For well over a year now, the papers have been filled with hand-wringing about the sorry state of American corporate governance. We read that Wall Street's watchers-the securities analysts and auditors especially-were so riven with conflicts of interest during the stock market boom that the only thing they watched was their own bank accounts. The former chairman of the SEC is barnstorming the country as I write this, telling everyone that he tried to warn us back in the 1990s. The SEC needed more money, he says, among many other complaints, and more freedom from political interference in order to do its job. 2 For the companies that epitomized the governance crisis, bankruptcy is now where the action is. Nearly all of them-Enron, WorldCom, Adelphia, Global Crossing-are currently doing their business in Chapter 11. An observer who followed the bankruptcy literature (and the occasional New York Times or Wall Street Journal article) in the 1990s and who'd lost touch 3 For discussion of the concerns, and a critique of the principal proposals to replace Chapter 11 with an alternative regime, see, e.g., David A.
The views expressed here, however, are entirely our own, and need not be held by any of these commenters. Duffie has potential conflicts of interest that may be reviewed at his web page (www.stanford.edu/~duffie/). Among these, he has been retained as a consultant by the estate of Lehman Brothers Holdings Inc. on matters potentially related to the subject of this paper. 1 QFC is the term used for these contracts in banking regulation. The treatment in bankruptcy is similar in many respects, but the bankruptcy law does not have an umbrella term corresponding to QFC. It uses separate terms for different categories of QFCs, such as swap, repurchase agreement, securities contract, and forward contract. 2 The latest available data can be found in quarterly reports of the Office of the Comptroller of the Currency.
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