Fixing Financial Crises in the 21st Century

By Andrew G. Haldane | Go to book overview

16

Comments on "Standstills and an international bankruptcy court"

Jeromin Zettelmeyer1

Chapter 15 provides a nutshell exposition of both the type of rationale that could justify a bankruptcy court-type institution at the international level, and a potential risk of creating such an institution. It elegantly simplifies, concentrating on the basic logic of the cases for and against. Weighing benefits and risks, Eaton concludes that a bankruptcy mechanism, if executed well, would be a useful addition to the international financial architecture. I agree with this view. He ends with two practical suggestions: first, the idea that the debtor moral hazard problem associated with a bankruptcy court might be reduced by requiring the debtor to make escrow payments that could be seized by creditors in the event of a stand-still; and second, a lending tax on private creditors to reduce the moral hazard problem of official bail-outs. I will briefly return to these below.

Perhaps inevitably, simplicity comes at a price. Eaton's approach is to justify an international bankruptcy court as an extension of the idea of payments standstills to prevent "country runs". The link between the two is that, because of debtor moral hazard, it cannot be efficient to allow a debtor to unilaterally declare a standstill - hence the need for a neutral court. This is quite removed from the current policy debate, in which an international insolvency regime is proposed primarily as a way of restructuring unsustainable debt, not preventing self-fulfilling runs. That said, Eaton's country runs could be viewed as symbolic of a larger class of collective action problems that arise in the context of debt restructuring as well as liquidity crises, such as the creditor holdout problem and the underprovision of new financing.

Similarly, the institutional solution suggested by Eaton should probably be viewed as one example among several possible solutions. To the extent that the underlying inefficiency is some kind of co-ordination failure across creditors, as suggested by Eaton, resolving it does not really require an international court. A mechanism which forces the creditors to take decisions collectively will do. For example, the Sovereign Debt Restructuring Mechanism (SDRM) recently proposed by IMF management and staff (IMF 2002b) does not assign much of a role to an international court, but instead gives the power to impose a stay on litigation, adopt a debt restructuring plan, and exempt new financing from the restructuring to the creditors collectively.

-277-

Notes for this page

Add a new note
If you are trying to select text to create highlights or citations, remember that you must now click or tap on the first word, and then click or tap on the last word.
One moment ...
Default project is now your active project.
Project items

Items saved from this book

This book has been saved
Highlights (0)
Some of your highlights are legacy items.

Highlights saved before July 30, 2012 will not be displayed on their respective source pages.

You can easily re-create the highlights by opening the book page or article, selecting the text, and clicking “Highlight.”

Citations (0)
Some of your citations are legacy items.

Any citation created before July 30, 2012 will labeled as a “Cited page.” New citations will be saved as cited passages, pages or articles.

We also added the ability to view new citations from your projects or the book or article where you created them.

Notes (0)
Bookmarks (0)

You have no saved items from this book

Project items include:
  • Saved book/article
  • Highlights
  • Quotes/citations
  • Notes
  • Bookmarks
Notes
Cite this page

Cited page

Style
Citations are available only to our active members.
Buy instant access to cite pages or passages in MLA, APA and Chicago citation styles.

(Einhorn, 1992, p. 25)

(Einhorn 25)

1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

Cited page

Bookmark this page
Fixing Financial Crises in the 21st Century
Table of contents

Table of contents

Settings

Settings

Typeface
Text size Smaller Larger Reset View mode
Search within

Search within this book

Look up

Look up a word

  • Dictionary
  • Thesaurus
Please submit a word or phrase above.
Print this page

Print this page

Why can't I print more than one page at a time?

Help
Full screen
/ 348

matching results for page

    Questia reader help

    How to highlight and cite specific passages

    1. Click or tap the first word you want to select.
    2. Click or tap the last word you want to select, and you’ll see everything in between get selected.
    3. You’ll then get a menu of options like creating a highlight or a citation from that passage of text.

    OK, got it!

    Cited passage

    Style
    Citations are available only to our active members.
    Buy instant access to cite pages or passages in MLA, APA and Chicago citation styles.

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn, 1992, p. 25).

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn 25)

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences."1

    1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

    Cited passage

    Thanks for trying Questia!

    Please continue trying out our research tools, but please note, full functionality is available only to our active members.

    Your work will be lost once you leave this Web page.

    Buy instant access to save your work.

    Already a member? Log in now.

    Author Advanced search

    Oops!

    An unknown error has occurred. Please click the button below to reload the page. If the problem persists, please try again in a little while.