As GM declared bankruptcy yesterday much was being said about this American icon taking this step.

I recently heard on NPR a commentator talking about the derivation of the word bankruptcy. The word comes from the Latin bancus which means bench, and ruptus which means broken. A ‘bank’ originally referred to a bench. Bankers had benches so they could conduct business in markets and fairs – i.e. public places. A broken bench indicated that the bank was no longer able to do business. The Italians coined the phrase banco rotto – broken bank.

In Greece (around 1100 BC to 146 BC) if a man could not pay his bills not only did he end up having to work out his debt, but also his wife and children. This was really a form of slavery until the creditor received all the money he was owed. On the good side the debtor could not have limbs removed or his life taken, unlike regular slaves.

In America being able to set up one’s own business without Draconian reprisals was essential to encourage entrepreneurship. As a result, the concept of insolvency and debt restructuring came about to assist with remodeling the financial structure of the debtor, to enable them to protect, reorganize and continue with their business.

Apparently about 50% of bankruptcies work. We shall see what happens with GM.