The Bitcoin Problem: An Impending Dilemma for Bankruptcy Courts

By Michael Medved

I.         Introduction

In early 2009 the United States, along with the rest of the world, was facing the largest financial crisis capitalism had endured since the Great Depression.  Later research uncovered that this crisis mostly occurred due to banking institutions, rating agencies, and insurers undervaluing the risk of debtor’s becoming insolvent when banks in effect became their creditors through their offering of new “structured asset-backed securities.”[1] As it turned out, the “assets” that backed these offerings were not as viable as the “Triple A” rating given to them made it seem.[2]  The practical result of the crisis was that these banks, which stored the vast majority of American family’s financial resources, were at a risk of becoming insolvent themselves.[3]  The same went for the insurers who insured these banks.[4]  Faced without any viable alternative, the government was forced to use citizen tax dollars to bail the banks out of impending insolvency.[5]  Eventually, financial markets mostly recovered.  Looking back, it has been argued that it was the bankers’ fault for being too greedy, the government’s fault for having a lack of oversight, or even the American public’s fault for being uneducated when taking on these obligations.  In practical matters, a combination of these factors caused the crisis.[6]  The banks failed, and it was the American citizens who had to pay for their failure to save capitalism from collapsing.

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