This is a joint post by Mark Weidemaier and Mitu Gulati
In a previous post, we talked about how ordinary corporate-law principles, and especially the rules concerning piercing the corporate veil, might play an important role in any debt restructuring conducted by Venezuela or PDVSA, the state oil company. As an example, we cited the fact that PDVSA doesn't own the oil reserves it exploits and the possibility that Venezuela might transfer the right to exploit these reserves to a new entity. Readers who have been following the Venezuelan crisis will recognize that we were not-too-subtly referring to a proposal floated back in October 2016 by Ricardo Hausmann and Mark Walker, writing on Project Syndicate. (Registration required.) In a nutshell, their proposal with regard to PDVSA is that Venezuela can induce PDVSA creditors to participate in a restructuring--conducted either in bankruptcy or through the use of exit consents--by withdrawing or modifying PDVSA's right to exploit hydrocarbon reserves. Essentially, that is, Venezuela can strip the company of its primary productive asset.
Continue reading "Stripping PDVSA's Assets" »
House Financial Services Committee Chairman Jeb Hensarling (R-Texas 5th) has an alternative fact problem. In a Wall Street Journal op-ed Hensarling alleged that "Since the CFPB’s advent, the number of banks offering free checking has drastically declined, while many bank fees have increased. Mortgage originations and auto loans have become more expensive for many Americans.”
The problem with these claims? They are verifiably false. Free checking has become more common, bank fees have plateaued after decades of steep increases, and both mortgage rates and auto loan rates have fallen. One can question how much any of these things are causally related to the CFPB, but using Hensarling's logic, the CFPB should be commended for expanding free checking and bringing down mortgage and auto loan rates. Hmmm.
Below the break I go through each of Chairman Hensarling's claims and demonstrate that each one is not only unsupported, but in fact outright contradicted by the best evidence available, general FDIC and Federal Reserve Board data.
Continue reading "Jeb Hensarling's Alternative Facts" »
(This is a joint post by Mark Weidemaier and Mitu Gulati.)
In November 2016, Klaus Regling, managing director of the European Stability Mechanism, announced that reforms were going so well in Greece that it would be able to return to the private debt markets by 2017. It's 2017, and neither the markets nor the IMF seem to share the sentiment. Yields on Greek bonds, already high, have increased, and the IMF has concluded the debt is unsustainable. Greece needs an infusion of cash to make a large payment due in July, but the private debt markets aren't willing to oblige.
What does Mr. Regling say? That the IMF (and, apparently, the markets) are wrong; that the ESM's long time horizon and Greece's relatively low debt servicing costs mean there is no cause for alarm (Financial Times, subscription required). Referring to the 174bn euros that the ESM and EFSF have already lent to Greece, he says: "We would not have lent this amount if we did not think we would get our money back." Implication: the IMF and the Euro area nations should lend even more.
Continue reading "Mr. Regling's "Alternative Facts" About the Greek Debt" »
This is a joint post by Mark Weidemaier and Mitu Gulati.
At least in the short term, the odds of Venezuela continuing to service its mountain of external debt are looking slightly better, though long-term prospects remain bleak. State-owned oil company PDVSA may be even worse off. A default or restructuring by one or both borrowers will raise issues that are typically peripheral in a sovereign debt crisis. If Argentina's pari passu saga tested the willingness of courts to approve novel injunctions, Venezuela's debt crisis will test the willingness of courts to disregard the legal fiction that corporations are separate legal "persons." That fiction means that a corporation's shareholders are not liable for corporate debts (or vice versa), unless a creditor can "pierce the corporate veil"--i.e., prove the shareholder abused the corporate form to engage in "fraud or inequitable conduct."
Continue reading "Veil Piercing When a Sovereign Owns the Shares; Venezuela Edition" »
If Trump is planning on attempting to remove CFPB Director Richard Cordray "for cause" he's hardly going about it in a smart way. The Trump administration keeps generating more and more evidence that any for-cause removal would be purely pretextual, which strengthens Corday's hand were he to litigate the removal order (as he surely would).
Continue reading "More Evidence that a For-Cause Removal of CFPB Director Corday Would Be Pretextual " »
When I heard that the President had nominated 10th Circuit Judge Neil Gorsuch for the Supreme Court, I wondered what his bankruptcy-related opinions might tell us about him. Bill Rochelle beat me to it, with his characteristically insightful analysis of a few salient Gorsuch opinions. But I found three more that I thought worth highlighting, as well. A simple takeaway from all of these cases is that Gorsuch is not at all what one might call “debtor-friendly.” In fact, I don’t think one of the dozen-or-so opinions I found ruled in favor of the debtor(s). But a more nuanced takeaway is that Gorsuch is a careful and serious jurist who will apply the letter of the law in tight and cleverly written opinions. At least he should be fairly predictable, a virtue that the person who nominated Judge Gorsuch does not share.
Continue reading "What to Expect From Justice-To-Be Gorsuch on Bankruptcy" »