A Solution to Post Crash Debt Entanglements in Kuwait's al-Manakh Stock Market

A. A. Elimam, M. Girgis and S. Kotob
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A. A. Elimam: College of Business, San Francisco State University, 1600 Holloway Avenue, San Francisco, California 94132
M. Girgis: LTC Techno-Economics Research Group, Inc., 204 Dalton Drive, Raleigh, North Carolina 27615
S. Kotob: Kuwait Institute for Scientific Research, PO Box 24889, Safat 13109, Kuwait

Interfaces, 1997, vol. 27, issue 1, 89-106

Abstract: Kuwait's al-Manakh stock market crash in August 1982, which resulted in an outstanding debt of US $94 billion, subjected banks to high risks and precipitated an economic recession, business failures, and bankruptcies. Courts could not settle traders' debts one at a time because of their entanglement. We constructed linear programming models to identify insolvent traders, to determine the fraction of debt insolvent traders could pay their creditors, and to apportion an insolvent trader's payment to his creditors by asset type. The models provided the basis for the final court decisions in resolving the crisis. They proved to be effective, equitable, and robust. Without this work, courts would have been occupied for years with the criminal, commercial, and bankruptcy cases resulting from 29,000 postdated checks; it avoided more than $10 billion in court costs and attorney fees.

Keywords: financial institutions; markets; programming; linear; applications (search for similar items in EconPapers)
Date: 1997
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