Chapter 11 is capitalism's tool designed for distressed businesses to turn themselves around. The assumption is that after emerging from the process, the enterprise can be stronger going forward.
Time will tell if the mindset proves accurate for MF Global Holdings, run by former Goldman Sachs Group co-chairman Jon Corzine. He was also governor or chief executive of New Jersey. Skadden, Arps, Slate Meagher & Flom is representing MF Global in this process.
The possibility of this dominated the media over the weekend. Options to Chapter 11 are well-known and Kodak has been exploring them through its own advisor Jones Day. A whole industry in financial services has sprung up to guide distressed companies to alternatives to bankruptcy.
Corzine had taken a big bet on European sovereign debt. As BLOOMBERG LAW reports, ML Global owns $6.3 billion of Italian, Spanish, Belgian, Portuguese, and Irish debt. This investing decision raises yet again the issue of risk: when is a risk simply "too risky?" Those who hold by game theory know that isn't a legitimate question. As Ken Binmore, professor of economics at University College, London, explains in his book "Game Theory, " supposedly rational human beings can have very different attitudes toward risk. Therefore, there seem to be no universal answers about risk that is too risky. That's exactly why there are regulators and active investors who demand their say.
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