Needed: A New Deal On Global Debt

Central bankers flocking to Jackson Hole, Wyo., for their annual late-August retreat this year might want to take time to learn the DIP. It's not a dance but rather something called debtor-in-possession financing. DIP involves segregating the defaulted loans of a bankrupt company, wiping the slate clean, and starting the borrowing process all over. A restructured company gets new credit, the bank get a small percentage of its old unwise loans back over time, and everyone starts to play the all-important growth game again. DIP lending is a desperation strategy used only when corporations face ruin and banks stand to lose everything. This is increasingly the plight of Russia, Asia, and parts of Latin America, where de facto default may be the best choice among evils.

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