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Mr Wijat and his Team working for Truth Justice and the British Way have nearly finished a five year investigation in the serious corruption in London's High Court of Justice, The UK Border Agency, The HM Land Register's Office, the Adjudicator to the HM Land Registry and the whole of the UK Legal System controlled by the London Jewish Mafia and the Freemasons..
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Rupert it is time to take time to smell the roses in Australia with your beautiful wife

Mr Wijat throws a knock out punch to Rupert Murdoch
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Feature Articles: 


Margarita A love story

'Call Me Maybe' Hits No. 1: Do You Like the Song?

SodaHead Music June 19, 2012
After spending nine weeks at the top of the charts, Gotye's "Somebody That I Used to Know" has finally been knocked down a notch... by Justin Bieber's pride and joy, Carly Rae Jepsen. Her hit song "Call Me Maybe" has managed to lodge itself into enough brains to launch it to the No. 1 spot on Billboard's Hot 100 with 3.3 digital downloads and 108 million YouTube views.

Jepsen isn't new to the music industry, but she's certainly new to fame. The 26-year-old singer-songwriter got her start in 2007 when she got third place on "Canadian Idol," and released her debut album, "Tug of War," in 2008. But she didn't get much air time until fellow Canadian Justin Bieber started tweeting about her latest single, "Call Me Maybe," off her 2012 "Curiosity" EP. The song's catchy hook practically made her career over night. Do you dig the song? (Listen at your own risk: This jam will be in your head all day long.)

Rodney King Dead at 47: Icon or Agitator?

SodaHead News June 18, 2012

Emma Stone's Low-Cut Top: Sexy or TMI?

SodaHead Living June 19, 2012
Wow ... Emma Stone has never looked hotter! At the London premiere of "The Amazing Spider-Man," the 23-year-old actress stunned in a low-cut black sparkly top that was considerably sexier than anything she's ever worn before. Boyfriend (and "Spider-Man" co-star) Andrew Garfield seems to be one lucky guy!

In fashion speak, the top was an embroidered long-sleeved V-neck bodice jumpsuit with satin stripe detail and a black belt with gold buckle from the Elie Saab Fall/Winter 2012 ready-to-wear collection, USA Today reports. Stone's pin-straight, side-swept blonde hair and smokey eyes were equally sexy. So, do you like Emma's racier (but still classy) style? Or do you prefer a sweeter, more innocent Emma Stone?

emma stone

Vietnam Bans Smoking in Public: Great Idea or Too Extreme?

SodaHead News June 19, 2012
Some countries are taking strides to cut down on smoking by banning it in schools, in the workplace, at bars... But Vietnam just took a giant leap by passing a law that completely bans smoking in public, and outlaws all tobacco advertising. According to Agence-France Press, the law passed by a vote of 440 out of 468, and will go into effect next May. It will be a tough pill to swallow -- about 47.4 percent of Vietnam's male population smokes.

The crackdown is meant to supplement a 2010 ban on smoking in public places like schools and hospitals. Though that ban has been in place for two years now, few pay it mind. The Southeast Asia Tobacco Control Alliance projects that by 2030, tobacco will kill 70,000 people per year in Vietnam if something isn't done to curtail the habit. But is completely banning smoking in public a little too extreme?


PUBLIC OPINION > Nik Wallenda's Niagara Walk Was Admirable

SodaHead News June 19, 2012

On June 15, Nik Wallenda became the first person in more than 100 years to tightrope-walk across Niagara Falls, and the first ever to walk directly over the main gorge. It took him years to receive approval because the United States and Canada were worried it might encourage amateurs to try, but he finally got permission, and did it on live television. We asked the public if it was admirable, or just plain crazy.

nik wallenda

You've got to be a little bit crazy to want to do something like that, but he was clearly well-prepared and didn't falter once throughout the entire walk, so admiration won out. The Top Opinion noted, "He's wearing a safety harness. Even if he falls he won't get hurt aside from a possible wedgie." However, that's typically not Wallenda's style. ABC required him to wear it because they didn't want to broadcast a live death. He even said the harness made him feel like a "jackoff."

Teens Look Up to Him

Most age groups were split over the question, but younger voters were in awe. More than four-fifths of the teen vote admired the feat, as well as about two-thirds of the 18-24 group. After that it was about 50-50. Oddly, there was an enormous spike between 55 and 65, where voters were even more enthusiastic than teens.

Liberals Look Away

Usually, liberals and atheists vote in the same direction, but that was not the case this time. Atheists were 33% more likely than liberals to admire Wallenda's walk. They were the standout percentage, with 83% admiration. Conservatives and Christians showed moderate support, and were within 4% of each other.

Low Incomes Love It

The income breakdown was probably somewhat related to age, but higher incomes, particularly those between $50,000 and $100,000, were less impressed than any age group. They were one of the few demographics who were more likely to think he's crazy. However, voters over $100,000 had a change of heart.

If you'd like to vote on this question, dig deeper into the demographics, or engage in existing discussion about the topic, visit our poll about Nik Wallenda. We'd love to hear from you!

PUBLIC OPINION > Shared Backyards Are a Bad Idea

SodaHead Living June 18

PUBLIC OPINION > Shared Backyards Are a Bad Idea

SodaHead Living June 18, 2012
"Communal backyards" are becoming more commonplace, according to The Wall Street Journal. More and more people are tearing down their fences to create more room for their pets to roam free, or even to build a tennis court or pool. It's a touching sentiment -- neighbors living in harmony for a common cause -- but it also sounds like a recipe for potential disaster. We asked the public if it sounds like a good idea.

shared backyards sodahead

It's definitely not a popular practice, but it got more support than we expected. Nearly a third of respondents think it's a brilliant idea. But there are obviously a lot of factors to consider here. First of all, as one commenter wrote, "It only works if you have great neighbors." And even if you do, that could quickly change. This dynamic context left a lot of people... on the fence.

Men Might Give It a Try

Men typically aren't as sociable as women, but when it comes to attaining a bigger back yard, they're a little more willing to sacrifice their privacy. If sharing the backyard means room for a pool, room for a game of football, you name it, they'll consider it. Still not a majority, but not as opposed as the women.

High Schoolers Hate the Idea

The age breakdown wasn't extremely consistent, but when we broke it down by education the correlation became clearer. The higher a person's level of education, the more likely they were to consider shared backyards a good idea. High schoolers were probably concerned about their privacy, but college grads were over it.

Tall Neighbors Tear Walls

We couldn't help thinking of Wilson from "Home Improvement" when we saw the height breakdown. The taller the voter, the more likely they were to approve of shared backyards. They can see over the fence anyway, so it's not like the fence matters all that much. But it will make hiding their faces a little more difficult.

If you'd like to vote on this question, dig deeper into the demographics, or engage in existing discussion about the topic, visit our poll about shared backyards. We'd love to hear from you!

What is Your Opinion on this?
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Tiger Woods / PA

Convicted felon dethrones Tiger Woods

The golfer's 11-year reign atop sport's rich list has been ended by a star who is currently languishing in

World’s best-paid sportsman is in jail

As boxing superstar Floyd Mayweather Jr languishes in jail, he can at least console himself with the thought that he is the world's highest-paid sportsman.

Forbes magazine's new list puts the American - who is serving a

 three-month sentence in Las Vegas for domestic battery - at the head of their latest top 100, with earnings of £54.4 million for his two fights in the last 12 months.

Mayweather's arch-rival Manny Pacquiao is second on the list with £39.7m, despite losing his WBO welterweight title in a controversial decision against Timothy Bradley a few weeks ago.

Tiger Woods has slipped to third with £38m, his struggles on and off the golf course finally seeing him lose the top spot that he had held since 2001.

Basketball's LeBron James (£33.9m) and tennis's Roger Federer (£33.7m) round out the top five.

The best-paid footballer on the list is David Beckham of the LA Galaxy. Beckham's on-pitch earnings may have been superseded by the likes of Lionel Messi and Cristiano Ronaldo, but his off-pitch endorsements still put him in at number eight with £29.4m.

Ronaldo is just behind in ninth with £27.2m, while Messi is 11th with £24.9m.

Maria Sharapova was one of only two women in the top 100, the world number one ranked 26th with £17.8m off the back of a stunning year on court, and lucrative deals with the likes of Nike, Head, Samsung, Tag Heuer and Evian off it.

Fernando Alonso at 19th is the top earner in Formula One on £20.5m, with MotoGP's Valentino Rossi right behind him in 20th with £19.2m.

India captain MS Dhoni is the top-ranked cricketer at number 31 with £14.7m, while Usain Bolt is down at number 63 with £13m.

You can see the full list at the Forbes website.

Top 10:

1. Floyd Mayweather £54.4m

2. Manny Pacquiao £39.7m

3. Tiger Woods £38m

4. LeBron James £33.9m

5. Roger Federer £33.7m

6. Kobe Bryant £33.5m

7. Phil Mickelson £30.6m

8. David Beckham £29.4m

9. Cristiano Ronaldo £27.2m

10. Peyton Manning £27.1m

Law or Justice?

 Are corrupt / pervert males being appointed as judges, 
 magistrates and police-chiefs? 

 The evidence says so 

 "Is the UK still governed by the rule of law?  Things are bad;  I fear they will become worse" 
Anthony Julius 


|    Drugs lies     |     women & kids     |     anti-Fairness?     |     pedophile     |     frame-Ups     |     hypocrites    | 
media conspire     |     Viking > US jury     |     elite's racists     |     conspiracy     |     fake 'acquittal'     |     misuse    | 
police, judges     |     anti-JURY     |     rigged Trials     |     Coroners     |     Result?     |     Cover-Ups     |     Fake Fines     |     `Rich' law    |

Now -

In Britain, non-rich folk are often jailed - for the offense of poverty: non-payment of unfair ref-00 bureaucratic fines.

These are non-crimes: actions without harmful consequences or victims.  No
 decent person would imprison fellow humans for such 'offenses' - but UK magistrates and judges do.

While VIPs are rarely jailed - even after committing ref-01multiple crimes: lying in court, frauds, sexual abuse, pedophile, and worse. ref-02

[We hear that many VIPs' trials - for tax-theft, fraud and sex abuse offences - are now being held in virtual secrecy (see
 below), to prevent public awareness.]

So police-chiefs, magistrates and judges ref-03 are corruptref-04 and perverse - in routinely imprisoning poor people for no compelling reason.  And complicit, in giving authoritarian licence to elite fraud and criminal perverts.

UPDATE - Nov 2010 - Review of UK's Waste & Injustice of Tax-Swindles and `Charges'

UPDATE - Sep 2011 - `UK Taxes are Unfair, Regressive, Totally Corrupt' - Delayed I.F.S Report

UPDATE - Nov 2011 - Reason for Political & Bureaucratic Corruption



Drugs and 'Class'

The "Law" ? - A working-classs lad was prosecuted and convicted of `drug-taking' solely on his own confession and long afterwards.

It was "Boy George" - who was then definitely `working-class'.  But Susan Blackmore, who has also admitted to taking drugs, has never been convicted or even questioned about her admitted `offences'.  Because she was definitely `upper-middle class'.





DRUGS - Race and Class Prejudice

Corrupt Police Chiefs - Corrupt Judges

Mon. 17 May 1999:- [re Royal Family - Thomas Parker Bowles's "cocaine habit" - Prince Charles' godson]

Quote -
 "Today, Mr Parker Bowles's employer, Dennis Davidson, of PR company Dennis Davidson Associates, stood by him, claiming drug taking was "part of our life in general".

No jail (or even prosecution).

Prince Charles and Mr Parker Bowles are
 not working-class 

see beeb2.html#Inward

Corrupt Police Chiefs - Corrupt Judges

Monday September 6, 1999

"Princess Michael of Kent yesterday publicly supported her 20-year-old son, Lord Frederick Windsor, after he admitted taking cocaine.  The Queen's cousin confessed he snorted the drug from a glossy magazine at a party in Fulham, west London, three months ago."

"He told them: "I admit it is true.  It is very difficult to avoid getting into this sort of thing when you move in these circles, but I don't blame anyone else for the incident."

Home Office research says
 "those who tended to use drugs most are the very rich"

No jail (or even prosecution).

Lord Frederick Windsor is
 not working-class.

see beeb2.html#Inward

Corrupt Police Chiefs - Corrupt Judges

Monday September 27, 1999 The Guardian

"From newspaper reports after the first day of the case against the Earl of Hardwicke it looked as though the aristocrat was bound to go to jail.  He and his friend, Stefan Thwaites, had arranged for cocaine to be delivered to a hotel.  Hardwicke was heard to say: "Come on, bring on the charlie.  I want a big fat line.  He was then videoed snorting the drug."

"The Earl of Hardwicke snorted cocaine, was videoed and still walked free."

judge = Timothy Pontius 

No jail. 

The Earl of Hardwicke is
 not working-class. 

Legal note :- "Entrapment is no defence in English criminal law" (Regina v Shannon)

see beeb2.html#Inward

Corrupt Police Chiefs - Corrupt Judges

Wed. September 15, 2004 Ananova

"Princess Diana's former lover James Hewitt has been let off with a caution for possession of a Class A drug."

"Hewitt, 46, was arrested on suspicion of being in possession of cocaine in July outside a west London wine bar.  He was detained along with girlfriend, freelance broadcaster Alison Bell"

"Following consultation with the Crown Prosecution Service, he received a caution for the offence of possession of a Class A drug ... and will be subject to no further action by police."

No prosecution.  No jail.

James Hewitt is
 not working-class.

Corrupt Police Chiefs - Corrupt Judges

Tues. 23 Feb. 1999

55 year old grandfather, Eric Mann, of Pembroke Dock, South Wales used cannabis twice, to relieve pain from chronic arthritis.

He was today sentenced to 1 year's imprisonment.

judge = Wyn Rees

Mr Mann is working class.

Corrupt Police Chiefs - Corrupt Judges


"The Guardian" May 5, 2000 "The number of people convicted for cannabis possession has more than doubled in the past six years to over 40,000 a year, according to new Home Office figures which deal a bodyblow to the idea that the police are taking a more lenient approach to soft drugs." 

Cover-up ...
 Less Risk of Cannabis 

UPDATE - March '07 - Media Dis-information on Cannabis


Since then, evidence says:-

corrupt rich & privileged haven't stopped drug-taking;

corrupt police and judges haven't stopped covering-up


corrupt Press have stopped reporting!



paraphrased from:- "The Pursuit of Oblivion - A History of Narcotics 1500-2000"- Weidenfeld, by Richard Davenport-Hines 

English media: liars 

English media routinely fulminate against "drug users"

"The SUN" / "The MIRROR" / "The MAIL" / "The EXPRESS" / "The TELEGRAPH" / "The INDEPENDENT" / "The GUARDIAN" / "The TIMES" 

Secretly the Press & BBC lied, for class, race & political reasons -

Now we can see (from list
 above) that the Press, BBC & 'establishment elite' use more hard drugs than anyone else! 

See `Perceptions' knowledge of media (BBC) using 'banned substances' while broadcasting hypocritical diatribes against relatively harmless herbs 

See Press & BBC lies - at

Late in 19th Cent. upper-class London used a 'nasal decongestant' - recently revealed as 99.9% pure cocaine 


Police-chiefs know 'elites are highest per capita users of hard drugs' - - at bbccoke 

Yet UK police spend their time giving hassle to working people, black people and young people, often for minor usage of 'soft' or non-addictive substances, non payment of fines, or even more often for refusing to kowtow to arrogant, corrupt bullying and pervert policemen, magistrates or judges.  See last generations & real unholy & inevidence 

From the examples shown above and below it can be seen that :- 

 police-chiefs, judges and legislators use law corruptly

 criminals inside UK police forces than in the general population


Reason for corrupt Attitudes? 

Increasing indications of some police involved in hard-drug trade and vice (inc. pedophile).  Possible cause of police / gangsters dislike of cannabis - it does not lead to physical dependency, therefore cannot be used to compel hard-drug buying and cannot be used as compulsion to enter vice trade (inc pedophile).  This dislike / enmity to cannabis maybe percolates upwards to elite (police, politicians etc) who, as seen above, are often secretly hard-drug users. 

Unless - and here we allow strong speculation - elite's attitude comes from financial / physical motivation.  Ie. that political / social / police elite more deeply
 implicated in vice, inc.pedophile, and hard-drug trade. 

Cover-up ...
 Lesser Risk 

 "Abusers common among police, judges etc" 


Goverment Double-Talk? 

"The government continually uses the the very real dangers of crack cocaine in its propaganda, to keep us alarmed and enthusiastic about its drug wars, but it actually spends 85% of its anti-drug budget fighting the relatively harmless and often medicinal marijuana". 

`Everything is Under Control'
 R.A. Wilson & M. J. Hill, 1998 NY. ISBN 0-330-38994-7 

FROM "1984" to "2004" 

`War on drugs' - Hypocrisy 


(try "illicit drugs" para)




There are
 some disturbing resemblances to cover-ups/cases, even inrecent years 

NEWS 09/09/01 bentcops13 

NEWS January 2003 avoiders 

NEWS September 2003 bad cops 

Only 13% of women jailed have actually committed a violent offense - English magistrates & judges jail 8 (eight) times more than necessary 

from polrape & polsexism (and also Seema1 check HTML go "view" "page source") 




Mar. 2003 - Female prisoners sexually abused 
"Women at Broadmoor used as guinea pigs for male sex offenders"


June 2005 - Gov't OK's gang rape of woman 
"Rape victim demands her 'freedom"

[if down go] 

Jan. 2000 -
 "The Times" Internet January 8 edition "This week it was decided - [for no compelling reason] - to deprive a young mother of her newborn child, her first.  [She was only jailed for a minor shoplifting offense] The new-born baby will be taken away by the State" 

"Until that decision is taken - probably within the next few days - the mother will be held at the North London jail and the baby taken into care." 

[It has been admitted - Jan 2000 - that children taken from their parents are often physically / sexually abused in English State institutions.  It is also admitted that physical and sexual abuse of children in English State institutions continues today - BBC R4.warning 1 & warning 2]

Jan 2004 - UK - Record number of women commit suicide in prison

Both main English political parties, when in power, have a policy of separating working-class mothers from their children.

The present 'Labour' government seems to be implementing this policy, with its so-called 'welfare laws', even harder than its predecessors.

[LATER INTERRUPT - 07 Feb '01 We're told "New Labour" has mitigated its efforts in this direction - come back for UPDATES]

There may be a "culturally hidden" reason for this behavior on the part of the English political elite - devices & confirm5 &psychotix


Pervert abuse of women in Court

"Young rape victim commits suicide - after being repeatedly forced to hold up her knickers before the rapist - and the Court" - Report 01 August 2002

Lindsay Armstrong - innocent victim who suffered more abuse in court

You might say only fools, brutes or perverts would inflict such harm on rape victims.

Male `barrister' (the rapist's) and male `judge' obviously thought it was `necessary' or "desirable".

The Judge
 (at the Glasgow High Court) - "Lord McEwan"

Barrister's name now seems to be secret.  Can you believe he's shy / sensitive? - although obviously known to the rapist's lawyer: John Carruthers - a Scottish solicitor.

But our strange `legal system' gave young victim no protection from pervert cruelty, humiliation and abuse - in Court.

See - 01 August
 Victim's suicide = Was it "murder" by brutal or pervert Courts, Laws & Lawyers?

 - Dec. '06
Abuse continues -
 "devastating court ordeal"
"The Observer" 19 Dec. 2006

Why do women get such a lousy deal in English Courts?

Why are majority of rapes never prosecuted and even those prosecuted are nearly all `let-off' by a corrupt system?

Simple answer - police-chiefs, magistrates and judges are corrupt and pervert.

Later - another `Lindsey'
 writes in to tell her experience. 

the only successful committee - why? 

Some humans evolve into justice earlier than others note.  The Norselanders developed a formal jury system centuries, perhaps millennia before other countries.  Their jury all had to know the accused and be his/her social equals.  Ie. 'a jury of one's peers'. 
In civil disputes six jurists knew one of the disputants, six knew the other.

Extract from `The Icelandic Sagas' 

Then Flosi said  "Now I will name my daysmen*:  First I name Hall, my father-in-law;  Auzur from Broadwater;  Surt Asbjorn's son of Kirkby;  Modolf Kettle's son" - he dwelt then at Asar;  "Hafr the Wise;  and Runolf of the Dale  . . . " 

. . . and then Njal stood up, and said 
 "First of these I name, Asgrim Ellidagrim's son;  and Hjallti Skeggi's son;  Gizur the White;  Einar of Thvera;  Snorri the Priest;  and Gudmund the Powerful" 

. . . After that Njal and Flosi . . . shook hands . . . that they would hold to what those twelve men doomed.

from "The Story of Burnt Njal" translated by Sir George Webbe Dasent 

*daysman = a juror
"neither is there any daysman betwixt us"
 Job. 9:33 

Maybe save/print - A Jury's Right to Nullify Corrupt or Unfair Use of Law - Wiki

Maybe save/print - A Jury's Right to Nullify Corrupt or Unfair Use of Law - in USA / Canada

From the Viking 'Danelaw' (virtually all England N of the Thames valley) the Norsemen's jury passed into earliest English Law as one of our "Rights Immemorial". 

Despite later becoming corrupted to favour Britain's ruling Norman-German elites, in 1785 a practitioner of Scottish & English law could still write:- (the italics are his)
"The juries of England are judges of
 law as well as of fact in many civil and in all criminal trials. . . I should be the last man in the world to encourage juries to contradict rashly, wantonly, or perversely, the opinion of the judges.  On the contrary I would have them listen respectfully to the advice they receive from the bench, by which they may often be well directed in forming their own opinion; which, 'and not another's,' is the opinion they are to return upon their oaths.  But where, after due attention to all that the judge has said, they are decidedly of a different opinion from him, they not only have a power and aright, but they are bound in conscience to bring in a verdict accordingly." 


Example: the hanging of children by pervert English judges.]


Maybe save/print - A Jury's Right to Nullify Corrupt or Unfair Use of Law - Wiki

Maybe save/print - A Jury's Right to Nullify Corrupt or Unfair Use of Law - in USA / Canada

"Every jury in the land is
 tampered with note 1 & note 2 and falsely instructed by the judge when it is told that it must accept as the law that which has been given to them, or that they can decide only the facts in the case." 

Lord Denham - O'Connell v. Rex (1884)

and in the U.S.A by :- 

"The jury has the power to bring in a verdict in the teeth of both the law and the facts."

Justice Holmes - Homing v. District of Columbia 138 (1920)


"If the jury feels the law is unjust we recognize the undisputed power of the jury to acquit, even if its verdict is contrary to the law as given by the judge and contrary to the evidence."

 TH Circuit Court of Appeals, U.S. v. Moylan (1969) 


"In 1672, a jury refused to convict William Penn of preaching a religion not that of the Anglican Church, a serious `crime' in those days"

"In 1734, a New York jury refused to convict Peter Zenger of an equally odious `crime', of which he was guilty - printing criticism of the government"

UPDATE 25 Feb. 2011 - "Corrupt `Feds' arrest man for telling truth about Juries' Right To Nullify Laws" 

Maybe save/print - A Jury's Right to Nullify Corrupt or Unfair Use of Law - Wiki

Maybe save/print - A Jury's Right to Nullify Corrupt or Unfair Use of Law - in USA / Canada



"The Guardian" Alan
 Travis, Friday January 14, 2000 

"clash with Jack Straw about plans to scrap the right to jury trial for some defendants" 

Explanation:- Recently, for a generation or so, English
 lawyers - pocketing tax-payers money - have been corruptly advising criminal clients to:- 

1) initially plead "Not Guilty" - to obtain delay;

2) "go for jury trial" - to extend delay:

3) then plead "Guilty" hoping for a reduced sentence.

This does not actually help most criminal clients but it
 does give lots of taxpayer's money to the lawyers (who later become judges, - fromcorrupt2 & corruptlaw). 

Jack Straw, the 'Home
 Secretary' (and a lawyer, like most English politicians - including the Prime Minister), has decided not to take action against the corrupt lawyers. 

Instead he illegally attacks our "Rights Immemorial" - our right to fair jury trial.

In a country where
 all "official judgement" is heavily polluted bygreedy, corrupt perverts in authority. 

English law is now corrupt in practice, ensuring that 'justice', or indeed protection from justice, is only given to the rich; and to judges themselves of course - see bentjudge.  Institutionally corrupt English judges routinely and falsely try to convict working-class folk, but juries don't.

Now UK juries are not allowed to know the accused; 

now juries are often chosen from the 'upper' or 'middle class' to disadvantage minority, black or working-class defendants.

Now our "Rights Immemorial" are subverted by judges illegally acting for a ruling elite.

Now judges tamper with juries, falsely instruct juries (see
 above), and even illegally overrule a jury's decision. 

[ See recent cases of English judge named Farquhar / Farquharson ?]

News - 18 Sept '00 The
 BBC , always ready to do dirtypropaganda work for a corrupt elite, broadcast "anti-jury" selection of snips taken from interviews with a handful of ex-jurors [Radio 4 "You and yours" 1245] 

Why should we suspect this was rigged ?

Not mentioned by the BBC script:- a national survey covering 8,000 cases, with responses from at least 10 jurors per case, resulting in an overwhelmingly positive "pro-jury" outcome

STOP PRESS 27 Sept '00 


We suspect there's a long-term secret agenda, Europe-wide, to cover-up fraud among politicians, bankers, lawyers and other members of the elite (and, even more secretly, to hide pedophile crime in the elite).

CHECK - Judges aim to excuse / cover-up pedophiles,
 in UK and all over Europe 

CHECK - Judges aim to excuse / cover-up fraud,
 in UK and Europe 

[ Largest part of fraud in Europe originates in UK - we suspect that is due to UK's incompetent (&
 corrupt?) senior civil service, police and judiciary.  Ditto for pedophile crime? ] 

Check - Jury Law in a Real Democracy



mathematical outcomes 

If 'n' individuals each decides right 40% of the time, the group will decide wrong 100% of the time! 

committees and cabinets - members of self-selecting 
ELITES - are historically incompetent & opt for 

If 'n' individuals each decides right 80% of the time, the group will decide right 100% of the time! 

Juries - cross-section of 
WORKING POPULATION - are historically competent & regularly opt for 



A UK "Parliament" once expressed the will of the people, when approving the Criminal Justice Act 1991.

Two offenders who committed an offense should receive different financial penalties if they had different disposable weekly incomes.  This was to make the severity of the fine equally burdensome for rich and poor. ["Fair Fines Act" - 1991]

But the elite - in covert control of English judges and many magistrates - would not accept equal justice.

There was a conspiracy to force its cancellation, with judges and magistrates refusing to comply with the Act, claiming it was "too difficult"

[though the Tax Departments (Inland Revenue / I.R.S) do it every day, easily]

Meanwhile the UK press - owned by the elite
 see review and the BBC - controlled by the elite see below & unholy synchronized a media campaign against Fair Fines. 

It is possible that this judicial conspiracy was criminal - that the English elite lawyers and judges illegally connived against the UK Constitution.  If so - then all judicial decisions since that date have been unconstitutional. 

A weak and corrupt
 see perv3 Parliament capitulated.  The Fair Fines Act was repealed [cancelled] in the Criminal Justice Act 1993 s.65. 



 results soon followed.  See the case of Regina v UK Steel PLC [1995] ICR 586 

 UK Steel ":- a multibillion dollar company - believe it's now called "Corus" ] 

where the defendant [
 UK Steel ] was convicted of violating section 3 of the 'Health and Safety at Work Act 1974' after one of its platforms had collapsed and killed a workman. 

The trial judge fined the company £100. [That's about a hundred and sixty dollars for taking a (working-class) man's life.]




And we can also bet :-

the trial judge would eagerly (and vindictively) comply.

PROOF - From "The Independent" - an English broadsheet "Jail for driver who killed man" By Cahal Milmo 15 February 2001 A lorry driver was jailed for five years yesterday for killing a man ... Paul Browning, 36 ...admitted causing death by dangerous driving. 


from "
"Cruel & Unjust Taxes"" quote 

You don't believe CPS & judges are corrupt, biased and pervert? 

Overpaid, corrupt civil-servants
 linkTA01 & company directorslinkTA02 kill - by greed & incompetence - hundreds of people["RailTrack" linkTA03 & certain English Ferry Co's] - 

or thousands of people ["UK Gas"
 - their explosive North-Sea gas conversions have murdered more than the population of an entire UK town since the 60's] 


they get millionaire's incomes and even bonuses,
 linkTA04 taken from their victims' taxes by the murderers' accomplices, our venal linkTA05 lying linkTA06 politicians. 

Overworked, overtired truck-driver
 accidentally kills somebody - he gets 6 years in jail! 

04 June 2001 

LATEST "only the poor go to prison" 

pooronly - privileged exemptions - murdering rich 


News Aug 2002 

UK's government introduces "on the spot fines" of £40, £80, £100+? for offenses like drunkenness or rowdy behaviour. The offense and the fine to be decided solely by a policeman. 


[ Just after plan was first mooted (few years ago) the PM's own son committed several such offenses - drunk and incapable, giving false name and address to police, etc

Needless to say he wasn't punished as a working-class, or black youngster would have been

And even if he
 had been fined "on the spot" the fine would have been perhaps a few seconds-worth of his parents income, perhaps 1/1000th of their `wallet cash ] 

IF a working class boy is fined any fixed amount it could represent more than all his (or parents') available cash, demanding 'scrimping' or even going hungry 

Ironically, our government of barristers seems unable to see the injustice of punishing the working poor a thousand times more cruelly than a favoured elite 

This fosters resentment and justified anger among the poor 

Worse, it encourages arrogance in the elite, breeding rich hooligans & criminal perverts among them.

News - "Disgusting vandalism by rich going unpunished" - Radio5Live 8 Aug 2000 

"You can't stop me - my father's a barrister" 

An interviewer asked Paul Tyler, the MP for North Cornwall - "are you saying the rich kids are noticeably worse than other teenagers?" 

 he replied, going on to report that gangs of rich youths, when remonstrated with for urinating and vomiting in people's gardens, would respond with - "you can't touch me - my father's a barrister" 

[With such upbringing it is little wonder that
 perverts are dominant among barristers, judges, and other prestige branches of the establishment!] 

The English parliament is mainly made up of lawyers and other parasitic, untruthful trades; there are few representatives from productive, honest or creative professions. 

 does need to address problems of the systemic corruption of Britain's police and of legal and "upper" classes, as shown by rich perpetrators going unpunished, while corrupt police chiefs and judges persecute ordinary folk. 

It does
 not need to oppress ordinary young people with unjust, regressive fines applied by vindictive or self-seeking policemen. 



The elite of all nations (and their bully-boys - some policemen and secret-policemen) are more racist
 linkR-00 & linkR01 and sexist than the normal population, because class bias is merely another form of racism linkR02 

From the notes above we have seen how UK police-chiefs and judges pervertedly and corruptly oppress most females and the working class.  Their actions against ethnic minority groups are even more contemptible

"The Times" (Net edition) 2 March 2000
 "Blacks 'suffer as Jews did'" 

BY ROBIN YOUNG "The father of Stephen Lawrence, the teenager murdered in a racist attack in 1993, yesterday compared the position of black people in Britain to that of Jews under the Nazis" 



Sunday January 30, 2000 "The Observer"
 QUOTE - "A farcical trial and 13 years of racist abuse in jail - the story of Satpal Ram" 

Story - A biased police arrest and prosecution - for murder - when he acted in self-defence; a racist / corrupt / or incompetent defense lawyer; a racist / corrupt / or incompetent judge.

All these meant that his skin color placed Satpal Ram at the mercy of the corrupt and perverted UK "justice" system

"At the trial, a whole series of Asian witnesses, who could have supported Satpal's version of events, were never called.  The evidence of the one who did take the stand was dismissed because his broken English could not readily be understood.  No translator was employed.  At one point the judge told the jury he would translate, even though he did not speak Bengali" 

Satpal Ram - wrongly convicted - has been abused in all the jails in which he has been held -

a) because his skin was was a different color

b) because he maintains his innocence.  In these cases pervert English prison governors (from
 pervperps) routinely allow similarly perverted prison wardens to indulge in physical / sexual tortures to 'break' the prisoner's dignity and morale. 

The Parole Board will ensure that the prisoner will never be allowed to complain -

if he complains - he doesn't get parole!
 linkR04   Simple, isn't it ? 

But the parole board
 linkR05 and the governors have always lied - covered-up! 

QUOTE - "There's people in this prison, where I've been seven times, who have been responsible for torturing me and now they're all smiles as if nothing ever happened.  If there's any kickback from speaking out in this article, I'll deal with it when it happens" - Satpal Ram 

From - ~ 

UPDATE 19June '02 Satpal Ram released under EU ruling 
"Politicians should not have powers to extend sentences - to prevent political, class-biased or racial use / abuse of "Justice System"



 prison2 - disturbing (but too prevalent) abuse / tortures permitted to jailers. 

Late News.
 CPS & DPP. Perverse decisions (taken by perverts?) to allow torture and murder in prisons. 


NOTE When the newspaper coyly says 'he refused to squat for a strip-search' it means he refused to allow himself to be placed naked and kneeling on the floor to be assaulted by several prison officers. For that natural and normal refusal he was killed. 

NOTE 2 Anthropologists know of these old, primitive (sexual?) forms of torture / abasement / indignity inflicted on captive or beaten men.] 

 pervperps and bentcps 

LATE "bentgovs" 

 03 Sep. 2003 - Police still bent 

 08 Sep. 2003 - "Another lone black man murdered - by 8 policemen?"



"The Observer" Sunday April 2, 2000
 "Asian teenager . . . killed in cell" by Tony Thompson, Crime Correspondent 

"Zahid Mabarek, 19, from Walthamstow, was less than 12 hours from being released from the Feltham Young Offenders Institution in Middlesex when he was `found in his cell' suffering from severe head injuries in the early hours of 23 March."

No impartial observer attended the death-scene, so it will never be known what assaults he suffered before being silenced - by being murdered "in Her Majesty's custody".

Zahid was arrested and jailed [ by a pervert
 linkR05 system#] for a 'non-offense' (see above). He had not committed any harmful action against any person.  Zahid was sentenced to 90 days for the crime of 'going equipped'. 


21 August 2000 "The Independent" :- "Prison service admits it is 'institutionally racist'" - also, same date - "Police given warning over deaths in custody" 

24 Dec.'00 see prisons' corruption 

24 Jan '01 see 
prisons' racism 

06 Feb '01 see 
prisons' criminal brutality "a betrayal of the most base kind of our duty..." 

25 July '01 see 
UK's racist corruption Amnesty International - "reports of ill treatment by police, to deaths in custody" 

17 Sep '01 see 
uncontrolled prisons' crime, smug governors cover-up authorities' crimes 

23 July '02 see 
CPS pretence shield racists - in uniform - see CPS in Index (and Edit-Find in this page) 


Corrupt judges jailed web girl

Judge ... Michael T Conahan



Published: 19 Feb 2009

A MODEL student was sent to a detention centre by corrupt judges – for building a spoof MySpace page.

Hillary Transue thought she might get a stern lecture when she appeared before a judge in 2007 for building the webpage mocking her headteacher.

Incredibly the judge sentenced her to three months at a juvenile detention centre on a charge of harassment.

But today the judge, Mark A Ciavarella Jr and his colleague, Michael T Conahan, pleaded guilty to taking more than $2.6million in kickbacks to send teenagers to two privately run youth detention centres.

Prosecutors said that Judge Conahan, 56, secured contracts for the two centres to house juvenile offenders.

Then Judge Ciavarella, 58, carried out the sentencing to keep the centres filled.

Hillary, 17, said: “I felt like I had been thrown into some surreal sort of nightmare.

“All I wanted to know was how this could be fair and why the judge would do such a thing.”


Corrupt judges, credit rationing and the political economy of bankruptcy laws


Bruno Biais, Universit´e de Toulouse and CEPR, and Gilles Recasens, Universit´e de Reims1

September 2002

1Many thanks to Catherine Casamatta, Roman Inderst, Steven Kaplan, Jean Jacques Laffont, Thomas Mariotti, David Martimort,

Marco Pagano, Howard Rosenthal, Klaus Schmidt, Andrei Shleifer, Jean Tirole, and seminar participants at Toulouse

University and the CEPR Conference on The Firm and its Stakeholders, for very insightful discussions and comments.


The liquidation of distressed companies entails social costs, which lenders and managers do not fully internalize.

To mitigate this problem, bankruptcy laws in France and the US (in contrast with the UK or Germany)

favor reorganization. The corresponding expropriation risk faced by creditors worsens credit rationing, especially if bankruptcy judges are corrupt. Consequently tough bankruptcy laws, involving strict enforcement of debt contracts, can be socially optimal. Soft laws are likely to emerge, however, when the majority of citizens are so poor they would be credit rationed even under a tough bankruptcy law. In contrast, tough laws can be chosen when pivotal voters are middle class citizens who benefit from enhancing entrepreneurial opportunities.


Corrupt judges, credit rationing and the political economy of bankruptcy laws


1 Introduction

Why do we need laws? Laws can provide a useful framework for the enforcement of contracts. In presence of externalities, however, laws can also be useful to limit ex–ante the set of feasible contracts, or interfere ex–post

in their application. With benevolent legislators and honest judges such interference enhances social welfare.

In contrast, when there is corruption it can lead to severe distorsions. The present paper analyzes these issues in the context of bankruptcy laws.

Bankruptcy laws vary quite significantly around the world.In the UK and Germany, their main objective is nto enforce debt contracts. In contrast, in the US, France, and Russia, bankruptcy courts can violate contractual clauses, and impose firm reorganization and debt write–offs. Franks and Sussman (1999) and Berglof and Rosenthal (2000) offer very interesting analyses of the historical developments that led to the English and US

bankruptcy laws. They note that the latter was greatly influenced by the public reaction to large railroad bankruptcies in the late nineteenth century. At that time it was widely felt that liquidation of the railroads would go against the public interest.


While debtor oriented bankruptcy laws can be ex–post socially optimal, they can have adverse effects ex– ante. When anticipating that their rights as creditors risk to be violated, bankers are reluctant to grant loans.

This can result in credit rationing. Indeed La Porta et al (1997, 1998) find that in countries where creditor rights are well protected, such as the UK or Germany, firms rely extensively on debt financing, which is reflected in large debt to GNP ratios, while in countries where creditor rights are weak, debt financing is more limited. In the face of these results, La Porta et al (1997 and 1998) ask why it is that the law can define such weak

See for example, Franks, Nyborg and Torous (1994), White (1994) and Atiyas (1995).

1 creditor rights. From a standard public economics perspective one answer could be that optimal bankruptcy laws trade–off credit rationing with social costs of liquidation. If coping with credit rationing is more important for social welfare than limiting the social costs of liquidation, then the optimal bankruptcy law should be tough,

i.e., it should insist on liquidation whenever debt is not serviced. Alternatively, if the social costs of liquidation are relatively large, the law should besoft, i.e., it should allow for reorganization, to keep the firm in business, even if it implies some violations of creditors’ rights. When one looks at the darker side of human nature, however, the picture becomes a little more blurred.

First, bankruptcy judges may not be honest and benevolent social welfare maximizers. Unfortunately there are numerous cases of bankruptcy judges’ corruption. With corrupt judges soft laws generate credit rationing as well as deviations from socially optimal liquidation decisions ! Second, the laws actually voted may deviate bfrom those which are socially optimal, as median or pivotal voters do not internalize the welfare of all citizens.

The goal of this paper is to analyze the political process through which bankruptcy laws are chosen and its consequences for economic efficiency and social welfare.

We build from a simple corporate finance model `a la Holmstrom and Tirole (1997). Entrepreneurs with investment projects need outside financing to fund these. As they must exert costly but unobservable efforts to make the project profitable there is a moral hazard problem. The latter can generate credit rationing for entrepreneurs with initial wealth below a certain threshold.

We extend this model by assuming that liquidation can create social costs that are not internalized by managers and lenders, and by considering two possible bankruptcy laws. Under the tough law, firms are liquidated whenever they cannot service their debt. Under the soft law, judges decide if firms are liquidated when they cannot serve their debt. Some judges are honest and make liquidation decisions to maximize social welfare, other judges are corrupt and bribes will influence their rulings.

We embed this analysis into a slightly more general model where a continuum of citizens have identical investment projects, but different initial wealth.Citizens with initial wealth below a certain threshold are

3This is similar to Biais and Casamatta (1999).

2 credit rationed. In an extension of our analysis we enrich this setting by considering a simple general equilibrium model where equilibrium is jointly determined on the labor market and the credit market. Thus we are able to analyze the consequences of bankruptcy laws on investment and on wages, reflecting the increased labor demand generated by the creation of new firms.

Within this framework, we analyze the emergence of bankruptcy laws resulting from the votes of this population of agents.

Our analysis generates the following insights:

² The adverse effect of soft laws on access to financing is worsened by judges’ corruption. Tough laws do not grant judges any discretion regarding liquidations. Hence there is no scope for bribery. With a soft law, in contrast, the judge has discretion over the liquidation decision. In this context corrupt judges extract bribes. These play the role of a tax on creditors, reducing the return they can expect from their loans, and thus their willingness to fund projects. When the judicial system is corrupt, it can be preferable to

opt for tough laws, even if it means inefficient liquidations.

² Yet, soft laws are likely to emerge in democracies when the majority of the citizens are so poor that they are credit constrained, whatever the bankruptcy code. While poor citizens suffer from the social costs of liquidation generated by tough laws, the extent to which they benefit from enhanced financing opportunities is limited. Correspondingly they are not very sensitive to the adverse effect of soft laws or judges’ corruption on credit rationing.

² In contrast, tough laws are more likely to emerge in democracies where the pivotal voters are middle class citizens benefitting from enhanced entrepreneurial opportunities. In this case, access to financing is facilitated, which spurs investment and growth.

² Furthermore the determinants of the softness of bankruptcy laws are correlated with the business cycles.

In slumps, the social costs of bankruptcy are likely to be particularly large and soft laws are more likely to be passed than in booms.

3 Our paper builds on the substantial literature analyzing the design of bankruptcy laws (see e.g. Harris and Raviv, 1993, White, 1989, Bebchuck, 1988, Aghion, Hart and Moore, 1992, Berkovitch, Isarel and Zender, 1997, and Berkovitch and Israel, 1999.) Relative to this literature, our contributions are i) to analyze the differences between (bankruptcy) laws and (financial) contracts arising in presence of externalities, ii) to endogenize the bankruptcy law as resulting from an electoral process, iii) to study the consequences of bankruptcy judges’

corruption, and iv) to delineate the impact of the law on social welfare (in particular through credit rationing and social costs) and on financing choices.

Our political economy approach is in the line of the insightful paper by Bolton and Rosenthal (1999).

Some of the major differences between our paper and theirs include the following: In their analysis voting on moratoria occurs ex–post. In ours citizens vote for the bankruptcy law ex–ante, and then financial contracts are written and economic decisions taken, reflecting the legal context. Also, we emphasize the role of (possibly corrupt) judges, while Bolton and Rosenthal (1999) emphasize more the legislative process. Finally, their focus on how bankruptcy laws complete contracts by making their application contingent on macro–shocks, differs from our focus on how laws take into account externalities imposed on third parties by the parties of financial contracts.

Our analysis of the consequences of bankruptcy laws on access to financing is also in the line of the law and finance body of research, initiated by La Porta et al (1997, 1998). Our paper proposes to push this research nagenda one step further, by studying the political economy of the emergence of legal systems, and offering a rationale for their imperfections.

The next section presents institutional features of bankruptcy procedures which motivate our analysis.

Section 3 analyzes corporate financing choices with a tough law. Section 4 analyzes the case of a soft law.

Section 5 analyzes the socially optimal law and studies which law results from voting. Section 6 presents

extensions of our basic model. Section 7 offers a brief conclusion. Proofs not given in the text are in the



2 Institutional background on bankruptcy laws in different countries


Bankruptcy laws vary considerably across countries.4

As shown by the very interesting historical analysis of Franks and Sussman (1999), “the English procedure was developed by lenders and borrowers, exercising their right to contract freely.” It was left to the parties of debt contracts to determine their mutual obligations. “The role of the state in this process was relatively limited, largely confined to enforcing the contract”. In line with this historical evolution, the current UK bankruptcy code emphasizes the protection of creditor’s rights.5

Similarly to the UK law, the German law emphasizes the protection of creditors’ rights (see Kiefer, 2000).

In most cases, when companies default on their debt repayment obligations, they end up liquidated, and the proceeds are distributed to the debtholders.

In contrast, as explained by Franks and Sussman (1999), the US constitution gave Congress large powers to create bankruptcy laws resulting in interferences with the application of contracts. The US law took a decisive turn towards the end of the nineteenth century, when very important railroads companies failed. As explained by Franks and Sussman (1999): “It was largely felt that the lenders’ liquidation rights stood in conflict with the public interest”. Similarly, Berglof and Rosenthal (2000) note that: “It was argued that the liquidation of the

railroads would lead to significant costs for the US economy, e.g., cutting off the West from important supply lines.” In this context, as noted by Franks and Sussman (1999), “the Federal Courts innovated new procedures to preserve the railroads sometimes in blunt violation of pre–contracted agreements.” The current US law, in particular the Chapter 11 procedure, can be used to maintain firms in operations, even when creditors do not agree. For example, in the US, if creditors disagree with the reorganization plan, the judge can decide to use the “cram down” procedure to implement the plan in spite of their opposition.6

See for example, Franks, Nyborg and Torous (1994) for a comparison of the US, UK and German insolvency codes. White

(1994) and Atiyas (1995) also offer interesting international comparisons.

5Franks and Sussman (2000) offer an empirical analysis of the workings of the bankruptcy process in the UK.

6Franks and Torous (1989 and 1994) offer an empirical analysis of the workings of the bankruptcy process in the US, and Fisher

and Martel (1995, 1999, 2000) compare it to its Canadian counterpart.


The French bankruptcy law goes even further than the US law as regards the violations of creditors’ rights (see Biais and Mal´ecot, 1996). Its first stated objective is to save failing firms and avoid laying off workers. To reach this goal, judges enjoy large discretionary powers. If, based on their analysis of the firm and its social context, they feel that keeping the firm in operation is essential, they can unilaterally write–off the creditors’ rights. The French law, which was voted in 1985 by the socialist majority in parliament, reflects the popular feeling that other stakeholders than the creditors are concerned by bankruptcy procedures, and that judges should aggregate the different preferences of the different parties, to implement socially optimal decisions.

When that law was voted, very severe industrial restructurings were taking place in France (for example in the steel and coal industries in the North and the East of the country) and the social costs of liquidation were quite visible to French citizens.

This very brief comparison of bankruptcy procedures in four major industrial economies suggests that two different philosophies can underly these laws. On the one hand, bankruptcy laws can be designed to enforce the contract between two parties: the creditors and the debtors ; this is the approach taken in Britain and Germany. We refer to such laws as tough. On the other hand, bankruptcy laws can be designed with a view at taking into account the welfare of other parties, on which the application of the debt contract could have

external effects. In this second approach, taken by the US and France, the judge is given discretionary powers, and is allowed by the law to violate the contractual rights of the creditors. We refer to such laws as soft.

Note however that such discretionary powers can enhance social welfare only if judges are benevolent.

Unfortunately, there has been ample recent evidence in France that some judges use their powers in order to obtain bribes, rather than to maximize social welfare. A recent investigation, undertaken by the French Parliament, uncovered major dysfunctionings in bankruptcy courts.

Lambert–Mogilianksy, Sonin and Zhuravskaya (2000) offer an interesting analysis of the Russian bankruptcy law. Similarly to the American Chapter 11 procedure and the French bankruptcy law, Russian courts have significant discretion in bankruptcy procedures. As noted by Lambert–Mogiliansky, Sonin and Zhuravskaya (2000): “The judge does not need to follow the creditor’s request. This clause in the law was motivated by the fact that creditors may opt for inefficient liquidation.” The analysis of Lambert–Mogiliansky, Sonin and


Zhuravskaya (2000) suggests that corruption of Russian bankruptcy courts is rather frequent.


3 Corporate financing with a tough bankruptcy law

3.1 Model

Consider a continuum of risk-neutral entrepreneurs (also referred to hereafter as “managers”). Each entrepreneurhas access to an investment project, requiring initial investment I. While all the investment projects are identical, the entrepreneurs differ in terms of their initial wealth, Ai. The total mass of the population of entrepreneurs is normalized to one. For simplicity, assume there are only three types of entrepreneurs:

the rich (with initial wealth: Ar), the middle class (with initial wealth: Am), and the poor (with initial wealth:

Ap), where A> A> Ap. The masses of the three categories are ¹r; ¹and ¹respectively. The average initial wealth of the population is: E(A) = ¹rAr¹mA¹pAp. To undertake the investment project, the manager with initial wealth Aneeds to raise outside funds: ¡Ai. Competitive risk neutral outside financiers are willing to lend as long as they break even in expectation. For simplicity their required rate of return is normalized to 0, and, as they are competitive, their participation constraint is saturated. If the investment is undertaken, the project can yield payoff or 0. If the manager exerts effort, and incurs disutility e, then the

probability that the payoff is is phwhile if she does not exert effort, the probability of success is lowered to pl. We assume effort is unobservable, which raises a moral hazard problem between the entrepreneur and the outside financier. We also assume there is limited liability. So far, our framework is directly inspired by Holmstrom and Tirole (1997). In the remainder of the paper we build on this basis, adding ingredients to model bankruptcy laws and their social and political environment.

After the cash flow (or 0) is obtained, the firm can continue to operate or be liquidated. In the latter case, liquidation proceeds are obtained. For simplicity we do not model explicitly the case where the firm is maintained in activity. We simply assume that in this case, the manager obtains non–transferable private benefits

B. These can be thought of as reflecting the psychological satisfaction of the entrepreneur. Alternatively, one can think of as the non–pledgeable rents the manager could earn from continued operations. We assume


that B > L, to focus on the case where liquidation is inefficient. Indeed, soft bankruptcy laws, which we want to analyze, are often justified as a way to avoid inefficient liquidation.

We also assume that the project has positive net present value if and only if i) the manager exerts effort, and ii) the firm is not liquidated except possibly in the bad state:

ph¡ ¡ I > ph(B) + (1 ¡ ph)¡ ¡ I > 0

> ph(L) + (1 ¡ ph)¡ ¡ I > ph¡ ¡ I:

3.2 The first best

In this context, the first best is to undertake the project, and never liquidate it. Denote:

Sph¡ ¡ e;

the surplus created by the project in that case.

Is that outcome incentive compatible? The corresponding contract would involve a monetary transfer to

the outside financier in the good state and nothing in the bad state. In this case the incentive compatibility

condition of the entrepreneur is:

ph(¡ T) + (1 ¡ ph)¡ e > pl(¡ T) + (1 ¡ pl)B:

The participation constraint of the outside financier is:

¡ A


· T:

Combining the two conditions, the first best can be implemented if and only if:

A¸ ¡ phph


p¡ pl


Denote Athe right hand side of this inequality. It states the standard result that, with moral hazard and limited liability, agents with wealth below a threshold are credit rationed. Note that, the minimum initial wealth constraint is tightened as the cost of effort (e) increases.


3.3 The second best

If A< Athe first best cannot be implemented. Is it possible to reach the second best outcome, whereby the firm is liquidated in the bad state? Denote:

Sphph+ (1 ¡ ph)¡ ¡ e;

the surplus created by the project in the second best.

In that case the incentive compatibility condition of the entrepreneur is:

ph(¡ T¡ e > pl(¡ T):

The participation constraint of the outside financier is:

¡ A¡ (1 ¡ ph)L


· T:

Combining the two conditions, the second best can be implemented if:

A¸ ¡ phph


p¡ pl

¡ (ph+ (1 ¡ ph)L):

Denote Athe right hand side of this inequality.

Note that AA¡(phB+(1¡ph)L). Liquidation in the bad state relaxes the condition under which the project can be financed, because it relaxes the participation constraint (by promising liquidation proceeds to the financier) as well as the incentive constraint (by threatening the manager to deprive him from his private when cash flows are low).Hence the minimum level of wealth needed to obtain outside financing is lower

when the firm is liquidated in the bad state than when it is never liquidated.

Although liquidation is ex–post inefficient, this contract cannot be renegotiated. The manager has no cash in the bad state, and thus cannot pay the financier to avoid liquidation.


7This is not unlike in Hart and Moore (1994, 1998), Bolton and Scharfstein (1990), and Bolton and Rosenthal (1999).


3.4 Debt, equity and credit–rationing

The two contracts, implementing the first and second best outcomes respectively, can be interpreted in terms of financial contracts widely observed in practice:

² In the first best contract, which is feasible when A¸ AE, the firm is never liquidated, and cash flows are split between the owner manager and the outside financiers. This corresponds to the case where the firm obtains outside financing by issuing outside equity (without relinquishing control, either because the entrepreneur keeps the majority of the shares, or because of dual class shares).

² In the second best contract, which is feasible when A¸ A, the outside financiers receives a monetary transfer when cash flows are high, and liquidation proceeds when cash flows are low. This corresponds to the case outside financing is obtained by issuing risky debt, secured by the firm’s assets.8

As the outside financiers are competitive, the entrepreneur captures the entire net value of the project. If his initial wealth is greater than Ahe opts for the contract implementing the first best, and thus issues equity.

If his initial wealth is lower than Abut greater than A, he opts for the contract implementing the second best and issues debt. Finally, if the initial wealth of the would–be entrepreneur is below A, then he faces credit–rationing, and the project cannot be undertaken, although it has positive net social value.


4 Soft bankruptcy laws, social costs and judges

4.1 Social costs and bankruptcy judges

So far, we have focused on outside investors and managers. It is plausible, however, that firm liquidations can have external effects on third parties. In particular, they can entail social costs corresponding to the destruction of firm specific capital acquired by the employees of the firm, or firm specific investments made by suppliers or ncustomers. Additional costs are borne by citizens, whose everyday life was linked to the existence of the firm.


8Our simple model of debt contracts to discipline managers is in the line Hart and Moore (1994, 1998) and Bolton and Scharfstein

(1990), and consistent with empirical analyses such as Kaplan (1989).


For example, in France, in the eighties and nineties, there was a severe crisis in the textile industry. Many small businesses, located in small towns or villages were liquidated. This generated large social costs, as the whole life of these small towns was disrupted: as workers were laid off and had to move, and the population of these small towns decreased and became poorer, local shops and schools had to be closed, and valuable social

networks were distroyed. Tirole (2001,, page 3) points at the importance of such costs:

“Managerial decisions ... exert externalities on a number of “natural stakeholders” who have an innate relation with the firm... There is no denying that such externalities may be substantial; for example, the closure of a plant by a major employer in a depressed area has dramatic consequences for its workers and the local economy.”

In the present paper we do not explicitly model all these costs and externalities. Rather, we take a short–cut and assume that these costs (denoted c) are diffuse and borne by all the citizens.

As shown in the previous section, entrepreneurs with wealth above Acan obtain outside equity financing and undertake the investment project, without creating any liquidation risk. With a tough bankruptcy code, somewhat less wealthy entrepreneurs, with A[A;AE], can issue risky debt. But if these firms default, this creates social costs. The purpose of soft bankruptcy laws is to interfere with the application of debt contracts to reduce these social costs of bankruptcy. We hereafter study the consequences of such laws on welfare, taking

into account credit–rationing as well as social costs.

We assume social costs are not known exactly ex–ante. We model these costs as a random variable, with expectation E(c), and, for positive real number k, we denote G(k) the probability that social costs are greater than k. Furthermore, we assume that social costs can be observed, ex–post, by the judge when the liquidation decision has to be made. We model the soft law as follows: The bankruptcy law defines a threshold value of the cost,c¤, and states that defaulting firms should be liquidated if the cost is lower than this threshold,

and reorganized otherwise. When the firm is reorganized, the creditors cannot receive liquidation proceeds, while the manager still enjoys the non–transferable private benefit from continuation, and the social costs of liquidation are not incurred. If the firm is liquidated, creditors receive L, the manager receives nothing, and social costs are incurred.

Judges are not always honest, and do not always act as stated by the law. We assume that with probability ¹ the judge is incorruptible, while with probability 1 ¡ ¹ she is corrupt. Tough laws do not grant judges any discretion regarding liquidations. Hence there is no scope for bribery. With a soft law, in contrast, the judge has discretion over the liquidation decision. Consequently, interested parties might attempt to bribe him to influence the court’s ruling. Managers can’t bribe judges when the return of the firm is 0, since they have no cash to do so. Furthermore, as in Bennedsen (2000) or Shleifer and Vishny (1994), we assume that the public is disorganized, so the entire population of citizens cannot get together to convince or bribe the judge to be efficient. The bank, in contrast, can use its financial resources to bribe the corrupt judge, so that he rules in favor of liquidation. For simplicity, we do not explicitly model the corruption game ; we just assume the

amount of bribe is equal to a fraction of the liquidation proceeds: ±; which reflects the bargaining power of the bankruptcy judge. Thus, the corrupt judge obtains: ±L while the bank obtains (1 ¡ ±)L. As analyzed below, the bribe left to the judge reduces the cash flow which can be pledged to the creditors, and consequently the bank’s willingness to grant a loan.9

Denote ¼ the ex–ante probability of reorganization in case of default when the judge is honest. It is given by:

Pr(c > c¤) = G(c) = ¼:


4.2 Equilibrium under the soft law

Under the soft law the incentive compatibility condition of the manager is the following:

ph(¡ B) + (1 ¡ ph)¹¼B ¡ e

> pl(¡ B) + (1 ¡ pl)¹¼B:

This is equivalent to:

9In a previous version of this paper, we also studied the case where the managers could bribe the judge. The main qualitative results were unaffected. Indeed, irrespective of the identity of the party who can collude with the judge, bribes reduce pledgeable income and thus enhance credit rationing problems.




p¡ pl

¡ ¹¼B > T:

Comparing this incentive compatibility condition to its counterpart obtained for the tough law, we see that there is an additional term on the right–hand–side: ¹¼B, which reflects the adverse effect of the softness of the bankruptcy law on the incentives of the manager : when they can hope for reorganization, managers are less incentivized to exert effort than when they are threatened by systematic liquidation. Correspondingly, we denote:

AEI ¹¼B;

where AEI stands for Adverse Effect on Incentives. Note that AEI is equal to the additional expected private benefit obtained by the manager in the bad state, relative to what he would have obtained under the tough law.

Under the soft law the participation constraint of the bank is:


¡ ¡ (1 ¡ ph)[¹(1 ¡ ¼) + (1 ¡ ¹)(1 ¡ ±)]L





¡ ¡ (1 ¡ ph)+ (1 ¡ ph)[1 ¡ ¹(1 ¡ ¼¡ (1 ¡ ¹)(1 ¡ ±)]L



Comparing this condition to its tough law counterpart, we see that there is an additional term on the right–

hand–side: (1 ¡ ph)[1 ¡ ¹(1 ¡ ¼¡ (1 ¡ ¹)(1 ¡ ±)]L, which reflects the adverse effect of the softness of the

bankruptcy law on the participation constraint of the bank. Correspondingly, we denote:

AEP = [1 ¡ ¹(1 ¡ ¼¡ (1 ¡ ¹)(1 ¡ ±)]L;

where AEP stands for Adverse Effects on Participation. It is equal to the loss in expected liquidation proceeds obtained by the bank in the bad state, relative to what would be obtained under the tough law.

Combining the participation constraint of the bank and the incentive compatibility condition of the manager, the project can be financed by debt with a soft law if and only if:

A > Aph¹¼B + (1 ¡ ph)[1 ¡ ¹(1 ¡ ¼¡ (1 ¡ ¹)(1 ¡ ±)]L

AphAEI + (1 ¡ ph)AEP:

Denote Athe right hand side of this inequality. The minimum level of initial wealth needed to avoid credit rationing in the case of debt financing with a soft law (AS) is greater than its counterpart in the case of debt financing with a tough bankruptcy law (A). Since the flexibility of the bankruptcy law weakens the incentives of the manager to exert effort, and tightens the participation constraint of the bank, it worsens the credit rationing problem.

The minimum level of initial wealth under which there is credit rationing under the soft law (AS) is increasing in the probability of continuation ¼. The greater this probability, the more difficult it is to induce the manager to exert effort and the outside financiers to provide funding. The soft bankruptcy law generating the smallest possible amount of credit rationing corresponds to the case where ¼ is set to 0 and Ais equal to:

AS(¼ = 0) = A+ (1 ¡ ph)(1 ¡ ¹)±L:

Building on the analysis above the following proposition obtains:

Proposition 1

If A< A, firm faces credit rationing, irrespective of the bankruptcy law. If A· A< AS(¼ = 0), then entrepreneur can finance the project with debt under the tough law but faces credit rationing under the soft law. If AS(¼ = 0) · A< AE, then entrepreneur can finance the project under the tough law, and the soft law can be designed such that the project can be financed. Finally, if A¸ AE, then the project can be financed by outside equity, irrespective of the bankruptcy law.

4.3 Properties of the equilibrium

First note that since AS(¼ = 0) > Athe minimum level of cash necessary to obtain financing under the soft law is always greater than its tough law counterpart. The wedge between AS(¼ = 0) and Areflects the presence of corrupt judges, who are bribed into not liquidating the firm, irrespective of the relative levels of c and c¤. Hence, we can state the following proposition.

Proposition 2 Whatever the threshold level of social costs (c¤) stated in the soft law, there is more credit rationing with that law than with the tough law.

Note also that the smallest possible amount of initial cash below which there is rationing under the soft law (AS(¼ = 0)) is increasing in 1 ¡ ¹, the proportion of corrupt judges. Hence we can state the following proposition.

Proposition 3 The greater the proportion of corrupt judges the more credit rationing is generated by the soft law.

To shed further light on the difference between the soft law and the tough law, consider the role of under the two regimes. Credit rationing problems are mitigated by the firm’s ability to pledge the liquidation value of its assets (L) as collateral. Note however that the derivative of Awith respect to is more negative than the derivative of Awith respect to L. Hence, we can state the following proposition:

Proposition 4 The effectiveness of collateral to reduce credit rationing is stronger with a tough law than with a soft law.

The proposition arises because under the tough law collateral can be credibly pledged, while under the soft law creditors face the risk to be expropriated from their claims on the liquidation value of the firm.

5 The optimal law and the actual law

Hereafter in the paper we focus on the case where the poor are really poor, and do not have access to financing, while the rich are really rich, and can undertake the project, whatever the bankruptcy law, while the investment opportunities of the middle class citizens can be affected by the law. Thus we assume:

A< A< A< A< Ar:


5.1 The socially optimal law

Credit rationing problems are more severe with the the soft law than with the tough law. When middle class

citizens are relatively poor, in the sense that: A< As(¼ = 0), they are credit rationed with the former, while they can be financed with the latter. Hence with the soft law, the utilitarian social welfare is equal to:10

Wsoft E(A) + ¹rS1;

while with the tough law it is:

Wtough E(A) + ¹rS¹m(S¡ (1 ¡ ph)E(c)):

Thus, the tough law is ex–ante socially optimal if financing middle class entrepreneurs is optimal, i.e., if the net present value of the project is greater than the expected social costs of liquidation it generates. This is stated in the next proposition:

Proposition 5 If the middle class is relatively poor, in the sense that: A< As(¼ = 0), the tough law is socially optimal if and only if the net present value of the investment project when there is liquidation in the low cash flow state, is greater than its expected social costs, that is:

S(1 ¡ ph)E(c):

On the other hand, when the middle class citizens are relatively rich, in the sense that A> As(¼ = 0),

they have access to financing even with the soft law, provided the threshold level of social costs, c¤, is not too low. Consequently, the soft law is optimal, as it can be designed to optimally reduce social costs without worsening credit rationing. This is stated in the next proposition.

Proposition 6 If the middle class is relatively rich, in the sense that A> As(¼ = 0), then the soft law is socially optimal.

10Since we focus on the utlitarian social welfare, transfers cancel out. Hence, transfers to corrupt judges have no direct impact of welfare. But they have an indirect effect: they reduce welfare because of their adverse impact on the participation constraint of the bank.


5.2 Voting on the bankruptcy law

The investment opportunities of the poor and the rich citizens are unaffected by the bankruptcy law. From their perspective the only difference between the soft law and the tough law is that social costs are greater with the latter. As these costs are diffuse and borne by all citizens, the poor and the rich prefer the soft law rather than the tough law.11 Consequently if the coalition of the rich and the poor includes more than half the

population (i.e., if ¹¹1

), the soft law is chosen by majority voting, irrespective of its social optimality,

and in particular irrespective of its consequences on credit rationing. This raises the possibility of a conflict between the outcome of majority voting and social optimality. This can lead to excessively soft laws, as stated in the following proposition:

Proposition 7 If the coalition of the rich and the poor has the majority (¹¹1

)the middle class is relatively poor (A< As(¼ = 0)), and social costs are relatively limited (S(1 ¡ ph)E(c)), then majority voting selects the soft law although this is socially suboptimal.

The proposition reflects the fact that the poor and the rich fail to internalize the adverse effect of the soft law on middle class citizens which it deprives from access to credit.

Now consider the individual preferences of the middle class citizens. If they are relatively poor, in the sense that A< As(¼ = 0), then their expected utility under the soft law is simply: Am, as only the rich are financed and there are no liquidations. On the other hand, under the tough law their expected utility is:

AS¡ ¹m(1 ¡ ph)E(c):

Hence they prefer the tough law if and only if:

S> ¹m(1 ¡ ph)E(c):

This condition is very similar to the condition under which the tough law is socially optimal (stated in Proposition

5). The only difference is that the right–hand–side of the inequality , corresponding to social costs, is

lower than in Proposition 5. This reflects the fact that individual citizens do not fully internalize the social

11Our analysis of the preferences of different social classes towards economic policies is in line with Biais and Perotti (2002).


costs induced by bankruptcies. This raises the possibility of discrepancies between the optimal law from the point of view of the middle class and the socially optimal law. This is illustrated in the following proposition:

Proposition 8 If the middle class citizens have the majority (¹1

) and are relatively poor (A<

As(¼ = 0)) then the tough law is chosen by majority voting if: S> ¹m(1 ¡ ph)E(c). This is socially suboptimal if: S(1 ¡ ph)E(c).


6 Extensions

6.1 Bail out policies versus bankruptcy laws

With soft bankruptcy laws, judges can decide to expropriate creditors to avoid liquidations. Another possibility would be to raise taxes to pay–out the creditors. Potentially this could lead to a better outcome than soft laws as it could avoid the social costs of liquidation, without making banks reluctant to lend. Yet, rich and poor citizens prefer soft laws rather than bail–outs. While both policies mitigate the social costs of bankruptcy, the former does not create a tax burden for rich and poor citizens, while the latter does. To put it differently,

bail–outs amount to subsidies from the rich and the poor to the middle class. The rich and the poor do not favour such policies, given that they do not internalize the effects of bankruptcy laws on credit–rationing for the middle class.


6.2 Taking into account the positive consequences of business creations for non–entrepreneurs

So far we did not take into account the job opportunities generated by new businesses for non–entrepreneurs.

In this subsection we offer an extension of our model which takes this aspect into account.12

12This is in the line of the political economy analyses of the interactions between financial and labour markets by Pagano and Volpin (2000) and Bolton and Rosenthal (1999).


6.2.1 Modelling jointly the job market and the capital market

Assume that, in addition to units of capital, each project requires one unit of labor, and that agents who are not entrepreneurs can supply labor. For example suppose that agent can supply labor li, at a disutility cost of c(li). c(li) is assumed to be increasing and convex. If agent does not become an entrepreneur, and supplies labor li, she is employed by a firm which generates cash flow with probability pH, and in this case she receives her wage w. Hence her expected utility is:

liph¡ c(li):

We assume that the labor market is competitive. Agent i’s first order condition yields:


i.e., the (expected) wage is equal to the marginal disutility of labor. Inverting the marginal cost of labor, we obtain labor supply as a function of expected wages: lc1(phw):

Consider the case where only the rich have access to financing, while the poor and the middle class are credit rationed. In this case the market clearing condition on the labor market is:

¹= (¹¹p)c1(phw);

where the left hand side is the labor demand expressed by the business created by the rich, while the right– hand–side is the labor supply offered by the middle class and the poor. In this context the equilibrium wage is:





). Denote it: wpm, where the subscript denotes that it is earned by the middle class and the poor. On the other hand, if both the rich and the middle class have access to credit, the market clearing condition

on the labor market is:

(¹¹m) = ¹pc1(phw):

In this context the equilibrium wage is: 1




). Denote it: wp, where the subscript denotes that it is

earned by the poor. Comparing the two cases, and relying on the convexity of c(:), we obtain the following proposition:

Proposition 9 The equilibrium wage is greater when both the rich and the middle class have access to financing than when the middle class are credit constrained.

When both the rich and the middle class have access to credit, labor demand is greater, and labor supply lower, than when the middle class is credit constrained. Consequently wages are greater. This is particularly pronounced when the marginal cost increases strongly with labor supply, i.e., when c(:) is very convex.

Now turn to the financial market. Everything is as in the previous sections, except that the cash flow available to pay back the financier and incentivize the manager is no longer R, but only ¡ w. Applying the same logic as in the above sections, entrepreneurs can finance their project with equity if their initial wealth is greater than:

A¡ ph(¡ w) + ph


p¡ pl


while they can raise debt under the tough law if their initial wealth is greater than:

AA¡ (ph+ (1 ¡ ph)L)and under the soft law if it is greater than:

AAphAEI + (1 ¡ ph)AEP:

These equations are formally similar to those presented in the above sections, except that the wage (w) is deducted from the revenue (R) in AE. Note however that there is another, more subtle, difference. The wage depends on the number of firms which are financed. Hence, to the extent that this number reflects the bankruptcy law, the wage varies with that law.

For brevity, we now focus on what we think is the most interesting case, i.e., the situation where the middle class obtain financing under the tough law, while they are rationed under the soft law (and the rich always obtain equity financing). The corresponding equilibrium conditions for the tough law are:

A> I ¡ ph(¡ wp) + ph


p¡ pl


A> I ¡ ph(¡ wp) + ph


p¡ pl

¡ (ph+ (1 ¡ ph)L> Ap;


while for the soft law the equilibrium conditions are:

A> I ¡ ph(¡ wmp) + ph


p¡ pl





¡ (ph+ (1 ¡ ph)L) + phAEI + (1 ¡ ph)AEP > Am:

6.2.2 Social welfare

Assuming that parameters are such that these conditions hold, we now analyze the socially optimal law, and the law chosen by majority voting. Under the tough law, the utilitarian social welfare is:

Wtough ¡ ¹pc(¹¹r



where the first term is the social welfare obtaining under the tough law when labor is not needed (characterized in the previous section) and the second term is equal to the disutility of labour of the poor workers (wages cancel out in the utilitarian function).

Under the soft law, the utilitarian social welfare is:

Wsoft ¡ (¹¹m)c¹r¹¹p):

In the previous section we established that, when there was no need for labor supply, the tough law was socially preferable to the soft law if:

Wtough ¡Wsoft ¹m(S¡ (1 ¡ ph)E(c)) 0:

To take into account the labor market the condition becomes:

¹m(S¡ (1 ¡ ph)E(c)) > ¹pc(¹¹r¹p’¡ (¹¹m)c¹r#¹¹p):

In addition to the trade–off between investment and social costs (characterized in the previous section), theabove inequality also emphasizes that, with the tough law, more labor needs to be supplied, and correspondingly the disutility of labor is increased.


6.2.3 Political preferences

In this subsection, for simplicity, we assume that c(x) = 2x2. The greater the parameter k, the greater the convexity of c(:). As shown above, the more convex the cost function, the greater the increase in wages generated by the increase in labor demand due to additional business creations under the tough law.

As in the previous section, since the poor do not internalize the welfare gains of the other classes, their preferences about the law are not necessarily aligned with social optimality. This is stated in the following proposition.


Proposition 10 The poor prefer the soft law, although the tough law is socially optimal, if:


2[¹p(¹¹r¹pz)¡ (¹¹m)( ¹r¹¹p)2]> ¹m(1 ¡ ph)E(c>k

2[(¹¹r=¹p)¡ ¹r¹¹p)2]:

The first inequality corresponds to the condition that the tough law be socially optimal. It requires that the welfare gains of the middle class due to the access of credit be large, in particular due to Sbeing large.

The second inequality corresponds to the condition that the poor prefer the soft law. It requires that the cost function c(:) be not too convex (and corresponding be low). This dampens the increase in wages generated by the tough law. Thus the analysis conducted in this subsection shows that, while the increase in wages

stemming from business creations reduces the attractiveness of the soft law for the poor, if that effect is not too pronounced the qualitative effects identified in the previous section are upheld.

Finally note that, in our model, the rich never favour the tough law: Not only does it generate social costs, it also raises wages, and thus reduces their profits.


7 Conclusion

This paper proposes a simple model in which tough bankruptcy laws mitigate credit rationing problems while soft laws can reduce the social costs of liquidation. We analyze the political process leading to the adoption of bankruptcy laws and characterize situations whereby the laws emerging from voting are not socially optimal.


Our analysis yields several empirical implications regarding the financing of corporations:

² In line with the country level evidence offered by La Porta et al (1997, 1998) and the firm level evidence offered by Giannetti (2000) our model implies that access to debt financing is reduced in countries with soft bankruptcy codes. Thus, soft laws are an obstacle to entrepreneurship.

² Our model also implies that the positive impact of collateral for access to credit should be greater in countries with tough bankruptcy laws. It could be interesting to test this using firm–level data, such as that used by Giannetti (2000).

² A further implication of our model is that the adverse effect of soft bankrutcy laws on credit rationing increases with the proportion of corrupt judges.

Our analysis also yields implications relative to the emergence of different types of laws:

² When the party in power represents the interests of relatively poor citizens, who, whatever the bankruptcy law, cannot raise funds to become entrepreneurs, soft laws should be passed (whether they are socially optimal or not). Indeed, the 1985 French law was chosen by the rather leftist socialist majority which wasin power at the time. In contrast, in countries with a politically influent and potentially entrepreneurial middle class, tough bankruptcy laws are more likely to be passed. It would be interesting to test these

implications in a cross section of countries, including developed and developing or transition economies.

² Our theoretical analysis implies that middle class citizens are in favor of tough laws if the surplus they obtain when setting up business are relatively large relative to the social costs of bankruptcy. Also, relatively poor citizens are less favorable to soft laws when new business creations could result in significantly larger wages for them. Furthermore tough laws are more likely to be passed when the social costs of liquidation are not perceived to be high. These conditions are more likely to hold in upturns than in downturns of the business cycle. Hence, our model implies that soft (resp. tough) laws are more nlikely to be passed in economic downturns (resp. upturns). This is consistent with stylized facts on the history of bankruptcy laws: in the US soft laws tended to be passed after business cycles downturns,

while in the UK a major change in the bankrutcy law was initiated by creditors in 1869, at the height of an expansion. Domowitz and Tamer (1997) offer empirical evidence on the correlation between changes in the bankruptcy laws and the business cycle. It could be interesting to analyze the macroeconomicconsequences of the procyclicality of changes in bankruptcy laws. To pursue this avenue of research it would be interesting to build on the analyses of the politics of macroeconomics offered by Alesina (1987) and Alesina and Tabellini (1990).

Our analysis also yields some policy implications. In countries where credit rationing problems are severe and corruption is a serious issue, our model suggests that very little can be gained, and a lot can be lost, by opting for a soft bankruptcy code. This suggests that, in transition economies and possibly in developing countries, opting for tough bankruptcy codes might well be the best course of action – if the social costs of liquidation are not extremely high. This line of thought could be pursued further by examining the following conjecture: in a dynamic extension of our analysis, soft bankruptcy codes could lead to poverty traps: if  the majority of the citizens cannot invest anyhow, they support soft bankruptcy policies; in turn these policies reduce the ability of relatively poor entrepreneurs to invest, and become richer. This can lead to a vicious circle.

In further research it could be interesting to analyze this issue in a dynamic model, where investment, wealth distribution, political preferences and bankruptcy laws would evolve jointly. This would be in the same spirit as Gali and Zilibotti (1995) who analyze growth dynamics where initially poor economies are stuck in a poverty trap.13 An important difference is that in Gali and Zilibotti (1995) poverty traps arise because of imperfect

competition between firms, while in the approach suggested here it would arise through the interaction between credit market imperfections, wealth distribution and laws.

13It would also be in the line of Aghion and Bolton (1997) who analyze the joint dynamics of credit rationing and wealth  inequality.



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White M.J., 1994, ” The Costs of Corporate Bankruptcy : A U.S.-European Comparison ”, in ” Bankruptcy

: Economic and Legal Perspectives ”, J. Bhandari, ed. Cambridge University Press, 1-37.


Appendix: Proofs

Proof of Proposition 1:

As ¼ increases from 0 to 1, Aincreases from: AS(¼ = 0);to: AS(¼ = 1)Hence, for all intermediary values of the initial wealth: A[AS(0);AS(1)];there exists a value of ¼ [01] such the incentive compatibility and participation constraints hold as equalities, i.e., AS(¼) = Ai. Correspondingly, there exists a value of the threshold c¤ such that the incentive and participation constraint hold for that firm. Equivalently, the soft law can be designed so that this firm has access to credit.


Proof of Proposition 6:

If A[As(¼ = 0);As(¼ = 1)], then the middle class can undertake the investment under the tough law.

The middle class can also undertake the investment if the probability of reorganization is lower than or equal to ¼defined by: AS(¼m) = Am, or equivalently if the threshold cost c¤ is greater than or equal to cdefined as: cG¡1(¼m). If the total surplus generated by the project is large enough relative to the social costs,

i.e., if:

S+ (1 ¡ ph)(¹¼+ (1 ¡ ¹)) (1 ¡ ph)¹(1 ¡ ¼m)E(cjc < cm);

then, under the soft law it is optimal to set: c¤ cm. In that case, social welfare is greater under the optimal soft law than under the tough law. Otherwise, it is optimal to set c¤ above cand social welfare is the same under the tough law and under the optimal soft law.



Proof of Proposition 10:

The expected utility of poor citizens under the tough law is:

A¹¹r¹pc0(¹¹r¹p¡ c(¹¹r¹p¡ ¹m(1 ¡ ph)E(c);

which simplifies to:

Ak2(¹¹r¹p)¡ ¹m(1 ¡ ph)E(c);

Their expected utility under the soft law simplifies to:

Ak2( ¹r¹¹p)2:

Hence, the poor prefer the soft law if the increase in wages brought about by business creations under thetough law is more than compensated by social costs, i.e. if:

¹m(1 ¡ ph)E(c>k2[(¹¹r¹p)¡ ¹r¹¹p)2]:

To obtain the condition in the proposition, combine that condition with the condition under  which the tough law is socially optimal:

Who's the Hottest Celeb Couple of the Summer?

SodaHead Slideshows June 18, 2012

Who's the Hottest Celeb Couple of the Summer?

SodaHead Slideshows June 18, 2012

SLIDESHOW: Hottest Celeb Couple of the Summer?

Andrew Garfield and Emma Stone
1 of 7

Andrew Garfield and Emma Stone

Garfield confessed that he fell for his "Amazing Spider-Man" co-star during her first screen test. "We got on really well as people, in between takes. That was the fun stuff," he told MTV.

Kim Kardashian and Kanye West
2 of 7

Kim Kardashian and Kanye West

Like it or not, "Kimye" is really happening. "Before, all my boyfriends were younger. I always dated five years younger. Now I just love that I'm with someone that's a couple years older than me," Kim told Oprah.

Miley Cyrus and Liam Hemsworth
3 of 7

Miley Cyrus and Liam Hemsworth

"Hunger Games" hunk Liam Hemsworth, 22, popped the question to the 19-year-old former Disney princess on May 31. "I'm so happy to be engaged and look forward to a life of happiness with Liam," she told People.

George Clooney and Stacy Keibler
4 of 7

George Clooney and Stacy Keibler

Clooney and his much-younger wrestler babe are still going strong, vacationing together at his Lake Como villa in Italy.

Jennifer Aniston and Justin Theroux
5 of 7

Jennifer Aniston and Justin Theroux

Last week, Aniston and Theroux were photographed holding hands in Paris. "I always go to bed thinking I'm the luckiest guy in the world," Theroux recently told "Extra.

Matthew McConaughey and Camila Alves
6 of 7

Matthew McConaughey and Camila Alves

"We decided to embrace the ritual of marriage as an opportunity and adventure we'll take together," McConaughey told People of his June 9 wedding to the mother of his two children.

Leonardo DiCaprio and Erin Heatherton
7 of 7

Leonardo DiCaprio and Erin Heatherton

He sure does like those Victoria's Secret models. Last week, DiCaprio was snapped canoodling with girlfriend Erin Heatherton over in lunch in New York.

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