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A major U.S. company declared bankruptcy on Monday, and another even larger company in the same industry that had come on hard times was bought by a yet larger company. We state the news on Lehman Brothers and Merrill Lynch & Co. in order to put this in context. American companies come and go, with catastrophic results at times for employees, shareholders, lenders and the general public. Enron, WorldCom, Digital Equipment Corp., Prime Computer and Data General were all major companies — some were household names. Their industries fell on hard times and redefined themselves, leaving shattered companies and lives in their wake.
Clearly the financial industry is in great trouble in the United States. Capitalism solves those problems by annihilating weak companies and clearing space for others to grow and for new companies to emerge. There is a term for this: “creative destruction.” It embodies the argument that, without the destruction of outmoded businesses, progress is impossible. It is interesting how badly damaged the old line brokerages have been. Merrill Lynch is an American institution that brought the stock market to the masses. Now something else will fill that space. If we knew what it was going to be, we’d be rich.
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