Buchheit and Skeel on Bankruptcy in the NYTs

Burchheit and Skeet have proposed a "modified" bankruptcy proceeding for large financial institutions in today's NYTs.  The government will "guarantee" all trading obligations for 60 to 90 days to enable companies to "prepare" for a Chapter 11.  It is loony, of course.  First, the government's decisions (or decisions as it considers whether to "role" the guarantee") are discretionary, political (talk to the ethanol supporters), and volatile.  The uncertainty will incentivize delay by the private section until the government declares (and changes its mind and re declares and so on).  Second, how does such a "guarantee" work?  If I were the company I would default on everything (counter parties cannot claim default but the company itself could declare that it could not pay, take government money, as much as I could, and then work out a deal.  Without government controls, the companies would game the government -- which means we must put government officials on boards and such -- conservator ship.  Conservator ships are a much better mechanism that this proposal, even though they have many, many flaws as well (see the Fannie and Freddie).  Another set of aacademics with a government based solution that is inferior to the processes we already have in place.