Take Water (and Confidence) on This Route

Being in a bankruptcy-related business, I greet with glee, not gloom, the gripping headlines that herald recession:

<i>Dow Plunges 512 Pts.; World Financial Woes Could Spread to U.S.; Yield Curve Inversion a Precursor of

Recession.</i> However, if we chapter 11 professionals consider how our personal portfolios grew fat while we grew

sassy in the bull times behind us, perhaps we should worry we're seeing too much of a good thing, when we read:

<i>Japan Woes Worsen—No End in Sight; Russian Meltdown—A Renewed Nuclear Threat?; Latin America Next in

Line for Financial Crisis; North Korean Missile Signals Dangerous Economic Desperation; Tech Experts on Y2K:

Stockpile Food and Fuel.</i> As these threats to life as we know it converge with the end of the millennium, I am

reminded of the cautionary words that marked a map I used on my family's recent vacation. In a shaded box over our

route across 100 miles of scorched earth in the southeastern corner of Utah, the ominous warning appeared, "Take

water on this route."

</p><p>Professionally, I smile at the chapter 11-related business prospects on the horizon, but personally, I view the

months ahead much as I anticipated Utah Route 95: eerie, endless, ominous, dangerous. To be safe, I took water on

that route, as advised, but I also took confidence that my family and I wouldn't need it. We did not, and after an hour

and a half of parched scenery, we found shade and soda pop at a convenience store oasis. Likewise, we in this land

must all "take water"—and confidence—on the road through world events ahead.

</p><p>Whence the confidence? On Utah Route 95, my family drove a vehicle that was well-designed and

well-maintained, with fuel tank full. In the case of our country, we enjoy a political-economic system that is

well-built, well-maintained and influenced by people full of expertise and experience.

</p><p>Consider first the design. If the world has learned anything during this century, it's this: Democracies are more

stable and more resilient than authoritarian states, and the stronger a democracy's design, foundations and traditions,

the more stable and the more resilient the democracy. <i>Our</i> democracy enjoys not only the genius of its founders'

design but also more than two centuries of practice, refinement and enhancements. However great our problems, so

too are the ideas and solutions that our democracy engenders. None of the financially challenged countries of the

world—not Japan and least of all, Russia—has such a platform on which to work solutions. None is a democracy as

well-engineered as ours. Not even Euroland, assuming it coalesces at all and in time, will possess the stability and

depth of American democracy. If the woes of the world whip sand in our face, we can dig deep into our democratic

defenses.

Our democracy allows a market economy to flourish. The salient feature of our economy is the efficiency of our

capital markets—the most efficient in the world. Though

not immune to setbacks, drawbacks, uncertainties and bumps in the road, our capital markets have allowed us to

enjoy sustained record growth and the greatest depth and breadth of prosperity in the world. In Asia, where an

enormous mismatch between long-term assets and short-term financing precipitated the current crisis, capital markets

suffer from systemic shortcomings—inadequate disclosure, obscurant accounting practices and icthyosaurian

cronyism. Until these inefficiencies are rooted out, a full-scale recovery remains doubtful. In Russia, a land that went

from feudalism to communism to criminal chaos, capital markets are comatose. How will capital debilitation and

inefficiency ever be corrected there? If a recession strikes our shores, no matter what the trigger, our capital markets

will fuel the recovery, however much they drop in a downturn.

</p><p>In this democracy and market economy, blessed with efficient capital markets, insolvency laws are also

well-conceived, certainly by all relative standards. As much as we bankruptcy professionals might acknowledge and

the public might complain about the cost and complexity of American bankruptcy law, it allows for the fairest,

most efficient, most predictable, most effective way of restructuring debt and re-deploying assets that insolvency has

rendered "inefficient." Again, look only to Japan or Russia for contrast—and financial paralysis. Just ask Hale &amp;

Dorr's <b>Hall Swaim</b>, who says, "I volunteered to teach Russian jurists the basics of bankruptcy, only to learn they

had yet to grasp the basics of market economics." Or talk to Latham &amp; Watkins' <b>Bob Rosenberg</b>, who traveled

across Asia to examine insolvency laws, only to conclude with the question, "What insolvency laws?" Until those

countries and others similarly situated develop rational bankruptcy laws, they will remain mired in what is best

described as <i>economuck.</i>

</p><p>Our democracy, efficient capital markets and insolvency laws are essential defenses against the world's woes.

However, these finely designed systems also must be well-maintained. Again, this country enjoys enviable

conditions. Our entire system is every bit as dynamic, flexible and lubricated—in many ways, more so—than in any

period preceding a past global crisis. Contrast our current health, for example, with the weakness wrought by the

Great Depression in the years before the globe's greatest catastrophe, World War II. From a weak start then, we

finished strong. From a strong start now, we can finish stronger yet, after any period of global doom and gloom.

</p><p>Finally, we have in this country an enormous pool of expertise and experience. Not just an elite few, but

millions of participants in our democracy, capital markets and bankruptcy process have developed an understanding

and ability to work the controls of this well-engineered, well-maintained system. No other country can boast such a

broad base of people who can <i>drive</i> our national vehicle, as it were, across the desert of dangers.

</p><p>None of which suggests that our system can't be improved. Every day, we must test and retest our democracy,

capital markets and bankruptcy laws. If we work the system constantly, it will work when the road turns rough.

Perish the day—lest <i>we</i> perish!—that chills the critics. As the storm clouds crowd the horizons beyond our shores,

bankruptcy professionals should take the lead and examine our bailiwick for weaknesses, deficiencies and

inefficiencies. Let's step up the pace and volume and discuss what we should do, legislatively and procedurally, in

anticipation of the wave of chapter 11 cases that might well crush the courthouse steps. If our plates were full at the

outset of this decade, when, for example, the default rate among high yield debt issues was 10 percent, consider the

volume if the same rate develops among the record number of high yield debt issues now extant! How can we

streamline high volume case management? How can we provide better mechanisms for improving disclosure,

handling plan objections and facilitating non-debtor authored plans? How can we reduce wasteful expense at the same

time we reward result-oriented effort?

</p><p>Yes, let's take water on the route ahead, but before we enter the desert, let's check our vehicle, fix what needs to

be fixed and proceed with confidence.

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