Hoover Institution Press today released Bankruptcy Not Bailout: A Special Chapter 14, edited by Hoover senior research fellow and law professor Kenneth E. Scott and Hoover senior fellow and economist John B. Taylor. Given the events on Wall Street during the past several years, this book makes a compelling case for fundamental reform of the oversight of large financial firms. In particular, the authors propose and examine the impacts of a new bankruptcy law as a “Chapter 14” to be added to the US Bankruptcy Code. They show how the addition of Chapter 14–using a rules-based bankruptcy process–and the implementation of related reforms would provide a credible alternative to bailouts. This would strengthen the US financial system by providing a more predictable resolution process based on the rule of law and help the US economy grow and thrive.
The authors, all influential figures in the economic and legal community—include Andrew Crockett, Darrell Duffie, Thomas H. Jackson, William F. Kroener III, David A. Skeel, Kimberly Anne Summe, and Kevin M. Warsh—are also members of the Hoover Institution’s Resolution Project.
“Anyone interested in the future of the American financial system should read this book,” said Kenneth W. Dam, University of Chicago Law School professor and former deputy secretary of the Treasury and state department. “The authors—experts in law, finance, economics, and public policy—propose a novel and much-needed change in the bankruptcy code so that even large Wall Street financial firms can go into bankruptcy without causing a financial crisis and thereby reduce the likelihood of a government bailout and increase reliance on the rule of law.”
To provide context to the bankruptcy process for financial institutions, the authors discuss weaknesses in Dodd-Frank Title II, showing how it creates an elaborate, discretionary, and potentially cumbersome bureaucratic procedure for bailouts. Authors argue that Title II of the Dodd-Frank Bill be supplemented with a new and more predictable policy. The books details why and how Chapter 14 could significantly improve that process, increase financial stability and reduce the likelihood of bailouts. They lay the groundwork for a return to a clearer, more, rules-based oversight regime that relies on real capital market forces and urges the adoption of a Chapter 14 even were Dodd-Frank left untouched.
“This book contains a detailed analysis of Title II and proposes an innovative alternative process utilizing revised bankruptcy law,” said John P. Lipsky, distinguished visiting scholar at Johns Hopkins University’s School of Advanced International Studies, former first deputy managing director of the International Monetary Fund, and chief economist at JPMorgan Chase. “The book’s essays will be immensely useful to anyone interested in how the financial system can be made more stable, predictable, and efficient.”
In addition to his fellowship with the Hoover Institution, Kenneth E. Scott is a professor of law and business at Stanford University Law School. His current research focuses on legislative and policy developments related to the financial crisis, bank regulation, and deposit insurance. In addition to Bankruptcy Not Bailout, Scott has authored three other books, most recently Ending Government Bailouts (Hoover Institution Press, 2010), edited with George Shultz and John Taylor. Scott served as general counsel of the Federal Home Loan Bank Board in Washington, DC (1963 to 1968), and as chief deputy savings and loan commissioner of California (1961 to 1963).
John B. Taylor, who is well known for his contributions to monetary economics and economic policy, is the George P. Shultz Senior Fellow in Economics at the Hoover Institution and the Mary and Robert Raymond Professor of Economics at Stanford University. He served as undersecretary of the Treasury for international affairs from 2001 to 2005, was awarded the Bradley Prize in 2010, and has authored numerous books, including the recently released First Principles: Five Keys to Restoring America’s Prosperity (W.W. Norton, 2012), for which he won the Hayek Prize.
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