Bankruptcies can help save some businesses that need to be saved -- in the current climate, for example, the airlines. A reorganization, rather than a liquidation, keeps a vital transportation system above water, although it will usually wipe out bond holders. But, you don't want to take any risk, don't buy bonds. But, bankruptcies can also be evil.
This is a true story that I covered as a reporter. I actually couldn't believe it when I was first told about it. A construction guy in Minnesota bid on a job to partially remodel a bank branch. It was an expensive job, and to make things easy, he borrowed money from the bank to buy the materials to do the remodel. The calculation was simple for both sides -- borrow the money, the bank pays the construction bill, the loan gets paid back, less the contractor's profit. As the job was finished, the bank essentially went bankrupt -- it was taken over by the government and the assets sold to another banking system. The new banking system refused to pay the bill. They took over only the assets, not the liabilities. But because they took over the assets, they demanded payment of the loan. When the contractor suggested he might take back the remodeled stuff, the bank called the cops, reporting the contractor's comments as a threat. So the bank got a free remodel and demanded to be repaid the loan. The deficits were simply written off by the government and nobody got anything. I never found out how this all came out...there was some court stuff, but all I heard later from a friend in the area was that the outcome was "sad."
