Well, it’s good to see that free market Capitalism is alive and well, somewhere.

Liquidation is a form of bankruptcy. The assets get sold, and the proceeds are used to pay off the creditors, bondholders, and all liabilities, including torts. If there is anything left, it is split up among the shareholders. Usually, there isn’t anything left, which is why almost all companies buy insurance. However, if there is sufficient insurance, the company will be dropped by the insurance company, and the business will not be able to buy (or afford) new insurance. Which will in effect, put the company out of business.

Usually, the way it works is: When the business was originally financed, there was most likely a down payment on the loan. Over the years, the value of the property has increased, and part of the principle has been paid back. Therefore, the bank can afford to “take a hit” on the liquidation price. In other words, the bank can sell the property at less than its value, and still make out. The new buyer will get a discounted price on the assets. The difference between the value of the assets, and the price paid, can be used to purchase more capital goods, improve safety conditions, and hire more workers. That’s the way Capitalism is supposed to work, and why asset deflation isn’t necessarily a bad thing. In fact, it can be quite good, except for the original shareholders. But that’s part of the “risk” of owning a business, and why business owners want to avoid bankruptcy. It keeps them “honest”.

Problems arise when the government gets involved, and tries to “bail out” failed businesses. That’s called “moral hazard”. All you Krugnuts should be familiar with that term.