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Making A Bad Economic Situation Horrific
But it turns out that one of the features of the 2005 Bankruptcy bill was to put derivative counter parties at the front of the line ahead of other creditors in bankruptcy proceedings. Actually, from what I can tell, they don't just go to the head of the line. They got to skip the line entirely. As the Financial Times noted last fall, "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." If AIG were to go down, derivatives counterparties would be able to seize cash/collateral while other creditors and claimants would have to stand by and wait. But separate from the immediate financial implications related to AIG, it does point us toward the larger political economy point: the self-reinforcing cycle in which financialization leads to vast sums of money concentrated in the hands of paper-jobbers, who then mobilize that money in Washington to rewrite the laws to privilege them for even greater profits. Put in simple terms, this means the generally unregulated derivatives market, which is about $150T in debt, has first call on all bankrupt company assets even before the judge can divide assets to a bankrupt corporations creditors. This means that when a company goes bankrupt, it will likely drive many or most of its creditors and supplier companies bankrupt as well, because they cannot recover anything, ever. Posted by: Anonymoose 2009-03-07 |
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