Trouble, Scope, Apostrophes, and State Bankruptcy

When Bob Lawless introduced me a couple of weeks ago, he promised that I would stir up trouble.  If responses to my post on amending the Bankruptcy Code to permit states to file are any indication, I have kept Bob's promise.

While no one seemed especially interested in the merits--does Wisconsin's budget fight show that amending the Bankruptcy Code is unnecessary?--the post nevertheless brought out the mob.

Respondents attacked me and each other (sometimes pretty crudely) for, among other things:

• Writing about something too "political" for Credit Slips (yes, well, amending the Bankruptcy Code is political, as are state budgets); 
• Allegedly having a conflict of interest for writing about this at all (not quite:   I am not a member of a union, which is what the fight here is about); and
• Failing to use apostrophes correctly (sorry, but for some reason the  blogging response function doesn't always pick up apostrophes or quotation marks).

While there were plenty of personal attacks,  no one really responded to the basic observation in the original post:  Why amend the Bankruptcy Code if states have the political will and ability to get their debt under control on their own?  

My view is that negotiated debt restructurings usually preserve more value than other ways of dealing with distress.  This, of course, is a principle underlying much of the Bankruptcy Code (see, e.g., chapter 11).  It would likely be imputed to a "chapter 8" for state bankruptcies--if enacted--as well.

In Wisconsin, Governor Walker has said he won't negotiate with the unions.  But all that tells me is that he has more power than a new chapter 8 would likely give him.  He doesn't need state bankruptcy.

While I am suspicious of Governor Walker's claim that Wisconsin's fiscal "crisis" warrants severe reductions in public employees' power to bargain collectively, he was duly elected governor in a state with Republican majorities in both houses.  I have little doubt that his proposals, unlike Newt Gingrich's on state-bankruptcy, will eventually become law.

How to Bankrupt a State

Clearly, Scott Walker, Wisconsin’s newly-elected Republican governor, did not get Newt Gingrich’s memo:  Walker has figured out how to bankrupt a state without any need to amend the Bankruptcy Code.

As discussed in my post last week, a curiosity of Republican proposals to amend the Bankruptcy Code to permit states to declare bankruptcy is that it probably won’t happen.  Even if a Democratic Senate and President approved a new "chapter 8" of the Bankruptcy Code, the Democratic governors of the most profligate debtor-states—California and Illinois—probably wouldn’t use it.

Walker has shown another reason a state bankruptcy amendment won’t become law:  It isn’t necessary. 

In just a few short months, Walker has allegedly given away hundreds of millions of dollars to wealthy donors, thereby driving up the state's deficit, creating a fiscal "crisis" that some claim didn't previously exist.  He cancelled the federally subsidized high-speed rail proposal, apparently costing the state over $800 million in federal funds, a significant number of jobs, and presumably some contract damages.  And, most important, he has decided to pay for this by unilaterally cutting middle-class wages for public employees, and eliminating their right to bargain collectively. 

Eliminating middle class jobs and breaking unions has certainly been the goal of some bankruptcies.  But if, as Walker has shown us, states can do that without bankruptcy, why bother to amend the statute? 

Maybe Newt should talk to Scott.

Big-Bankruptcy Empirical Research Post-Op (3): Jack-knife Fights and Pencils in Zimbabwe

If you have followed me this far--and it's understandable if you haven't--you might be curious to know what ultimately came of LoPucki's Big-Bankruptcy Empirical Research Conference, which I "live-blogged" (is that a verb?) yesterday.

The short answer:  It's all about jack-knifing and pencils in Zimbabwe.

Huh?

Background:  Nothing gets academics’ dander up like debates about methodology.  For legal academics, this often breaks into two related clashes.  (1) Whether to be an “empiricist” or not; and (2) if so, how to do it.  

The folks at LoPucki’s conference mostly drink the empiricism Kool Aid, so answer the first question “yes.”  After all, they included some of the nation’s leading business bankruptcy empiricists, among others Ken Ayotte (Northwestern), Joe Doherty (UCLA), Ted Eisenberg (Cornell), Bob Lawless (Illinois), Adam Levitin (Georgetown), Steve Lubben (Seton Hall), Ed Morrison (Columbia), Bill Whitford (Wisconsin), Sarah Woo (NYU) and, of course, LoPucki himself.

Rather, the real knife fight was over how to do this work.  Must it only be quantitative (and guided by a scientifically legitimate—falsifiable—hypothesis)? Or could (should) it also include (arguably less rigorous) qualitative methods?  Does it have to be social science?  Or is “good enough for law” good enough?

This may sound like mere wonkage.  But it matters for two reasons.  

Live-Blogging the Big-Bankruptcy Empirical Research Agenda (2): Defining Terms

Still at UCLA.

Regardless of how you define chapter 11 success, selecting the information that should compose a chapter 11 database to help you figure out what works (and what doesn't) is often a much trickier problem than you might think.  Consider, for example, the simplest question:  what is a “turnaround manager?” 

It’s a question you might want to be able to answer, because you might think that they do (or do not) make success (however defined) more likely.   The services of the  ZolfoCoopers and Alvarez and Marsals of the world  don't come cheap.  If they aren't improving outcomes, maybe they aren't worth the price.

Yet, we know that the ZolfoCoopers and Marsals are not the only turnaround managers. For example, LoPucki observed that many companies in trouble may simply let senior management go, and “promote some subordinate lackey who is declared to be a turnaround expert.”  Is that person a "turnaround manager"?

Live-Blogging the Big-Bankruptcy Empirical Research Agenda: Nothing Succeeds Like Success

UCLA Law Professor Lynn LoPucki has graciously agreed to permit me to live-blog the Big-Bankruptcy Empirical Research Agenda conference he has organized today at UCLA.

For those few who don't know, the Bankruptcy Research Database is one of the most important tools available to scholars and practitioners interested in understanding patterns in  chapter 11 cases.  It captures a great deal of information about essentially every large public company that has commenced a chapter 11 case under the current Bankruptcy Code.

The holy grail of all bankruptcy scholarship is figuring out whether a case was successful.  Conventional wisdom might say that confirming a chapter 11 plan—and paying the professionals in full—is good enough. 

But, we know that many companies file again, despite having confirmed a plan, and that may not necessarily be evidence that the plan was a failure:  circumstances change, etc.  Conversely, the confirmed plan may, in hindsight, prove much worse than other possible deals: Perhaps a 363 sale would have produced greater recoveries for creditors.  

Bob's Boyfriend (or Something that Won't Happen)

I have to say that, while I have had many interesting introductions--and Bob has called me many interesting things over the years--"boyfriend"  (by implication) hasn't been one of them. (If you find the old Angel's version cloying checkout the Raveonettes'). 

Whether or not my return is trouble, I am happy to carry the theme forward, and try to scare off several unwanted suitors, in particular some misconceptions about what a state-bankruptcy amendment is really about.  In the next few days, I will also live-blog the LoPucki Big Bankruptcy Empirical Conference at UCLA.  I also hope to say a few words about the Chapter 11 filing of the Archdiocese of Milwaukee, both because it is sort of in my neighborhood, and because I've written about the church-bankruptcy cases before.

So, start with the biggest trouble of all:  State bankruptcy.