Remember that debate? Many of you argued something like this:
You don't support your statement that "today's bankruptcy procedures
are ill-suited for disposing of a large financial institution in a
timely manner".
Mark me down for preferring a procedure that's established and known over some seat of the pants, unpredictable bailout.
Here is an update:
Lehman Brothers' European clients and creditors could have to wait
another two years before they get back billions of dollars of assets
tied up in the bank when it collapsed a year ago.
Tony Lomas,
partner at PwC and administrator for the bank's European operations,
said he had hoped to have "broken the back" of the case by this time
next year, substantially reconciling claims, returning assets to
clients and putting in place a process for paying dividends to
unsecured creditors.
He said it could now take two more years
after an English judge decided last month that he could not approve a
scheme of arrangement that would have helped hasten the winding up.
Lehman's
European business is one of the biggest and most complex parts of the
bank, with thousands of intricate investments, and client and trading
relationships that are still being unravelled.
"I had hoped to
break the back of this within 24 months but with the setback around the
scheme and other issues, a more realistic estimate is now 24-36
months," Mr Lomas told the Financial Times in an interview.
There is a reason why we should be afraid of putting large financial institutions into bankruptcy court as those courts currently operate. So many of you bash the Fed and the regulators, so few of you bash bankruptcy court. It's not always the "fault" of the court, these are simply difficult cases to unravel and resolve. But so far we're just not trying hard enough to improve bankruptcy procedures as they apply to Lehman and others.
Yeah, still not seeing the argument here. From a libertarian perspective I can only still favour the court route. Government bailout will always be arbitrary and would never have a free market alternative. Court system although currently messy, does have a free market alternative (and is currently – at least to some degree – ‘apolitical’) and using the currently messy system in principle may spur improvements in the legal system.
In essence: start as you mean to go on. Ideally we’d like a quick efficient court system based on the rule of law, the courts – not government – seems the logical place to start for this.
I may have missed similar arguments on this before and this is a quick n dirty post so apologies if this is old hat.
Do as I say and I will keep you out of bankruptcy.
Or, do as I say or I will keep you out of bankruptcy.
I’m sorry, I thought you could link directly to a comment – my fault.
You are making good points, Tyler.
So many of you bash the Fed and the regulators, so few of you bash bankruptcy court.
The entire system is fucked up and nothing is being done that will reverse that. Happy?
If the process in bankruptcy courts is long and complex isn’t that an incentive for the parties to quickly settle outside of court? Why is that bad or is it even better then government intervention?
Why wouldn’t secondary markets form to buy the assets today, at some discount. It works for collection agencies and in other markets.
I think Tyler underestimates the power of markets. Worse, I think he underestimates the power of the government to deepen the crisis as groups try to game the government.
In the Chrysler bankruptcy, the administration favored the UAW and treated the secured creditors worse than they should have been treated under the bankruptcy code, for political reasons. It’s a bad precedent, but not a horrendous one. But what it this is just the first step. Substituting a bankruptcy process that is bound by the rule of law into a bankruptcy process that is largely driven by politics is a bad thing for the economy. Investors have charge much higher interest rates to help protect themselves from the politicians.
Down this road lies a banana republic, where one’s rights depend on which politicians one supports. This is, to quote a fine economist, a place “[W]here Politics Don’t Belong”.
A foreign court bungling a bankruptcy isn’t a great argument for bailing out large corporations with money taken from unrelated parties.
When investors make decisions bankruptcy law and the risks associated with it are taking into account and are predictable. These investors also only risk their own money.
So because Europeans are having a hard time processing Lehman’s European assets, its a good thing that the US government guaranteed 100% of AIG’s counterparties’ bets? I don’t think the logical chain is a s strong as you imply.
Also, remember that some or all of Lehman’s operated on the presumption that they would be bailed out and did not proceed with normal pre-liquidation efforts. With my own eyes I watched major banks trying to sell assets to willing buyers (at cut rate prices) but then pull back and hold those assets when TARP was being outlined. The promise of the bail-out changed behavior from trying to stave off bankruptcy (which also makes bankruptcy easier) to a total seizure on the expectation of a bail-out.
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