Friday, April 10, 2009
Defining an "empty creditor"
Law Professor Henry Hu explains in today's Wall Street Journal how Goldman Sachs could have been accurate in stating that its exposure to AIG was "not material" last September, and still receive $7 billion in federal monies via AIG shortly thereafter. He goes on to suggest a new type of "real-time informational clearinghouse" for derivatives that would provide more transparency so that market participants would know when a creditor has decoupled his actual economic exposure from his debt.
1 Comments:
By 
, at
Fri Apr 10, 09:00:00 AM:
Transparency is generally the missing ingredient in this entire affair.
If I were to make one regulatory change affecting banks it would be to say that any asset that is reserved against for any reason , whether the asset was originated for resale or to hold, needs to be completely disclosed. I mean by that the nominal value, the material terms, the cash flows, the payment history, a description of any work-out efforts to date and a full description of collateral. It should be publicly accessible on a web site built for this purpose and the asset carrying value should be disclosed. If a third party wants to buy the asset for a dollar more than the carrying value, it should be mandatory that it be sold.
