FDIC: Creditors Losers, Lawyers Big Winners in Lehman Bankruptcy

According to the FDIC, general unsecured creditors could have recovered 97 cents on every $1 of claims, if regulators had quickly carried out a structured sale of Lehman's assets. Instead, general unsecured creditors will likely receive around 21 cents on every dollar of claims.

The FDIC also claims that a structured liquidation would have been incredibly complex and difficult but cheaper and vastly superior to the bankruptcy process. Lawyers and other bankruptcy professionals have racked up over $1.2 billion in fees through February 2011.

The problem is that the FDIC did not have the authority to oversee an orderly liquidation at the time Lehman filed its bankruptcy case.

The FDIC's new resolution authority was given to it in last year's Dodd-Frank Act , as part of a broad overhaul of financial regulation that aims to prevent many of the problems that arose during the financial crisis.

The Dodd-Frank Act seeks to put a mechanism to deal with banks considered "too big to fail," in part by forcing financial companies to write living wills that regulators could use to dismantle them if they became insolvent.

Still, it seems easy for the FDIC to say in retrospect that it could have saved a huge amount of money if it had this new authority. We'll have to wait to see how it will really pan out in the future (hopefully distant). Anyway, the case has done wonders for the bankruptcy departments in a good number of firms.

Read more articles about consumer debt by Ted Connolly, co-author of The Road Out of Debt

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