Comments on: Legal Complexities as the Automakers Restructure http://alephblog.com/2009/04/01/legal-complexities-as-the-automakers-restructure/ Helping Institutions and Ordinary People Invest Better by Focusing on Risk Control Sat, 31 Jul 2010 12:01:33 -0400 hourly 1 http://wordpress.org/?v=3.0 By: David Merkel http://alephblog.com/2009/04/01/legal-complexities-as-the-automakers-restructure/comment-page-1/#comment-21349 David Merkel Wed, 01 Apr 2009 19:41:21 +0000 http://alephblog.com/?p=1572#comment-21349 Thanks, Anon. We live in "interesting times." Thanks, Anon. We live in “interesting times.”

]]> By: Anon http://alephblog.com/2009/04/01/legal-complexities-as-the-automakers-restructure/comment-page-1/#comment-21348 Anon Wed, 01 Apr 2009 18:01:44 +0000 http://alephblog.com/?p=1572#comment-21348 Under traditional common law over the counter derivatives that do not transfer pre-existing economic risk are not valid contracts (per SCotUS decisions of a century ago). While exchange traded derivatives historically have a complex relationship to bankruptcy law, the over the counter derivatives exemptions represent a complete rewriting of the bankruptcy code. I'm no lawyer, but I suspect the new laws could be challenged on the basis that they strip bondholders of the value of their assets. Under traditional common law over the counter derivatives that do not transfer pre-existing economic risk are not valid contracts (per SCotUS decisions of a century ago). While exchange traded derivatives historically have a complex relationship to bankruptcy law, the over the counter derivatives exemptions represent a complete rewriting of the bankruptcy code. I’m no lawyer, but I suspect the new laws could be challenged on the basis that they strip bondholders of the value of their assets.

]]> By: David Merkel http://alephblog.com/2009/04/01/legal-complexities-as-the-automakers-restructure/comment-page-1/#comment-21347 David Merkel Wed, 01 Apr 2009 17:44:34 +0000 http://alephblog.com/?p=1572#comment-21347 Anon -- I'm not sure what you mean by your first paragraph. If what they were proposing with the automakers was similar to your second paragraph, I would not have alleged fraudulent conveyance. With GM, they are proposing a complete split, where bondholders lose the support of the good assets. That is fraudulent conveyance, and it will be fought in the courts. Anon — I’m not sure what you mean by your first paragraph. If what they were proposing with the automakers was similar to your second paragraph, I would not have alleged fraudulent conveyance. With GM, they are proposing a complete split, where bondholders lose the support of the good assets. That is fraudulent conveyance, and it will be fought in the courts.

]]> By: Anon http://alephblog.com/2009/04/01/legal-complexities-as-the-automakers-restructure/comment-page-1/#comment-21346 Anon Wed, 01 Apr 2009 16:26:34 +0000 http://alephblog.com/?p=1572#comment-21346 I'm not sure the principles of contract (and bankruptcy) law managed to withstand the onslaught of the banking lobby over the past few decades, so I think it's a little late to complain about that. The best good/bad bank proposal I saw transferred all of the (initial) ownership of the good bank to the bad bank. In other words, the good bank was just a tool for raising capital/selling debt that is completely protected from the losses of the bad bank. This seems sensible and far from fraudulent conveyance. I’m not sure the principles of contract (and bankruptcy) law managed to withstand the onslaught of the banking lobby over the past few decades, so I think it’s a little late to complain about that.

The best good/bad bank proposal I saw transferred all of the (initial) ownership of the good bank to the bad bank. In other words, the good bank was just a tool for raising capital/selling debt that is completely protected from the losses of the bad bank. This seems sensible and far from fraudulent conveyance.

]]>