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You lose, you lose

It is interesting that the 2005 Bankruptcy Bill, the one that made it more difficult for normal people to declare bankruptcy because of, say, crushing medical bills or home mortgages that suddenly ballooned, had another provision buried in the fine print. This provision, which was pushed for by by the investment banking industry, made many derivatives except from bankruptcy protection. In simple English, that means that if your bank goes bankrupt, you might lose everything, but companies (counterparties) who hold derivatives can go ahead and seize bank assets. As TPM puts it, they not only get to go to the head of the line to get their money, they get to skip the line entirely.

Ironically, this provision actually hastened the collapse of Lehman and Bear Stearns last year.

I guess this is what happens when the deregulated investment banking industry gets to write their own rules.