An arrogant view of insolvency? http://morganisteconomics.blogspot.com/2011/02/arrogant-view-of-insolvency.html I often speak with free market proponents and business leaders in relation to the debt problems and the inability to repay existing debts. When I do I am often surprised to hear their responses. So many of them simply say that people should go bankrupt and the free market will flourish because the failed entrepreneur will start again with a new successful business. To me this sounds ludicrous firstly because most of the people who are in debt are not entrepreneurs in any way shape or form. They are people that were lent money by banks knowing that it was unlikely that they could repay, with the simple intention that the banks could maximise their own profits by lending as much money as they possibly could. The reason banks make more money by lending is because it generates interest payments, which does not happen if the money is inactive in the reserve account, which in turn led to greater lending targets to increase profits. This led to people who could not realistically make the repayments being lent money purely so the banks could increase their profit margin. The second reason I am surprised by the responses of business leaders is the simple gravity of the debt crisis, and believe me it is a crisis. At present in the UK private citizens owe in excess of Â£1.46 trillion, remember this is the UK not the USA and this figure is equal to or at times in excess of the GDP. The shear level of bankruptcies required to clear that debt is insurmountable, not to mention the write-off of the value of the debt. Remember that one personâs debt is another personâs asset. Each debt obligation owned by the bank is another personâs life savings or pension pot or businesses investment portfolio. The fact that most free market supporters are not capable of appreciating the gravity of the effect on existing savers assets if everyone simply went bankrupt terrifies me. There is also little understanding of the effect on demand for goods. The money which is saved especially in pensions is used to provide an income for a large percentage of people, this income creates consumer demand. Once the debt contract is defaulted the repayments will stop and the income generated by the pension fund will also cease. In short the pension fund will collapse and consumption of pensioners will collapse with it. What is really needed instead of bankruptcy is way of making the repayments continue without default even if the repayments are less than they were before. By making the repayment structure flexible to the needs of the debtor (the person who owes the money) this could be avoided and prevent default of future repayments when the economy recovers. Perhaps there would be an argument for bankruptcy if the debtors were entrepreneurs and were likely to introduce new business plans. However most of the debt has been used to purchase individualâs domestic consumer goods instead of promoting business. This leads me to the conclusion that mass bankruptcy although likely would be very serious to the economy.