September 25, 2008
Economists Have Rediscovered Chapter 11, Sort Of
I am amused by the international economists, and many American economists, who suggest that a better solution to the bailout is a government directed reorganization of troubled financial institutions which, failing to raise cash, should be forced to swap their debt for new equity. Eureka! This, of course, is called Chapter 11 in the United States. Many foreign countries do not have such a procedure and think we should not have one either. Moreover, many in this country believe Chapter 11 to be seriously flawed. Indeed, if we cannot put our financial institutions into Chapter 11 because of time problems, complexity, hold-up value, contentious, inferior decisions makers, and so on the we need to reconsider Chapter 11 once we decide to avoid it with a government directed special version for the current crisis. In any event, it is academic, as Congress, Paulsen, and Bernanke are headlong bent on an inferior alternative, a massive government purchase of toxic assets.
September 25, 2008 | Permalink
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Many financial institutions, including banks and insurance companies, are prohibited from filing bankruptcy. 11 USC section 109.
Posted by: John Turner | Sep 25, 2008 4:08:47 PM