The Bing Blog took a very rare look at the current situation and I think that it is a very refreshing view.
Maybe all this misery is just payback
Now it seems a little vindictive and maybe the writer had a few problems with the market and the people that work with and around the market. However, it does point the finger at a group of people other than the big businesses. From the articles that I have read, the majority of articles and blogs seem to focus on the big businesses and what they are doing.
Tuesday, September 16, 2008
Lehman Bankruptcy: Bankruptcy laws under a Microscope
The Lehman bankruptcy problems seem to just be starting. Ultimately, this gigantic lending corporation declared bancruptcy yesterday morning and then the fun started.
Interestingly enough CNNMoney.com explains in a recent article that our law structure is setup to protect smaller entities from creditors, however for the larger beast that is Lehman it is designed to not be as protective. This is really the litmus test for these laws.
Smaller institutions get an automatic stay that basically freezes its debts like we saw with Delta recently, however Lehman will not get the same protection against many of its creditors.
In the article, Morrison goes on to explain that in 1978, and in amendments passed in 2005, most financial contracts — including securities contracts, swaps, repurchase agreements, commodities contracts, and forward trades — are unaffected by automatic stays. Worse still, as soon as Lehman’s parent corporation goes into bankruptcy, that event (under the contractual language governing most of these) triggers default, allowing the counterparty — the bank or other institution that entered into the deal with Lehman — to immediately accelerate or cancel the contract and seize whatever collateral may cover it.
Why? The thinking, Morrison explains, was that if an investment bank like Lehman ever failed, all its counterparties (like, say, a Bank of America) could extricate themselves immediately from Lehman’s troubles rather than getting mired in a bankruptcy proceeding. “They won’t be locked in and dragged down with Lehman,” Morrison says. The laws will — theoretically — minimize risk of market meltdown. (paraphrased from the article)
Ultimately, the stock market took a down turn and there is a lot of worry now about the price of oil and the housing market. Only time will tell if the trend will continue.
“I think it’s a really scary time right now,” says Ed Morrison, a professor
and bankruptcy expert at Columbia Law School. (from the article referenced below)
Interestingly enough CNNMoney.com explains in a recent article that our law structure is setup to protect smaller entities from creditors, however for the larger beast that is Lehman it is designed to not be as protective. This is really the litmus test for these laws.
Smaller institutions get an automatic stay that basically freezes its debts like we saw with Delta recently, however Lehman will not get the same protection against many of its creditors.
In the article, Morrison goes on to explain that in 1978, and in amendments passed in 2005, most financial contracts — including securities contracts, swaps, repurchase agreements, commodities contracts, and forward trades — are unaffected by automatic stays. Worse still, as soon as Lehman’s parent corporation goes into bankruptcy, that event (under the contractual language governing most of these) triggers default, allowing the counterparty — the bank or other institution that entered into the deal with Lehman — to immediately accelerate or cancel the contract and seize whatever collateral may cover it.
Why? The thinking, Morrison explains, was that if an investment bank like Lehman ever failed, all its counterparties (like, say, a Bank of America) could extricate themselves immediately from Lehman’s troubles rather than getting mired in a bankruptcy proceeding. “They won’t be locked in and dragged down with Lehman,” Morrison says. The laws will — theoretically — minimize risk of market meltdown. (paraphrased from the article)
Ultimately, the stock market took a down turn and there is a lot of worry now about the price of oil and the housing market. Only time will tell if the trend will continue.
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