American Airlines Bankruptcy

American Airlines Recently, American Airlines filed bankruptcy protection in order to allows it to continue operating. While bankruptcy for a company or a person is not looked well upon, it seems that there is a double standard when the operation of private companies is compared to methods used by the U.S. Government to stay afloat, such methods may also look askance at its extreme measures to remain solvent and to continue operating.

Despite the negative connotations in bother instances, almost any issue contains pros and cons and balancing them will hopefully provide us with a good solution. Analysis-Comparison and Contrast The Chapter 11 bankruptcy that was announced in November of 2011. Its most recent incarnation has entailed the announcement of 14,000 staff cuts in order to cut costs and chart a way out of bankruptcy (Hicken, 2012). Unfortunately for American airlines, it almost seems that the biggest con they should have considered was not changing the company name to General Motors.

GM merited a bail out, but American Airlines did not. Seemingly, since Chrysler also had to go into Chapter 11 restructuring, the industry type does not seem to be the issue here. It seems simple politics is in the game, while only some companies have to tighten their belts (Gregory, 2012). Others can get bailed out by the federal government. However, in a more straight forward way, the federal help might have hurt GM as much or more than it did the taxpayer.

Being under federal tutelage has left GM unable to borrow and with high labor costs, a problem that both Chrysler and American Airlines do not have to deal with (ibid.) If a Chapter 11 declaration is voluntary (as American's was), then it does not mean liquidation, but reorganization. Then, it can renegotiate contacts, debt repayment and a number of other issues that hopefully will allow the company to get back on track. Only secured creditors' claims are considered.

There is an automatic stay on all non-secured debts collections, lawsuits, foreclosures or repossessions. The time that the organization buys for the company is usually just the amount of time it needs to reorganize and get back into healthy control of the company's operations (Dorward, 2012). Bankruptcy is really not an option for the federal government, although sometimes city's and municipalities declare bankruptcy. Unfortunately, a lot of bad things can come from deficits once they get too high.

However, the bond rating of the federal government can be downgraded just as well as bonds issued by private companies or city, county or state governments as the Standard and Poor's rating agency did in August of 2011. The reasons behind the Standard and Poor's rating would seem to self-evident. After all, a $2 trillion error in the calculation of the federal budget says quite a lot for itself.

One wonders how anyone could do anything other than to downgrade the federal debt, let alone how it stayed at the AAA rating as long as it stayed there. The downgrade to AA+ was the first time that the U.S. government bond rating was not at AAA in more than 70 years. At the stroke of a key on a key board, the cost for the federal government to borrow money increased by at least of tens of billions of dollars.

Unlike private or local, state, or city bond downgrades, it usually does not put an upward pressure on companies and consumers seeking mortgages, business loans and credit cards. Also, the downgrade had an immediate effect state and local bonds in the immediate Washington D.C. vicinity (Goldfarb, 2011). As bad as things may be on the con side in terms of what it costs for the federal government to borrow money, it can have pros as well.

Simply speaking, bailng out the banks, then financial markets would probably have done what they did in the early 1930s and we would be having a depression of a recession. It has introduced enough liquidity back into the economy for some recovery to start happening where people can start to at least talk about cuts ("Pros and cons," 2010). However, when investment houses like Goldman Sachs are given bailouts in addition to legitimate savings banks that loan money to businesses and homeowners, there is a problem afoot.

Certainly, Goldman Sachs probably has some purely savings accounts now, but this was not possible before the old Glass-Steagall act was finally repealed in 2000 with The act was replaced the Commodity Futures Modernization Act in the year 2000. Eight years and recession later, the U.S. economy is still hurting when the wall between regular banking and stock sales was removed ("Glass-steagall act (1933)," 2012). Only the reenactment of a version of the act will probably bring things back to what they were and reorganize the economy along rational lines.

Just as GM may not have deserved a bailout, it is this author's opinion that Goldman Sachs certainly did not. Conclusion.