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Speed Bankruptcy: A Firewall to Future Crises
Author(s) -
Jones Garett
Publication year - 2010
Publication title -
journal of applied corporate finance
Language(s) - English
Resource type - Journals
eISSN - 1745-6622
pISSN - 1078-1196
DOI - 10.1111/j.1745-6622.2010.00292.x
Subject(s) - bankruptcy , equity (law) , too big to fail , debt , government (linguistics) , politics , economics , financial crisis , business , bond , finance , financial system , law and economics , law , political science , macroeconomics , linguistics , philosophy
During the 2008 financial crisis, the U.S. government purchased large equity stakes in major financial institutions. The author argues that another source of equity was available : the long‐term bonds issued by these same banks. Overnight debt‐to‐equity conversions, or what the author refers to as “speed bankruptcy,” could have helped restore these firms to health, while at the same time ending the implicit government guarantee of big‐bank debt. While many prominent economists have proposed such conversions, the practical details have received little attention. The author addresses key legal concerns, the political viability of such conversions, and how they fit in with other proposals such as contingent convertibles and funeral planning.