Bankruptcy Law and the Current Crisis

Changes in bankruptcy laws are an under-explored topic relating to the current financial turmoil. Less Antman alerted David Henderson and me to the potential role in triggering the subprime crisis played by the Bankruptcy Abuse Prevention and Consumer Protection Act of April 2005 and the subsequent Office of the Comptroller of the Currency ruling on credit cards that went hand-in-hand with the new law. But until recently, only David's and my INVESTOR'S BUSINESS DAILY article and a James Surowiecki column in THE NEW YORKER (April 7, 2008) seem to have mentioned the possibility. Now an October 30 article in THE FINANCIAL TIMES suggests that bankruptcy changes may have been a major factor in the failure of Lehman Brothers and AIG. And Tyler Cowen provides further discussion at the Marginal Revolution blog.