Clear and Present Bankruptcy

Clear, with the Airport Clear card that allowed users to bypass security lines filled with passengers in steerage, bit the dust on Monday. Verified Identity Pass, the parent company, was unable to come up with additional funding from their venture investors.

This is hardly a tragedy to most of us but a real inconvenience to the tens of thousands of people who bought and paid for the service. Clear never quite recovered from a suspension last year resulting from a loss of identity data. The bankruptcy raises concern about what happens to the extensive personal data that Clear gathered from their customers. But that may be the least of our worries.

Bankruptcies are are at record levels and expose consumers to yet another potential loss of credit and personal data. Do a search on "mortgage files in dumpster" to see what I mean - there are lot's of examples from now-bankrupt mortgage originators. Many bankrupt companies have a lot of personal data on customers. There is no way to obtain protection from an entity that has no resources.

The Clear bankruptcy got me thinking about just how many companies are going belly up or "reorganizing" today. Formerly blue chip names like GM, Chrysler, Bear Sterns, Lehman Brothers and Nortel are shocking enough. Throw in Eddie Bauer, Red Roof Inn, Visteon (the largest parts supplier for Ford), Washington Mutual, Extended Stay America, Sea Launch (the rocket launch company), Bally Total Fitness, TXCO Resources, Six Flags, Pilgrim's Pride, Philadelphia media Holdings (owner of the Philadelphia Inquirer and Daily News), the Rocky Mountain News, Debt Relief USA (I guess they couldn't help themselves), and of course Trump Entertainment Resorts. I could go on and on. And the outlook is grim.

According to BusinessWeek, just 18% of business bankruptcies are chapter 11, with the remainder facing liquidation. And this even before one considers consumer debt (thankfully declining) and bankruptcy, which is soaring.

Thank goodness the credit rating of the United States is "safe" according to Moodys. That is in contrast to State and Municipal Governments. See "Moodys Downgrades the Entire Country". Considering rating agencies track record it's more like caveat emptor when evaluating credit risk: If you invest or buy a service (e.g. Clear) do your homework. All of our many regulations failed to prevent or to forecast the current meltdown. So the solution is more regulation?

Despite all of the stimulus efforts there is no getting away from the fact that business production and profit is the only way we can get out of this mess. We need to be more efficient but we seem to be moving to a regulated economy and stagnation. Wall Street continues to be a gambling mecca and not a reliable marketplace for raising capital, which is its real purpose.

Risk is unavoidable in business. No amount of regulation can eliminate risk but the illusion that regulation will protect us can fool people into complacency. Ask a Madoff investor. 

Comments

[Mitchell Ashley]

Great title. I love it.