Instant Brands filed for bankruptcy. Here's why that’s not necessarily a bad thing
Why it matters: There's still a stigma to bankruptcy, even though it's a crucial part of what keeps capitalism vibrant.
The big picture: There is a world without leverage where the company making Instant Pots would be very profitable when many were sold, less profitable when fewer were sold, and would never risk bankruptcy.
- In reality, Instant Pot's owners borrowed hundreds of millions of dollars and spent a significant chunk of that money on R&D, developing new products and employing lots of people in the process. (A lot of it, of course, they just spent on buying the company in the first place.)
- This was a high-risk strategy, and like many high-risk strategies it failed. By borrowing money from banks, however, Instant Brands helped to create new money, new jobs and new potential sources of future profits.
- Post-bankruptcy, Instant Pot will continue to make its product. Its parent company continues to pay employee wages and benefits in full, as well as its vendors, suppliers and distributors. The only obvious losers are Instant Brand's shareholders and lenders.
The bottom line: Economic dynamism requires risk-taking, and it's worth celebrating, rather than castigating, the companies that do it.