Bankruptcy Is Capitalism: Why Failure Does Us Good

I hope you didn't let your guard down after the bank stress tests. This morning, we learned that BankUnited is the largest bank failure this year. Federal regulators seized the Coral Gables, Fla., institution at a cost to the FDIC of $4.9 billion. BankUnited is actually the second-largest bank to melt down -- top honors still go to IndyMac Bank, which cost the FDIC approximately $11 billion last summer.

NPR's "This American Life" recently did a great story that lays out the nuts and bolts of an FDIC takeover. Failure stinks, but it's an important part of the business cycle. A recent editorial comment in the Financial Times explained perfectly why failure and bankruptcy should be embraced rather than avoided:

Companies that gamble and lose must be disposed of through bankruptcies that do not drag others down with them. Bankruptcy is capitalism: it makes you bear the costs of the risks you choose to take on.

Jill Schlesinger

Jill Schlesinger, CFP® is the Emmy-nominated business analyst for CBS News. She covers the economy, markets, investing and anything else with a dollar sign on TV, radio (including her nationally syndicated radio show), the web and her blog, "Jill on Money." Prior to her second career at CBS, Jill spent 14 years as the co-owner and chief investment officer for an independent investment advisory firm. She began her career as a self-employed options trader on the Commodities Exchange of New York, following her graduation from Brown University.

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