Feeds

5165 items (2066 unread) in 24 feeds

• Bankruptcy Litigation Blog (31)
• Bankruptcy and Restructuring Blog (15)
• Credit Slips (319)
• Bankruptcy Reader
• Georgia Bankruptcy Blog (178)
• SC Bankruptcy Blog (58)
• Bankruptcy Fraud Resource Center (24)
• theBKblog (46)
• Bankrate.com: Beating Bankruptcy Blog Headlines
• The Florida Bankruptcy Law Blog (62)
• New York Bankruptcy and Consumer Law Blog (32)
• Tech Bankruptcy (36)
• BankruptcyProf Blog (253)
• Total Bankruptcy (85)
• Bankruptcy Law Network - Real Lawyers, Real Solutions (623)
• Business Bankruptcy Blog (38)
• E-Everything for Bankruptcy Lawyers... (1)
• Bankruptcy Beach (25)
• Miami Florida Bankruptcy Law (65)
• A Texas Bankruptcy Lawyer's Blog (43)
• Chicago Bankruptcy Lawyers & Attorneys (11)
• Insolvencyblog.com (39)
• In The (Red) Business Bankruptcy Blog (25)
• Delaware Business Bankruptcy Report (57)

LEGAL DISCLAIMER:
Content contained on or made available through the Web site is not intended to and does not constitute legal advice and no attorney-client relationship is formed. By using the blog, you agree that the information on this blog does not constitute legal or other professional advice and no attorney-client or other relationship is created. The accuracy, completeness, adequacy or currency of the Content is not warranted or guaranteed. The opinions expressed at or through the blog are the opinions of the individual author and may not reflect the opinions of the firm or any individual attorney. Your use of information on the Web site or materials linked from the Web site is at your own risk.

Credit Slips (10)

• Scholar in Residence for American Bankruptcy Institute

  Posted: November 20th, 2008, 9:44am PST by Bob Lawless

  The American Bankruptcy Institute is inviting applications from academics to serve as Robert M. Zinman Resident Scholar for the 2009 Fall Semester. The ABI Scholar performs a variety of tasks such as advising congressional staff, testifying before congressional committees, speaking at CLE programs, and handling media calls. The Resident Scholar is expected to be in the ABI offices in Alexandria, Virginia for 3-4 days per week but has the flexibility to continue to teach a class. Jack Williams is the current ABI Scholar. Past Resident Scholars have included Marianne Culhane, David Epstein, Margaret Howard, Nathalie Martin, Jeff Morris, Mark Scarberry, David Skeel and Ray Warner. You can find more information about the ABI Resident Scholars, including a narrative of their activities from past Resident Scholars, is here. Anyone interested should contact ABI Executive Director Sam Gerdano.

• Thank you to Anna Gelpern

  Posted: November 18th, 2008, 10:21am PST by Adam Levitin

  As the first snow of the season swirls around here in Washington, I'd like, on behalf of the Slips, to thank Anna Gelpern for her guest-blogging tour of duty. Anna introduced us to some of the international aspects of the financial crisis, and we should be forever greatful for her linguistic innovation: "illinquency". Perhaps a financial institution will adopt as its motto the Gelpernian variation on the old Frankie Lymon doo-wop song: "I'm not a juvenile illinquent."

  Thanks Anna!

• Financial Architecture Summit

  Posted: November 15th, 2008, 11:35pm PST by Anna Gelpern

  The G-20 Summit to Save the World and Reinvent Finance produced a surprisingly meaty declaration and action plan.  At least one specific mention of bankruptcy: 

  * National and regional authorities should review resolution regimes and bankruptcy laws in light of recent experience to ensure that they permit an orderly wind-down of large complex cross-border financial institutions. *

  In general, the most interesting parts deal with regulatory reform.   

  Between now and the end of March, we could see important agenda-setting work on accounting, credit derivatives, capital, liquidity and regulation of financial conglomerates.  Regulatory harmonization and coordination are getting a massive boost.  The IMF may get a new lease on life.  Unsaid, the G-20 is ascending rapidly as the preeminent international forum for economic policy coordination.  This is key for crisis management, but also for reform going forward.  UPDATE:  As an aside, I am a bit puzzled at the negativity from all the luminaries in today's New York Times.  Considering transition timing, the size and diversity of the forum (G-20 vs G-7), the unreally short preparation fuse, and the huge, long-held disagreements among the participants, one might have expected a page of platitudes.  Now that would have been embarrassing.  Instead, I am impressed by the sheer number and specificity of regulatory items up for negotiation between now and March (even "private pools of capital" get a mention, albeit with a reprieve).  Did the Bretton Woods rhetoric cloud expectations?  Sometimes it is good to be a pessimist ...

• Contracts in Crisis: Variations in Z and S

  Posted: November 15th, 2008, 9:36pm PST by Anna Gelpern

  Luigi Zingales of Chicago GSB put out a mortgage modification proposal about a month ago that got a bit of attention, but deserves more even if it has no political prayer.  It is one of a genre -- advocating across-the-board contract change in response to a macro shock -- that has at least two other prominent exponents, Randall Kroszner and Joseph Stiglitz.  I am noodling this literature for a U. Conn. symposium paper.

  Zingales proposes legislation to allow homeowners to reduce the loan principal in line with the drop in home prices in their zip code from the time of purchase (as measured by Case-Shiller).  Creditors would get an equity kicker TBD.

  One of the versions of Zingales' paper cites to Kroszner's study of FDR's war on the gold clauses.  These had protected creditors from dollar devaluation by promising to pay the debt value in gold.  In 1933, the Congress declared such clauses unenforceable, which meant about a 40% principal haircut under most long-term debt contracts in the United States.  In 1935, the Supreme Court upheld the move outright for private contracts, and said no harm done for U.S. Government debt. Kroszner reports that both stocks and bonds rallied in response to the deleveraging; hence "it is better to forgive than to receive".

  Kroszner's project debuted in 1999, on the heels of the Asian financial crisis; its last version refers to Argentina's 2002 change of all dollar contracts into pesos after the peso dropped from 1:1 to 4:1 to the dollar.  Although many aspects of "pesification" were quite batty, Charles Calomiris credibly credits it with Argentina's quick investment recovery.  (OK, no Z in Calomiris.)

  Stiglitz's proposal with Marcus Miller for a "Super Chapter 11" is in many ways the mother of them all.  Miller and Stiglitz argue for "semi-automatic" debt reduction in response to a macro shock, for example, currency devaluation in excess of 40% (cf Zingales' 20% housing price drop trigger).  Indonesia, with its 90% devaluation and two-thirds corporate insolvency rate in 1998, helped inspire Miller-Stiglitz.  Their premise is that no peacetime system can (or should) handle this volume of insolvency, that valuation in such a crisis is meaningless, that the bulk of the firms were not bad or at fault, and that keeping the current owners and managers in place would help economic recovery.

  There are lots and lots of objections to wholesale modification, and lots of interesting design concerns.  There is a school of thought that blames the gold clause episode for ending the rule of law in the United States.  With rather more credibility, Argentine scholars argue that rewriting contracts every ten years is different from doing it every hundred.  There is also the moral hazard avalanche gestalt.  My point here is not to argue the wholesale modification brief, but to highlight its breadth and persistence in wildly different economic, cultural, and historical settings.

  Moreover, although the academic proposals occasionally sound stark, soft versions are pervasive.  After FDR but before Asia and Argentina, there was the Brady Plan, which effected "quasi-voluntary", substantially standardized debt reduction on the order of 40%.  You can find elements of macro-motivated wholesale contract rewriting in many of the initiatives to deal with the current debacle, including Hope for Homeowners and Sheila Bair's proposals.  Alan White (no Z, no S) is doing some very interesting work on wholesale mortgage modification today -- see here and the follow-on paper coming out in the U.Conn.L.R. symposium.

  Aside:  The conference for the symposium issue was exceptionally tight, insightful, informative, and occasionally provocative.  Professor Patricia McCoy at U.Conn. is amazing at pulling together lawyers, economists and policy types who think very differently in a way that brings out the best in all.
  

• T.A.R.P. R.I.P.: Illiquency Watch

  Posted: November 13th, 2008, 10:31pm PST by Anna Gelpern

  TARP's third incarnation as a consumer lending catalyst goes straight to my pet crisis peeve.  I am endlessly flummoxed at the authorities' insistence on throwing liquidity at a solvency problem -- with TARP I, AIG, and now, the consumers.

  I have ranted elsewhere about the perils of drawing a sharp line between illiquidity and insolvency in a financial and macroeconomic crisis.  While the bankruptcy world has moved beyond the distinction in important ways, it still dominates the crisis policy response.
  

  With the liquidity-solvency prism as their guide, policy makers invariably define the crisis as one of pure illiquidity/temporary confidence shock long past the point of credulity; the alternative is admitting failure with few tools to fix it.  We have ready medicine for illiquidity:  the Lender of Last Resort lends freely for a short term, preferably at high interest rates and against good collateral, to tie us over until the panic subsides.  This describes old and new Fed lending, for which we have standing authority, as well as key features of all three AIG packages, and TARP to date:  unlike the RTC, which took over failed S&L, TARP is either a money tap or a vehicle for parking "temporarily illiquid" assets in a government parking lot.

  In contrast, the medicine for systemic insolvency is large-scale debt reduction and restructuring, which may require legislation and is fraught with political risk, since it entails unpopular decisions about loss distribution.  Where the liquidity-solvency judgment is wrong or fudged (and it always is), debt relief is delayed, while losses are masked and maldistributed.  Unsustainable debt compounds, and with it, the fiscal cost of the ultimate fix.  Revisiting Japan's experience in the 1990s makes for uncomfortable reading.  I am becoming increasingly convinced that doing away with the liquidity-solvency prism and requiring restructuring sooner, in conjunction with liquidity support, makes good policy sense.

  On the bright side, this piece on the birth of the RTC feels oddly cheerful -- a reminder that we did not invent sausage-making in crisis.

• Do We Want More Consumer Lending?

  Posted: November 13th, 2008, 9:02am PST by Bob Lawless

  Yesterday, Treasury Secretary Paulson announced a major shift in strategy for the federal government's financial rescue plan. Treasury now would make $50 billion available for lending to companies making credit card, automobile, and student loans. The idea is to jump start consumer lending sector, although I am not sure to what end. There is no doubt that the consumer lending sector has frozen up along with the other credit markets. What concerns me is that the Treasury's latest plan seems an attempt to return us to the same policies that got us to where we are today.

  For those of us who grew up in the 1970s, the explosion of consumer debt is one of the greatest social shifts for our generation. Our parents borrowed but only episodically. Homeowners planned for a day when they would pay off the home mortgage and perhaps have a celebration where the mortgage document was burned. We were among the first college students who were able to get credit cards, but credit limits were low. As an undergraduate, I remember getting a Visa card so that I would have it for an emergency and being terrified about possibly being responsible for the $500 debt I could incur on it.
  

  We now live in a society where a segment of America is permanently indebted. Although estimates vary, the best available data suggest a little under half of Americans carry a balance on their credit card. Homeowners have borrowed out of their home equity and no longer plan to retire mortgage debt. As a nation, we now over $13 trillion on our credit cards, automobile loans, and home mortgages. Even after adjusting for inflation and the growth in population, that is more than three times the amount owed in 1980.

  I am not yearning for the good old days. A lot of good has come from increased access to credit markets. Rather, our borrowing binge always has been unsustainable in the long run, and the long run is here. We tried to have a housing policy on the cheap. Instead of paying to put people into homes, we let them borrow. We tried to have economic growth on the cheap, using consumer borrowing to pay for that growth. After the September 11 attacks, President Bush urged Americans to continue spending to keep the economy strong. The bills have come due for all this borrowing. In the documentary Maxed Out, fellow Credit Slips co-blogger Elizabeth Warren puts it in military terms, asking where is the exit strategy for all this consumer debt? The global financial crisis seems to be the  exit strategy that we have made for ourselves.

  With yesterday's news, my question for Secretary Paulson is to explain to us why we need to jump start the consumer lending sector. Sure, no consumer lending at all would be bad, but is that really the concern? Consumer lending has not completely dried up. Consumer loans are just harder to get, albeit much harder to get it in some instances. Why is that a bad thing? Is the Treasury's goal to return consumer lending industry to its go-go level before the financial crisis? If so, do we really want to continue to stimulate the economy with tomorrow's dollars rather than paying for it now? The bill will just come due again some other day. Letting the consumer credit markets to continue to founder will mean that Americans will borrow less, will own less, and will have lower economic growth in the near future. We will have to live in that world unless we want economic growth on the cheap today that our children will pay for tomorrow.

• International Financial Architecture: Dumb Chills and Opportunities

  Posted: November 11th, 2008, 11:00pm PST by Anna Gelpern

  I am grateful to Adam, Bob and Credit Slips for scheduling this guest stint on the eve of what is billed as the Grand Global Rethink of All Things Finance. This Saturday, November 15, the leaders of the Group of Twenty rich and developing economies will meet in Washington to talk about crisis and reform. Regrettably, the organizers’ absurd pretensions to the legacy of Bretton Woods have diverted public attention away from the substance of what is surely an important international effort at coordinating economic, financial and regulatory policy.

  Why should legal academics and debtor-creditor folk care?

  In the middle of the Asian Financial Crisis a decade ago, a similar group of countries launched a series of initiatives under the rubric International Financial Architecture. The name was much mocked, deservedly so. But the effort marked a period of unusual policy openness and innovation at the national, transnational, regional and international levels. Examples of crisis-driven “architectural” contributions include corporate and sovereign bankruptcy reform, regulatory networks and bodies such as the Financial Stability Forum, a quantum leap in transparency at central banks and international institutions, regional currency arrangements and high-level policy coordination fora such as the G-20, which is fast eclipsing the sad old G-7. Many innovations, especially on bankruptcy, had extensive input from academics. So – this could be our time … and since everyone has something to say on the right agenda for reform, here are my four cents.

  •  Poverty and Inequality. It would be a mistake to make this all about aid flows. The crisis comes at a time when poor people and poor countries are increasingly integrated in global finance. Migrant remittances are shifting to formal banking and payments channels; funds for microfinance in Bangladesh – and subprime mortgages in Ohio – come from the global capital markets, and even the poorest states, such as Ethiopia, have begun to develop domestic financial markets. To the extent such integration is desirable or at least unavoidable, what special protections, if any, should come with global finance for the poor? Who should insure the poor from financial volatility, and how?

  • Regulation. By now, it is trite to say that the crisis has exposed regulatory failure in banking, capital markets, and insurance, along with persistent shortcomings in national bankruptcy regimes. Yet Europe and the United States are at loggerheads over how regulation fits in the Rethink. There may be good political reasons for stalling, and reasonable arguments about the right scope and locus of state intervention, but skipping regulation altogether is bizarre. Agenda items should include a Basel re-do, the way forward for cross-border banking after U.K v. Iceland, revisiting resolution of global financial conglomerates in a big way for the first time since BCCI, harmonizing accounting standards, and revisiting derivatives regulation, including their treatment in bankruptcy post Lehman and AIG, as well as central counter party clearing. Apropos resolving conglomerates, see here a fine look at the end of Lehman Europe. We are all transnational now.

  • Institutions. Just yesterday, the International Monetary Fund was laying off staff; now it is lending up a storm. Whether the old Bretton Woods institutions are adequate to the day is an open question with a financial and a political dimension. On finance, the challenges are size, speed and complexity – the IMF is not a true global lender of last resort, and it is far from clear that it should be, absent real regulatory underpinnings. On politics, developing countries are still underrepresented in the Fund’s governance. Recent reforms have not brought about a major shift in public perception/legitimacy. The ascent of the G-20 marks the recognition that these countries are indispensable, and boosts the prospects of real change. Change may mean a bigger, better IMF, or a brand new set of institutions/fora weighted substantially to the erstwhile periphery. The fate of technocratic and regulatory fora such as the BIS and the FSF also bears watching; their lot can only grow in importance.

  • Investment. The effort to craft global norms for foreign direct investment collapsed in the mid-1990s with the OECD-based and dominated Multilateral Agreement on Investment. At the time, capital flowed from wealthy states in Europe and North America to poorer states in the South and East. Since then, the flows and roles have reversed. The rise of sovereign wealth funds is but one symptom. Is it time for a new, more equitable and legitimate, formal international regime? Should private and regional norms continue to evolve informally? What role for public-private hybrids, such as sovereign wealth funds, nationalized banks, and other latter-day inventions?

  Most architecture agendas also include a coordinated stimulus package. It is an important and sensible idea (though China has preempted some of the discussion), but strikes me as an item wholly apart from long-term financial reform – unless, of course, we see the establishment of new mechanisms for this sort of coordination going forward.  Finally, look here for a nice mainstream take on what should happen this weekend.

• Operation Repo

  Posted: November 10th, 2008, 7:48pm PST by Adam Levitin

  TruTV has a reality series called Operation Repo. Basically they follow around a crew of brawny, heavily tattooed auto reposessors (men and women) in the San Fernando valley. Drama and hijinks ensue.

  I'm sure they only show the more dramatic repos on TV (and I found the show strangely compelling, especially to see how a lot of the time the repo crew gets tips about auto whereabouts from disaffected family members), but what I was most struck by was how often the repos "breach the peace." People are routinely getting pepper-sprayed or shoved or put into headlocks as they try to stop the repo actions. Occasionally someone pulls a gun on the repo men, and they back off.

  My secured credit class spends a tiny bit of time on repos, but the show is a vivid reminder that practice and law (repomen can't breach the peace) are very far removed. I think it's safe to say that the law of repomen is law of the jungle.

• Welcome to Anna Gelpern

  Posted: November 10th, 2008, 7:33pm PST by Adam Levitin

  Credit Slips would like to welcome Anna Gelpern as our newest guest blogger. Anna is an Associate Professor of Law at Rutgers School of Law Newark; she has a joint appointment with the Rutgers Division of Global Affairs and is a visiting fellow at the Peterson Institute for International Economics.

  Anna writes about international finance and regulation, particularly sovereign debt and financial crises in developing countries. Anna's a particularly keen observer of the Treasury and Fed's efforts to deal
  with the current financial crisis, having worked in the Treasury Department in the late 1990s and early 2000s.

  Welcome Anna!
  

• Circuit City Bankruptcy Petition

  Posted: November 10th, 2008, 1:36pm PST by Bob Lawless

  Thanks to a Credit Slips contributor, the chapter 11 petition for Circuit City can be found here. The document includes the list of the fifty largest creditors. The case was filed in Richmond, Virginia, which is not known as a hub of corporate bankruptcy activity. I'll leave the comments open for readers who might have some insight on why this venue was chosen.