Bad Businesses Should Face Market Consequences

Editor, Washington Post

1150 15th St., NW

Washington, DC 20071

Dear Editor:

AIG Senior Vice President Nicholas Ashooh isn't afraid of special pleading. He writes: "It's hard to understand why anyone would suggest that it would have been better for American International Group (AIG) to file for bankruptcy court protection than to receive help from the Federal Reserve. Bankruptcy filings almost always result in no return to shareholders because creditors get paid first. And a bankruptcy filing for a financial services company such as AIG would have destroyed, not preserved, value for our shareholders." (Letters, Nov. 9).

Indeed so. But contrary to Mr. Ashooh's self-serving claim, the fact that shareholders suffer from bankruptcy is an argument FOR bankruptcy, not against it. Business owners who make poor choices should bear the consequences of those choices - both to reduce the likelihood of poor choices being made in the first place and, when such choices are made, to reallocate the resources of unprofitable firms to more productive pursuits. Free enterprise is a profit AND LOSS system. AIG went after profits unprofitably; its owners should pay the price.


Donald J. Boudreaux

Don Boudreaux is the Chairman of the Department of Economics at George Mason University and a Business & Media Institute adviser.