Congress Eyes New Power to Stop Big Bankruptcy Filings

According to a Wall Street Journal article, A House of Representatives panel recently voted to give the government power to break up failing companies before they file for bankruptcy and threaten the already strained economy.

The Wall Street Journal, and other outlets, highlighted the plan put forth by Pennsylvania Democrat Paul Kanjorski. He proposed the government create a council of regulators to review corporations in an effort to identify potential threats to the economy.

Then, the council could force the business to make changes to avoid filing bankruptcy or needing a government bailout.

For example, during their search for red flags, a company’s size could be an issue. The council could decide if the size is a potential threat and put a stop to any mergers or take-overs.

Or the council could intervene and make the company sell assets in lieu filing for bankruptcy and causing more devastation.

The House panel approved the amendment in a 38-29 vote. The majority of Democrats voted for the bill.

Those who oppose the amendment claim it gives to much control to the government and worry the power could be abused.

They see potential issues allowing the government to dissolve a company, and setting proper checks and balances.

But supporters looked at companies that have already filed for bankruptcy and the effects it has had. An example used by supporters was the bankruptcy of the Lehman Brothers.

The mortgage firm had been in business since 1850 when it recently collapsed, filed for bankruptcy and fell into liquidation.

Many credit lenders have filed for bankruptcy over the past couple of years, causing a trickle effect for those who need the loans.

According to a Reuter’s article, Europe adopted a similar this method to dissolve any companies that might cause problems for the economy. The European Commission approved restricting plans for big financial companies to avoid bankruptcy and threats to the economy. They are watching as many as 28 firms including Britain’s Lloyds Banking.

In the U.S, the FDIC already has the power to seize insolvent banks and dissolve assets to prevent economic meltdowns.

Although the House voted for the measure, it still needs to be reviewed by more committees and debated before it passes into a bill.