Tuesday, April 19, 2011

FDIC could have saved unsecured creditors 76 cents on the dollar


IF Dodd-Frank Wall Street Reform Act was in place, FDIC can execute a structured sale of Lehman Brothers. General unsecured creditor could have recoved 97 cents on the dollar, compare to current bankruptcy preceeding which would recover 21 cents on the dollar.

WSJ has many opinion pieces advocating for the bankruptcy process as the main resolution mechanism, and argued against FDIC or any other agency involved in resolution. I am questioning the motives of these opinion pieces. In a financial crisis it is obviously in public interest to have an orderly resolution of institution failure like Lehman. Why would someone wants a court resolution instead? Maybe these pieces represent the interest of bankruptcy lawyer or vulture investors.

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