Revisiting Lehman

For reasons that I don't quite understand, Krugman has gone all upside Taylor based on a two year old post from Economics of Contempt, and DeLong has joined in the fun. Its kind of an undead debate.

The basic problem is that the parties are talking past each other -- some using Lehman's "bankruptcy" to mean its failure, whereas Taylor may be referring to the bankruptcy process itself. Maybe -- I'll admit I'm probably giving Taylor more credit than he deserves here.

BTW, here is my take on this general topic (via Dealbook).

Recommended Reading

For those following financial reform:  Paul Volcker dismantles the only respectable (i.e., not obviously self interested) argument against the Volcker rule.

Quote of the Day

In re Bank of America, N.A, 11-24503 MER, 2011 WL 2493056 (Bankr. D. Colo. June 21, 2011):

Since there is no allegation Bank of America is a railroad ...  the Court accepts Bank of America's representation that it is a “bank” for purposes of § 109(b)(2).

 

Private Equity Works on Its Image Problem

Bloomberg out with an interesting story about how private equity firms are buying single family homes at foreclosure to rent out. It surprises me that there is real interest in what remains a relatively small scale, highly heterogeneous asset. Previous attempts to achieve economies of scale in this area have been disastrous -- see Bank of America.

Caught up on this line again

Bank of America, OLA, and the problems of oversized financial institutions, up now on Dealbook.

And the Wind Blows Wild Again

I wade into the chapter 11 professional fee debate again, this time in the context of the UST's proposed guidlines for attorneys fees in big cases.

We Get a Chapter 11 Case!

The Supreme Court has granted cert. in RadLAX Gateway Hotel, LLC, a case involving the right to credit bid when a sale is done as part of a chapter 11 plan. The Code clearly allows credit bidding in 363 sales, but the courts had split on the issue in the plan context.

Don't Give Me Whys and Wherefores

Some initial musings on the ethics of chapter 11, over at Dealbook.

By the Side of the Ocean Headed for Sunset

My initial thoughts on American Airlines, here.

See the Wreckage and the Damage Done

I've been remiss about cross-posting my Dealbook columns, but my two most recent (here and here) focus on the Dynegy chapter 11 case. Dynegy entered chapter 11 after radically restructuring itself in an apparent attempt to preserve some value for shareholders, arguably at the expense of some creditors.

CDS Again

I want to draw about two trillion underlines under Alphaville's point that

we’d also like to know about concentration. That is, are there just a few counterparties out there that are big net sellers of Italy CDS or are there many? Which CDS have the most non-dealers involved?

Especially in light of this, where Jeffries reports that it has

no meaningful net exposure to European sovereign debt.

(emphasis mine).

 

N.B. It now appears that Jeffries' has primarily hedged by short selling, rather than CDS, but whenever we see a "net" number, we have to worry that the problem simply moves to another location in the system.

Two worlds and in between

A discussion about why nation-by-nation bankruptcy fails when dealing with global enterprises, here.

Predicting the Next Chapter 11 Wave

A great chart over at the Economist breaks down moves in consumer spending by industry, perhaps giving us some insight over where the next chapter 11 cases will come from, at least in the broadly defined retail sector.

For example, the big decline in restaurant meals is totally consistent with the recent wave of mid-level dining chains in chapter 11 (think Friendlys, Claim Jumper, Chevys, etc.). But before you go predicting a bunch of tobacco companies in chapter 11, be sure to think about international sales ...

A lighthouse keeper in the desert sun

Thinking about the return of the Delaware/SDNY venue debate and the bankruptcy court's decision to deny appointment of a trustee in the case of bankrupt solar panel maker Solyndra, up now at Dealbook.

Now you know better than that, I said

Over on Dealbook, I look at a fight between Lehman and Deutsche Bank regarding classification of a claim Deutsche Bank bought from Lehman's German estate, and then partially sold to some hedge funds. The stakes are only four or five cents on the dollar -- on a claim of several billion dollars.

BTW, I'm now writing on Dealbook as the "In Debt" columnist, with all my past columns available under that link. But you can also find them all right here on Credit Slips -- and you only get the interesting titles over here.

Love lost, fire at will

Over at Dealbook, I take a look at the fight among tranche members in the case of a CDO that is in chapter 11 in New Jersey. Yes, that's not suppose to happen . . . which is what makes it so interesting.

Really?

Harrisburg filed its chapter 9 petition via fax?

SemCrude Again

The SDNY requires mutually too, according to Judge Peck.

Do you feel the same?

Over at Dealbook, I look at the very different treatment awaiting unsecured creditors of Countrywide, depending on whether they are bondholders or tort litigants.

Everybody got a reservation

Over at Dealbook, I explore the parallels between the Penn Central bankruptcy case of the 1970s and the chapter 11 cases arrising out of the financial crisis, like Lehman and WaMu.

Some Wild Idea in a Big White Bed

Over at Dealbook, I take a look at the obvious solution to the Greek situation and the chatter regarding a sovereign bankruptcy procedure.

Safe Harbors Gone Wild

Yesterday's decision from the District Court court in the Madoff-Mets litigation is yet another example of why Congress desperately needs to revisit the safe harbors which exempt a host of financial transactions from the workings of the Bankruptcy Code (in this case, the Code as incorporated into SIPA).

The opinion is available here, but briefly, Judge Rakoff blew a giant hole in the trustee's suit against the owners of the Mets, dismissing all claims based on preference and constructive fraudulent transfer, whether under the Code or New York Law. The basis? Section 546(e) of the Code, which provides 

Notwithstanding sections 544, 545, 547, 548 (a)(1)(B), and 548 (b) of this title, the trustee may not avoid a transfer that is a ... settlement payment, as defined in section 101 or 741 of this title, made by or to (or for the benefit of) a commodity broker, forward contract merchant, stockbroker...  in connection with a securities contract, as defined in section 741 (7)...  that is made before the commencement of the case, except under section 548 (a)(1)(A) of this title.

Madoff was a stockbroker, in the loose sense that he was registered as a stockbroker. We now know that he was not actually doing any stockbroker like things for his investors. The Judge does not look into the definition of stockbroker in §101(53A) of the Code -- I think there might be an argument Madoff didn't meet it -- and moves right to the analysis of whether the transactions involved securities contracts and settlement payments.

Of course, there is no real reason to apply the safe harbors to this case. Madoff's transactions are not going to disrupt the financial markets if they were subjected to avoidance actions -- there was essentially no link to the financial markets whatsoever. But the Judge went with the planing meaning of the statute, which contains no such common sense exception. Hence the need for Congress to get involved.

Let's Get the British to Pay!

For those of you following the Greek default "situation," I highly recommend Macro Man's take on the latest plan, which explains why this is not apt to make it very far. In short, it would involve British support for the Euro, which I seem to recall they are not part of. And it would hurt the UK's credit rating. The man at the left is skeptical.

Believing Pain and Fear Outside

But this whole living will thing actually has a way to go -- my latest Dealbook column, up now.

Oh, Just Stop!

Many have chided the financial press for the need to write entirely speculative articles about the prior day's market movements. But at least the financial press can be (somewhat) forgiven for their sins on the basis of tradition. What would the FT do with that big space on the back of the first section if it were otherwise?

But now the Washington crowd is getting in on the act and it must be stopped. The Hill's On the Money blog manages to commit two sins of casual empiricism within the first three paragraphs of their piece on the market's reaction to the President's jobs speech. First they say the markets "plummeted" in reaction to the speech, and then, conceding that there might have been other factors at work (say, maybe this), they conclude that "Obama’s speech had little countervailing effect."

So either they are doing a very sophisticated event study here, or they are just making stuff up. How precisely, do we know that the markets did not go down less than they would have without the speech?

Grrr.

Saab in New York?

So the Swedish court's decision to deny Saab's reorganization petition gets me wondering if the company might not decide to file a US chapter 11 case. The only problem is that, best I can tell, Sweden has no provision for recognizing a foreign insolvency proceeding domestically. Thus, like most of these foreign chapter 11 cases, the proceedings would only bind international creditors (i.e., financial institutions) and that may not be enough to solve Saab's problems.

They should have never given up on those hatchbacks.

Credit Bidding in the Supreme Court?

My latest Dealbook post deals with the circuit spilt that has developed with regard to a secured lender's right to credit bid when a sale is conducted as part of a plan.

Some Thoughts on Chapter 11 Venue

So Adam has come out in support of HR 2533, a bill which would force corporations to file in the jurisdiciton of their corporate headquarters. Just to lay my cards on the table, I generally think that we (the chapter 11 community) waste a lot of time worrying about venue, and that the putative evils of "forum shopping" are massively overstated.

But I wanted to comment specifically on a point that Adam raises:  the notion that chapter 11 would be "cheaper" if corporations filed in their "home" jurisdiction.

CDS News

I've got a Dealbook post up about an interesting dispute that has cropped up with regard to the definition of "Bankruptcy Credit Event" as used in the ISDA CDS definitions.

Keeping Up With

For those Slips readers who are not regular Bloomberg people, I highly recommend today's bit from Bill Rochelle about the 5th Circuit's recent bankruptcy decisions, and the role of Chief Judge Jones.

Extra Stern

For those of you on the West Coast and others who are not obssessing about the huricane, I give you some further thoughts on the Supreme Court's decision in Stern v. Marshall, this time in the context of the Inkeeper's chapter 11 case. Up now at Dealbook.

Summer's Over

And I'm back up on Dealbook, this time about the Greek-Finnish fiasco.

Stern Consequences

The folks at the Weil bankruptcy blog do a great service in summarizing some of the initial consequences of the US Supreme Court's Stern v. Marshall decision. Suffice it to say, Mr. Chief Justice Robert's optomisim may have fallen. At the first hurdle.

Sarah Woo

I am sad to report that my co-author, and recent Credit Slips guest blogger, Sarah Woo of NYU recently passed away after a long illness. She was one of the few who easily bridged the devide between banking and bankruptcy, and will be missed.

Why I Was the Skunk at the Party

Yesterday's hearing -- my Dealbook on it here -- was clearly all about political posturing: the Democrats are defensive about Dodd-Frank, rightly afraid that any change to it becomes a chance to repeal or gut, while the Republicans too often veer off into some free market rhetoric that really makes no sense when you are talking about financial institutions. Since when have banks been subject to the free market? Even pre-Fed they were (at least theoretically) under State oversight.

So basically neither side wanted to hear what I had to say.

But as is so often the case, Alan Sloan comes through with some clear thinking on the matter here.

OLA and Too Big to Fail

I'm off to D.C. this morning to talk with the House Financial Services Subcommittee on Financial Institutions regarding my thoughts on Dodd-Frank’s Orderly Liquidation Authority. My written testimony is here.

Still Not Working Abroad

I've previously posted about my frustrations at being stranded abroad without a functioning credit card -- particularly at train stations -- and the refusal of American credit cards to adopt a technology that has been in my building laundry room for years.

So I was quite excited to read in this morning's Times that Chase has begun to offer "chip and pin" cards. As Katie has previously noted, I use a Chase British Airways Visa. So I called them up all excited, hoping to get a card before my summer family vacation, only to be told that only private banking clients were getting chip and pin cards.

The customer service agent seemed entirely perplexed when I said "your loss." The inability to get somebody to supply a product that consumers demand is almost enough to undermine my faith in the invisible hand.

Oh Swell

Alphaville has a very important post on AIG's attempt to gross up its ROE post-bailout.

Financial Distress in Vietnam

Perhaps in honor of next week's triple-i conference, this week's Dealbook column discusses a vexing Vietnamese debtor.

Debating Madoff

Andrew Ross Sorkin and I debate the Madoff/Divorce/Paul Weiss thing in the comments to this post over at Dealbook.

BTW, I do agree with Andrew about the pro bono point that Felix Salmon brought up -- this is not really pro bono work, rather a benefit that all employees of big firms get (even the associates, to some degree:  for example, coop closing are done by "in house" people.). Of course, one might wonder how much family law experience the folks at Paul Weiss actually have . . . 

Good Bank/Bad Bank, and Duties to Creditors

Up now, at Dealbook.

Greece, et al Explained

Over at Alphaville, in a funny little video from the EU Parliament. But as Alphaville notes, who knew sovereign debt restructuring had rules? Somebody should have told Argentina.

Recommended Reading

As I await the arrival of this semester's exams, and all the fun that those will entail, I'm getting caught up on my reading. The best of the bunch thus far is Emily Kaden's history of the Pitkin Affair, which appears at 84 Am. Bankr. L.J. 483 (2010), and online here. Having read a lot of bankruptcy history, I was generally familiar with the plot, but Emily presents the definitive history of the entire episode, which is so often referenced, but not explained, in latter histories of English and American bankruptcy.

You Too Can Be a Distressed Debt Investor

Even unintentionally. My local Duane Reade drugstore is selling Borders gift cards. And this just days after Bloomberg reported that Borders had not found anyone interested in buying more than little bits of the company.

The Stuff Dreams Are Made Of?

Some further thoughts on Dodd-Frank's title II, and the FDIC's mock resolution of Lehman, up on Dealbook.

Equal Time

I'm not going to engage in a tit for tat on this, but Slips readers should know that the FDIC's general counsel has seen fit to respond to my most recent Dealbook post on Dodd-Frank resoultion authority. The tone suggests that I might have hit a nerve.

Imagaining a Lehman Resolution

My review of the FDIC's report, up now on Dealbook. The punchline:

So, you see, if you assume very stable asset values during a financial crisis and a buyer that is quite generous, it is quite easy to get to a very high recovery for creditors. Unfortunately, Weil and Alvarez have to deal with a somewhat different reality.

FDIC Doubles Down on the Safe Harbors

In a little noticed footnote in the FDIC's recent report on a hypothetical liquidtion of Lehman under Dodd-Frank resolution authority, the FDIC states

The exemption from the automatic stay under the Bankruptcy Code in the case of qualified financial contracts generally works well in most cases. However, for systemically important financial institutions, in which the sudden termination and netting of a derivatives portfolio could have an adverse impact on U.S. financial stability, the nullification of the ipso facto clause is needed. By removing a right of termination based solely upon the failure of the counterparty, the bridge financial company structure provides the flexibility to incentivize quali- fied financial contract counterparties to either maintain their positions in such contracts, or exit their positions in a manner which does not jeopardize U.S. financial stability.  

Nice. In short, don't even think about trying to get special treatment when we're in charge, but have at it in front of the bankruptcy judges.

The Costs of Regulating Derivatives

So the outgoing chair of ISDA complains that banks will have to pass on the costs of Dodd-Frank to end users of derivatives. Undoubtedly the usual crowd -- primarily the WSJ op-ed page -- will run with this evidence of yet another hit to American competativenes coming out of Dodd-Frank.

But maybe we could stop and consider if this simply means that users of derivatives will now incur the true costs of their trades, and will no longer be subsidized by the Treasury.

The Problem of the Week

No, not the Red Sox.  Dueling chapter 11 plans, of course.  Up now on Dealbook.