BANKRUPTCY IS VITAL TO CAPITALISM

Bankruptcy is an orderly way to give an overburdened debtor a fresh start and to decide which creditors get paid back and which don't. As Nobel laureate Joseph Stiglitz teaches: bankruptcy is a way to cope with those times when markets fail to allocate capital wisely and monitor its use. Currently, America is relearning that old lesson, says the Wall Street Journal's David Wessel.

In good times, bankruptcy is a way to encourage risk-taking. After all, an economy in which everyone fears trying something that might fail is a stagnant one.

Bankruptcy is not a death sentence. Yet, headline-making bankruptcies of several brand-name companies at a moment of severe economic crisis can so undermine confidence in the economy that avoiding them makes sense. But bankruptcy is the only way to prevent mistakes and debts of the past from hobbling an economy's future...

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