From The Deal :
Why can't bankruptcy procedures be used? After all, bankruptcies have grown more efficient and faster over the last decade or so -- as witnessed by the speed with which Lehman, Chrysler and GM were resolved (of particular note: It's far easier today to sell assets out of Chapter 11 than in the past). The big obstacle to using bankruptcy, beyond the conventional wisdom that they're not appropriate in finance, is the fact that previously unregulated derivatives have long had an exemption from the stay that bankruptcy applies to other contracts. In other words, if a bank or financial firm declared bankruptcy, counterparties could seize collateral or break contracts. Change that rule, Skeel says, and create a stay on derivatives of three to five days, and you will provide financial firms the chance to avail themselves the option of insolvency, thus allowing creditors a say in the process and avoiding the rigid Dodd-Frank bias to involuntary liquidation. That said Skeel is not optimistic that the political will exists to make even that simple change. Nonetheless, this is both an informative and provocative book that, whether you agree with it in its specifics, still poses the kind of clarifying questions that have been missing from the debate over financial reform. It's not so much a matter of big banks versus small banks, utility banks versus universal banks, investment versus speculation. It really is a question of how we accommodate a modern, global, complex and innovative financial sector into a democratic political system. The corporatist model that Skeel describes has its benefits; after all, the Europeans have been using that model for many decades. And, if you decide that a mature, developed economy requires large, sophisticated banks, it may be the only way to accommodate the danger they pose. (There are a lot of countercurrents here: The Europeans have been drifting away from bank-centric economies over the past decade.) But as Skeel argues, the New Deal took a clearly Brandeisian approach to the banks, despite the creation of a large regulatory state. Measures like Glass-Steagall were designed to reduce the power and potential toxicity of the big banks. Indeed, the passing of those New Deal bank restraints inevitably created the conditions for a greater corporatist partnership -- a partnership, Skeel adds, that under normal conditions will tend to tilt toward the private sector
(Link to Complete Article Here and More Here)
(Image: Wiley)
