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Bailout For Circuit City?

With so much aid going to banks and the automakers, some investors ask, “shouldn’t Circuit City have gotten a bail out, too?”

As you might know electronics retailer Circuit City Stores  said on Friday it will liquidate its assets and shutter hundreds of U.S. stores after failing to reach a deal to sell the company.

U.S. Bankruptcy Judge Kevin Huennekens approved the plan to sell Circuit City to a liquidator group, capping a tumultuous year for the specialty chain.

Circuit City is one of the largest retail bankruptcies in the current U.S. recession. So why didn't the feds step in and help?

When considering how to use TARP money, “you have to determine what’s fundamentally risky to the entire system and what’s just a bad business,” explains Don Schreiber, founder and CEO of Wealth Builders Inc.

Turns out Circuit City was just a bad business.

“Circuit City was a weak franchise and as business conditions fell apart they went under. We should not bail them out. There is no fundamental systemic risk.”

In other words, the bankruptcy doesn't pose risk to the entire industry. (In fact it could be a boon for rival Best Buy.)

Financial news personality Dan Frishberg takes it a step further. He sees this bankruptcy as a test case for where to draw the line on too big to fail. “The industry will go on," he says.

In other words, letting Circuit City go under is the right way to do it and what we’ve been doing with cars and banks was the wrong way.

What do you think?

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