No matter who “won.”
Anyone who knows the phrase “think at the margin”—with or without the differential calculus and comparative statics—would have predicted that the Bankruptcy Bill (a.k.a. The Ken Lewis Retirement Subsidy Act) would damage to the economy when it was least able to survive the damage.
What no one knew for certain was how much:
According to [a BusinessWeek] article, this year, 15 retailers with assets of $100 million or more have filed for Chapter 11 protection, and almost all that filed in the first three months of the year have rapidly liquidated. Compare that outcome with Professor Lynn LoPucki’s research showing that in the 20 years prior to 2005, only 41% of the 94 retailers that filed for bankruptcy went out of business, with Kmart, Winn-Dixie Stores, and Macy’s being among those that emerged successfully from the process.
The difference between retail sales and banks is that there is no “Fed discount window” for retail. Indeed, quite the opposite:
All filers are covered by the new bankruptcy law, but the changes were particularly harsh on retailers. For companies that already are short of cash—and, in the current environment, unlikely to find new financing—these new provisions in the law can amount to a death sentence. “Liquidity is sucked out of the debtor in a way that it becomes hard to survive,” says Lawrence Gottlieb, chair of the bankruptcy and restructuring practice at New York law firm Cooley Godward Kronish, who has represented creditors’ committees in the bankruptcies of Sharper Image and Linens ‘n Things.
The idea of being able to borrow from the Fed is that that money then gets put back into circulation, supporting the economy (think “multiplier effect”). Otherwise, it just becomes inflationary. Which appears to be what is happening.
It was bad enough that consumers (most of whom file bankrutcy after health events, which may or may not be associated with a loss of employment) face a tougher row to hoe; the gaping holes that used to be large retail stores (think CompUSA) will be even more difficult to fill.
Many of the “mall owners, suppliers, and utility companies” who wanted the changes in the corporate bankruptcy bill made may be thinking of the old proverb: “Be careful what you wish for. You may get it.”