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

Author

Listed:
  • A. A. Elimam

    (College of Business, San Francisco State University, 1600 Holloway Avenue, San Francisco, California 94132)

  • M. Girgis

    (LTC Techno-Economics Research Group, Inc., 204 Dalton Drive, Raleigh, North Carolina 27615)

  • S. Kotob

    (Kuwait Institute for Scientific Research, PO Box 24889, Safat 13109, Kuwait)

Abstract

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

Suggested Citation

  • A. A. Elimam & M. Girgis & S. Kotob, 1997. "A Solution to Post Crash Debt Entanglements in Kuwait's al-Manakh Stock Market," Interfaces, INFORMS, vol. 27(1), pages 89-106, February.
    • Handle: RePEc:inm:orinte:v:27:y:1997:i:1:p:89-106
    DOI: 10.1287/inte.27.1.89
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    Cited by:

    1. Nayef Al-Shammari & Shaha Al-Obaid, 2018. "Linkages of Global Financial Crisis and Trade Direction in an Oil Based Economy," International Journal of Economics and Financial Issues, Econjournals, vol. 8(3), pages 250-259.
    2. John Board & Charles Sutcliffe & William T. Ziemba, 2003. "Applying Operations Research Techniques to Financial Markets," Interfaces, INFORMS, vol. 33(2), pages 12-24, April.
    3. Matei, Marius, 2010. "Risk analysis in the evaluation of the international investment opportunities. Advances in modelling and forecasting volatility for risk assessment purposes," Working Papers of Institute for Economic Forecasting 100201, Institute for Economic Forecasting.
    4. Ben R. Craig, 2019. "The Souk al-Manakh Crash," Economic Commentary, Federal Reserve Bank of Cleveland, issue November.
    5. Larry Eisenberg & Thomas H. Noe, 2001. "Systemic Risk in Financial Systems," Management Science, INFORMS, vol. 47(2), pages 236-249, February.

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