Open Access. Powered by Scholars. Published by Universities.®
Articles 1 - 2 of 2
Full-Text Articles in Law
Rollover Risk: Ideating A U.S. Debt Default, Steven L. Schwarcz
Rollover Risk: Ideating A U.S. Debt Default, Steven L. Schwarcz
Faculty Scholarship
This article examines how a U.S. debt default might occur, how it could be avoided, its potential consequences if not avoided, and how those consequences could be mitigated. To that end, the article differentiates defaults caused by insolvency from defaults caused by illiquidity. The latter, which are potentiated by rollover risk (the risk that the government will be temporarily unable to borrow sufficient funds to repay its maturing debt), are not only plausible but have occurred in the past. Moreover, the ongoing controversy over the federal debt ceiling and the rise of the shadow-banking system make these types of defaults …
The Bankruptcy-Law Safe Harbor For Derivatives: A Path-Dependence Analysis, Steven L. Schwarcz, Ori Sharon
The Bankruptcy-Law Safe Harbor For Derivatives: A Path-Dependence Analysis, Steven L. Schwarcz, Ori Sharon
Faculty Scholarship
U.S. bankruptcy law grants special rights and immunities to creditors in derivatives transactions, including virtually unlimited enforcement rights. This article argues that these rights and immunities result from a form of path dependence, a sequence of industry-lobbied legislative steps, each incremental and in turn serving as apparent justification for the next step, without a rigorous and systematic vetting of the consequences. Because the resulting “safe harbor” has not been fully vetted, its significance and utility should not be taken for granted; and thus regulators, legislators, and other policymakers—whether in the United States or abroad—should not automatically assume, based on its …