This Isn't Even Funny Anymore
From today’s Financial Times:
Thanks to Onet? A Polish website, for the link
Wall Street ‘made rod for own back’
By Francesco Guerrera, Nicole Bullock and Julie MacIntosh in New York
Published: October 30 2008 23:34 | Last updated: October 30 2008 23:34
Wall Street unwittingly created one of the catalysts for the collapse of Bear Stearns, Lehman Brothers and American International Group by backing new bankruptcy rules that were aimed at insulating banks from the failure of a big client, lawyers and bankers say.
The 2005 changes made clear that certain derivatives and financial transactions were exempt from provisions in the bankruptcy code that freeze a failed company’s assets until a court decides how to apportion them among creditors.
The new rules were intended to insulate financial companies from the collapse of a large counterparty, such as a hedge fund, by making it easier for them to unwind trades and retrieve collateral.
However, experts say the new rules might have accelerated the demise of Bear, Lehman and AIG by removing legal obstacles for banks and hedge funds that wanted to close positions and demand extra collateral from the three companies.
