A recent New York Times article about the size and complexity of GM's bankruptcy brings up an interesting point. The bankruptcy of GM is an event, not unlike the Olympics. Instead of the world's best athletes, there will be a gathering of elite legal professionals for a contest of wills.
The venue looks to be New York, rather than a more exotic locale like Barcelona or Tokyo, but the influx of lawyers, advisors, bankers, and interested parties will result in a financial windfall for many of the local businesses. There will be hotels to book, pizza to deliver, coffee to brew and, no matter what party comes out "best," drinks to serve. (Learn to scavenge for profits in Profit From Corporate Bankruptcy Proceedings.)
Unlike the Olympics, however, all the participants on the legal side will be taking home considerable awards while the host nation, GM, its investors, and its employees, will most likely end up leaving with less. With more bankruptcies to be expected, perhaps the time has come to invite cities to host the next big bankruptcy.
Each city could put together a package highlighting office space, transit routes to court, a full list of takeout and drinking establishments. There is, of course, the danger of bankruptcy becoming too much like the Olympics. Host cities could spend millions more in promotion and infrastructure only to find the actual revenue much lower than expected. This would be an economic double punch, debt taken on to host an event that destroys investment capital. (Unique investment opportunities are waiting to be discovered; read Looking For Profit In Privately Held Companies.)
Although the thought of starting a bankruptcy Olympics is laughable, there is a worrying amount of spectacle growing up around the concept of bankruptcy. We take a perverse pleasure in hearing about the biggest, just as we may sum up the process too nonchalantly.
GM, and Chrysler for that matter, were loaned investment capital on the good faith that they would pay it back as promised. They also made promises to their employees and shareholders. The bankruptcy will allow them to slough off those promises and continue on, no doubt making new promises along the way. Anyone that has borrowed money that was never paid back, or lost money because of someone else's mistake, can sympathize with what the bondholders, investors and employees are going through. If the government keeps its current course, the employees may come out close to whole from a bankruptcy, but political sympathy seems to stop there.
At the end of the Times' article, a professor compares bankruptcy and a stay in the hospital from which the patient leaves rejuvenated. The patient that leaves a bankruptcy is often smaller and healthier for it. What the metaphor fails to take into account is all the lenders and investors that have been amputated and left bleeding on the operating table. (For more, see An Overview of Corporate Bankruptcy.)