*The Origins of Corporate Bankruptcy. Railroads. *

Railroads were privately run in this country, unlike in many countries./nThere was a gold rush to control important railroad lines, a lot of mergers and cobbling things together, sort of like the telecom boom of the early 2000s and before then./nAnd whenever we had an economic crisis, a lot of the railroads would fail./nAnd when they failed, it created a very odd dilemma, which is everybody thought that we needed the railroads, they needed to be reorganized, they needed to be kept in place, on the one h./nBut it wasn't clear that there was a legal basis for doing that./nIt wasn't clear Congress could step in and put a railroad reorganization statute in place./nAnd the reason for this was there was a bankruptcy clause in the Constitution./nBut in the 19th century, a lot of people didn't think that applied to corporations./nThey thought corporations are governed by the states, not by Congress./nBankruptcy clause must not have corporations in mind./nAnd eventually, the argument lost./nBut it was a very serious argument for a long time./nAnd what ended up happening was Wall Street lawyers and Wall Street bankers cobbled up this incredibly ingenious use of ordinary foreclosure law and turned it into a way to restructure large corporations./nAnd what they did was when a railroad defaulted, some of the bondholders would ask the court to foreclose on their bonds, which had mortgages on railroad.