12 February 2011
Allister Heath on why banks should go bankrupt in the same way that airports do
Brian Micklethwait

Buried in the middle of this excellent piece by Allister Heath about the top ten causes of the banking crisis is a fascinating point (number 3) about transport (and also energy) infrastructure:

3) There was no bankruptcy code for failed multinational banking groups. Regulatory stupidity meant that they were treated like ordinary firms: the choice was either a disorganised collapse, or a bail-out. Other network industries – airports, nuclear plants – have long operated under special bankruptcy codes, ensuring an orderly wind-down and handover of assets. Unlike every other private businesses, big banks knew they would never be allowed to go bust. So they took too many risks and leveraged themselves to the hilt, to maximise returns on capital (and hence profit and pay); while lending criteria were slowly loosened.

I thought that was interesting when I read it.  Antoine Clarke picked up on this point also.  “I never knew that” says Antoine.  Me neither.

So, what are those “special bankruptcy codes” that are in place for big airports (I’m guessing not for all airports), but not for big banks?  Anybody know about that?

It’s an important issue, because the fact that airports, railway networks (and energy supplies) must be “protected” by the government - must, basically, be kept going no matter what - is one of the big arguments against the private ownership of such enterprises, with all the competitive benefits that this brings to customers.  Maybe it isn’t true that such things “have to be kept going”. But almost everybody thinks it is true.  So that opinion has somehow to be separated by libertarians like ourselves from the argument about private ownership.  That hasn’t happened with banks, but has with airports.  How?


  1. Do airports etc have special bankruptcy arrangements? Did railways in the past?  Actually, I am struggling to think of a railway that ever went bust.

    Ah, Penn whatever it was.  That went bust in about 1968 under the weight of the Federal Commerce Commission’s regulations.

    But other than that by and large they kept going.  Even companies like Great Central and many of the tube lines that never really made any money.

    And I’m pretty sure that there were no special arrangements for banks in the past either.  Which meant that people had to be careful.  And, for the most part, were.

    Posted by Patrick Crozier on  13 February 2011 at 12:34 am

  2. I think there is a chance he meant to say “airlines” and typed the wrong word. Airline bankruptcy is a pretty common event, and bankruptcy codes certainly do exist to deal with it. Major airport bankruptcy - I can’t think of any, and in truth most airports are probably still owned by government of one sort or another. If privately owned airport goes bankrupt, it probably usually gets nationalised in some messy manner, I would think.

    Posted by Michael Jennings on  14 February 2011 at 05:26 pm

  3. Actually, thinking about it more, he possibly did mean airports, but I still can’t think of any examples.

    Posted by Michael Jennings on  14 February 2011 at 05:27 pm

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