "cliff." After all, we are told that Social Security, Medicare, and Medicaid are bankrupt, when really all that is meant is that they have become quite expensive, and some would no longer like to pay for these programs.

That's a choice between our national debt and our commitment to certain citizens, it really has nothing to do with bankruptcy.

So then why use the term? And why is the term used so loosely? I think we have to concede that the term is still morally powerful, despite all the rhetoric in 2005 about the decline of bankruptcy's stigma.

When we use the term "bankruptcy" we refer to something that is wrong, and needs to be corrected right away. The key question is whether the term is also being use to dodge or obscure other, more important policy questions.

Comments

Prior to the 20th century, wasn't bankruptcy usually an ad hoc series of laws, tailed to the needs of the era, to unify creditors' collection actions vis-a-vis a debtor?

If we go with this general historical definition, rather than a reference to today's legal procedure which has claimed this name, what is happening to Greece fits well within the definition.

German media - like Der Spiegel - might use the term 'bankruptcy' loosely since the German language does not distinguish strictly between insolvency (the financial condition) and bankruptcy (the statutory procedure) - it's all called 'Insolvenz' (and until 1999 was called 'Konkurs' or 'Bankrott', the latter in combination with criminal conduct). It is only possible to speak of an 'Insolvenzverfahren' (insolvency procedure) to distinguish the statutory procedure from the financial condition (as it is done in the German insolvency statute/ 'Insolvenzordnung').

I agree with your argument that the term 'bankruptcy' still has the connotation of a moral wrong. In Germany many people and media do not use the new official term 'Insolvenz' - since it sounds (only) like economic failure - but still use the terms 'Konkurs' and 'Bankrott' to imply moral/personal failure or criminal behavior.

Professor, I was going to agree with you until I read the WaPo article you link to and I have to say, if they are right, then bankruptcy is more appropriate than I previously thought. The author of that article makes two arguments why those programs are not "bankrupt"; one is a part vs the whole argument: only the trust fund portions of the programs are insolvent, the rest are funded by general revenues. That's cold comfort because it does mean that the programs as a whole are still insolvent; the total insolvency may be less if you add in the solvent portions but total payouts still would exceed total revenues - maybe they're 95% solvent instead of 79% solvent, but the program as a whole is still insolvent.
The other argument strikes me as especially weak: the argument is that the insolvent programs will still make payouts, just not full payouts. The author seems to think that only a zero payout is "bankruptcy". This strikes me as ignorant. Obviously there are partial recoveries in bankruptcy cases.

I do think it is sound not to confuse bankruptcy as a legal process with bankruptcy as a financial condition. The former is a mechanism to deal with the latter, not the cause of it. Unfortunately, though, I think "bankruptcy" is a fairer characterization of the programs than the WaPo or this post believe.

Another word with a specific technical meaning, used more generally without regard to technicalities as a pejorative, would be: fraud. That one gets my goat.

JOH beat me to it.

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