The Current Paradox

I'm spending the week at the INSOL conference in Vancouver. I think it is important for academics to interact with the "real world" on occasion, to make sure that one's scholarship does not become too ivory tower. And the INSOL events are especially good since they provide a chance to interact with the global insolvency community.

But I have noticed that many of the panels could benefit from an "outside voice." In particular, during one panel I attended today two points were made:  (1) government intervention in the restructuring process increases uncertainty and makes life difficult for senior lenders in particular (lots of agreeing nods) and (2) because of "deleveraging," banks are essentially not making loans to distressed companies (more nods here).  Well, given point 2, either you are going to have government intervention or you are going to have corporate failure on a massive scale. Given the social dislocation associated with the latter option, politicians have strong incentives to embrace intervention (especially those in the majority, who will face the blame for said dislocation).