Somebody tell the Obama Administration!
Elizabeth Warren, bankruptcy policy guru and head of Congress's TARP Oversight Panel, and Jay Westbrook, also a bankruptcy bigwig, rebut the conventional wisdom that Chapter 11 reorganization cases drag out forever, cost too much, and rarely succeed. Quite the opposite: fully 70 percent of companies that are able to advance a reorg plan succeed in implementing it. And more than half the losers, who fail to reach that point, are booted out of court within 6 months.
The data are clear: bankruptcy need not and does not mean failure.
Is Chapter 11 perfect? Far from it. But nor is it the morass that proponents of alternatives--particularly proponents of government intervention in the private sector--claim. Of course, all bets are off when the government commandeers a bankruptcy proceeding to achieve its own political ends.
Update: And I would be remiss not to mention Kenneth Ayotte and David Skeel's excellent working paper, "Bankruptcy or Bailouts," which uses AIG and Lehman Bros. as examples to demonstrate that " Although bankruptcy is not always the optimal response to financial distress, it is more effective than is generally realized."