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Avoid Chapter 11 at All Cost!!!

posted by Stephen Lubben

One thing that I think we all agreed on in yesterday's panel on "too big to fail" was that many of the plans for a separate resolution authority are being driven toward a FDIC model by Treasury and the Fed, both are whom are more familiar with that approach, rarely talk to restructuring or chapter 11 people, and continue to have an unbridled fear of chapter 11.

More of that can be seen in yesterday's TARP COP report on GMAC, which really seems like the little sister to AIG. I believe both GMAC and AIG would have been better handled in a government-supported chapter 11 process, that would have provided a legal framework for driving a hard bargain with the firms' counterparties and showing shareholders and bondholders that failure has real consequences.


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What about Chapter 11 for Fannie Mae and Freddie Mac ?

Fannie and Freddie are not in chapter 11, the Treasury created a new receivership process for them shortly before putting them into it.

You fail to understand that there is a very serious problem with Chapter 11: In Chapter 11, you get answers. This must be avoided at all costs.


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Published: March 12 2010 00:41 | Last updated: March 12 2010 00:41


JPMorgan, Citigroup Helped Cause Lehman’s Collapse
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• Former chief Dick Fuld and accountants Ernst & Young criticised in 2,200-page report

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