Speed Bankruptcy: A Firewall to Future Crises

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. Copyright Copyright (c) 2010 Morgan Stanley.