Ordinarily, the school’s letter would not constitute the formation of a contract. Contracts for college matriculation are [...]]]> Six dozen applicants for admission to Vassar College were thrown a boomerang over the weekend, first receiving electronic letters of acceptance only to be followed an hour later by electronic messages of apology saying the first batch were erroneous. At least some of the disappointed hopefuls object that the college is in breach of contract. They say Vassar’s first letter was binding because the deal was described as binding early admissions decision. As a matter of law, this is not a winning argument; but as a matter of public and student relations, the college may wish to do more than send what appear to be mere mass form apologies.

Ordinarily, the school’s letter would not constitute the formation of a contract. Contracts for college matriculation are formed after students first file an application for admission, which has zero contractual significance. The first step in the process with contractual significance is the letter of admission schools send. This would be considered to be an offer of admission. It creates in the student the power to accept, by following stated procedures, such as submitting a deposit by a stated deadline and committing to matriculating.

But offers to form contracts may be revoked at any time until the offeree has accepted or, in limited circumstances when the offeror seeks action in return, begun the requested action in reliance. Accordingly, Vassar’s letters of acceptance had no legal effect unless and until the students accepted, which none of the recipients over the weekend had done. It does not matter that the context involved early admission decisions described as binding. The decisions are binding only once the offer has been made and accepted.

Even if the college’s letters were somehow seen to form a binding contract, another basic contract law doctrine comes into play: mistake. In most cases, excuse from contractual obligation on the basis of mistake is granted only when both parties are mistaken (mutual mistake) and then only when it is evident that some risk existed that the parties did not intend to exchange or allocate. Classic examples are mistakes about the attributes of an animal (such as whether a cow was a breeder or barren) or provenance of a coin or instrument (such as whether a dime was minted in 1916 at Denver or whether a violin was made by Stradivari or not).  [I analyzed those in the pending case about a Madoff Ponzi scheme account.]

But there is also a class of cases allowing rescission of a contract based merely on unilateral mistake–mistake by one side only. Excuse based on unilateral mistake requires that the mistake be made honestly not with any whiff of bad faith; involve a clerical matter rather than a matter of judgment; be reported to the other side promptly upon discovery; and not prejudice the other side as a result of its reliance. The case favoring the excuse is strengthened when insisting on enforcement of the contract would result in a windfall to the other party.

All those elements are present in the Vassar case: college officials made an honest computer mistake to which it alerted students within an hour after they had done nothing in reliance. To enforce the letters as contracts would create a windfall–a spot at Vassar that the school’s admissions office had declined to award.

On the other hand, the school’s response to its error seems both glib and insensitive. It sounds as if the school is treating these students as the clinical subjects of the type that appear in the kind of legal analysis I just offered. The school should not forget the human dimension of its error. Perhaps it can could offer something more substantive to these students for its mistake. At minimum, the school should refund any application fee students paid, since the school botched the application process that those fees pay for.

Contracts in the Real World: Stories of Popular Contracts is intended to be a fun, fast, reliable read. It is very useful for 1Ls struggling with the subject, perfect for anyone thinking about going to law school, and designed to entertain devotees of pop culture. It will also captivate experts in contract law by connecting current events with venerable principles and classic cases.

Stories feature such notables as Eminem, Lady Gaga, Charlie Sheen, Donald Trump, and Sandra Bullock, as well as examples such as your cell phone contract, lottery sharing partnership, and on-line privacy policy.

List price is $33. The table of contents follows.  [...]]]> This new book on contracts, regaling readers with stories ripped from the headlines, will be published soon and can be pre-ordered now on amazon.com and other fine booksellers.  

Contracts in the Real World: Stories of Popular Contracts is intended to be a fun, fast, reliable read. It is very useful for 1Ls struggling with the subject, perfect for anyone thinking about going to law school, and designed to entertain devotees of pop culture. It will also captivate experts in contract law by connecting current events with venerable principles and classic cases.

Stories feature such notables as Eminem, Lady Gaga, Charlie Sheen, Donald Trump, and Sandra Bullock, as well as examples such as your cell phone contract, lottery sharing partnership, and on-line privacy policy.

List price is $33. The table of contents follows. 

1. Getting In: Contract Formation

A. Gifts, Bargains, Reliance: MLK and BU

     A Charitable Pledge, Estopping Aretha Franklin

B. Ads or Offers: Pepsi and Harrier Jets

     First Come First Served, Jesting

C. Frolic or Acceptance: Boasts on “Dateline NBC”

     The Curious Smokeball, A Hole in One

D. Mutual Assent: Spyware and Secret Clauses

    Two Ships Peerless

E. Policies or Pacts: The Cleveland.com Blogger

    Employment Handbooks, Promises of Secrecy

2. Facing Limits: Unenforceable Bargains

A.Unconscionability: Gail Waters’ Annuity Swap

     Chasing Alaska Gold, Escaping Nazi Germany

B. Blackmail: Michael Jordan’s Paternity

     David Letterman and Child Support

C. Palimony: The Rapper 50 Cent

     Lee Marvin’s Lover

D. Gambling: Octogenarian Powerball Sisters

E. Making Babies: Baby M, Baby Calvert

3. Getting Out: Excuses and Termination

A. Mistake and Warranty: Madoff’s Ponzi Scheme

     Forged Dimes, Fertile Cows and Fake Stradivarius

B. Impossibility and Force Majeure: Donald Trump

C. Infancy: Craig Traylor of “Malcolm in the Middle”

D. Outrage: AIG’s Employee Bonuses

E. Embarrassment: The New York Mets and Citi Field

4. Paying Up: Remedies

A. Interests and Limits: Paris Hilton and “Pledge This!”

     Vanessa Redgrave, Jack Dempsey and Robert Reed

B. Compensation: Paris Hilton and Hairtech

     The Hairy Hand, The Beatles’ Recordings

C. Markets and Mitigation: Redskins Season Tickets

     The Bridge to Nowhere, Lost Volume Sellers, Shirley MacLaine

D. Stated Remedies: Sprint’s Early Termination Fees

     The Delayed Mausoleum, Vanderbilt’s Traitorous Football Coach

E. Specific Performance: Tyson Chickens and IBP Pork

     A Unique Manhattan Billboard

5. Rewinding: Restitution and Unjust Enrichment

A. Gratuity or Exchange: Caring for Aunt Frances

     Bascom’s Folly, Emergency Surgery

B. Mere Volunteers: Battling Alaskan Beetles

C. Trailing Promises: Lena Saves Lee’s Life

     The Heroic Lumberman, An Escaped Bull

D. Novel Ideas: The Making of “The Sopranos”

E. Off-Contract Remedies: Rod Stewart at The Rio

6. Writing It Down: Interpretation, Parol, Frauds

A. Plain Meaning I: Eminem’s Digital Records

B. Plain Meaning II: Dan Rather’s Last Broadcast

C. Parol Evidence: The Golden Globes

D. Scrivener’s Error: Who Owns the L. A. Dodgers?

     The Fraudulent Architect, The Erroneous Deed

E. Statute of Frauds: Cliff Dumas’s Phantom Radio Deal

     Jane Fonda’s Luckless Agent, Elizabeth Arden’s Fortunate Hire

7. Performing: Duties, Modification, Good Faith

A. Implied Terms: Butch Lewis and Maya Angelou

      Lucy, Lady Duff-Gordon

B. Express Terms: Clive Cussler’s Movie “Sahara”

C. Unanticipated Circumstances: Deutsche Building

     Industrial Detritus, The Salmon Fishermen’s Threat

D. Accord and Satisfaction: Lady Gaga

     The Disputed Home Improvements

E. Adjustment: Conan and “The Tonight Show”

8. Hedging: Conditions

A. Interpretation and Effect: Kevin Costner’s Bison

     An Aborted Vineyard Sale, A Crop Insurance Caper

B. Order of Performance: Charlie Sheen and Warner

     The Country Hotel Sale Bust, The Four-Stage Construction

C. Partial or Total Breach: Sheen and Warner II

     An Accidental Bulldozing

D. Waiver: Sheen and Warner III

    The Imbibing Professor

E. Substantial Performance: Sandra Bullock’s Lake House

     Wrong Plumbing Pipes, Misplaced Walls, Unrestored Farms and Ungraded Gravel Lots

 9. Considering Others: Third Parties and Society

A. Beneficiaries: Supply Chain Abuse at Wal-Mart

     A Sweatshop in Brooklyn

B. Assignment: JP Morgan’s Cablevisión Loan

C. Interference: New England Patriots and StubHub

D. Torts: Katie Janeway’s Tragic Accident

     Amnesty for Ordinary Negligence, A Misleading Authorization

Leaving $50 million on the table is an embarrasment, though it may seem a small sum in the context of the $182 billion of funds government poured through AIG to salvage neighboring Wall Street banks such as Goldman Sachs. But over the past three years many crown-jewel AIG assets [...]]]> Accompanying pictures of 70 Pine Street, Lower Manhattan, were taken today, a busy Friday in downtown New York, with no one in sight but me and a security guard. Home for more than 30 years to AIG, the US-government owned company sold the iconic tower two years ago for a song: the buyer paid $150 million and then resold the building one year later for $200 million. The second buyer closed the office building and is turning it to condos.  

Leaving $50 million on the table is an embarrasment, though it may seem a small sum in the context of the $182 billion of funds government poured through AIG to salvage neighboring Wall Street banks such as Goldman Sachs. But over the past three years many crown-jewel AIG assets have been sold for total consideration of $50 billion.  The terms of many show a good chance of leaving a proportionate $10 to $15 billion or more on the table, a serious cost by any reference.  A quick run down on the sales follows, but first a few notes on this marvelous piece of the New York skyline that AIG, under government control, sold for a song.

Completed in 1932, this was the last of the great jazz-age, pre-War downtown towers. Designed by Clinton & Russell, Holton & George, the building soars 952 feet, making it the seventh tallest U.S. building when AIG bought it. The base is of dark granite and the rest of brick, in tones that lighten as the tower rises, so that it becomes white at the top, like a snowcapped mountain. At the upper floors, every third brick is rounded instead of squared, animating the structure.  A granite model of the building flanks the entrance on Pine Street (photo shown upper left).

In its vast two-story marble lobby, a symphony of Art Deco butterflies and sunflowers rendered in colorful aluminum adorn the walls (example at right).  The building’s original double-decker elevators were the first ever installed in New York City: the upper cabs served even-numbered floors while lower cabs opened onto odd-numbered floors (upper cabs shown left).

The building’s skyline drama is highlighted by massive floodlights from the 55th to the top floor and a 27-foot lantern above a roof deck observatory. To guide planes, on top of the building stood a 97-foot stainless steel beacon with neon lights on top.

AIG acquired the building from Citgo in 1976 after Citgo had just completed a $22 million overhaul and upgrading project. AIG paid $15 million for the place.  That was a big New York real estate transaction given the City’s fiscal woes. Mayor Abraham Beame symbolized the significance by hosting the signing at a press conference in his office.

AIG renamed it the American International Building. The timing of AIG’s purchase, if not the event, marked the turning point for the City. Mayor Beame began to reinvigorate New York and his successor, Ed Koch, amplified the effort with the memorable national campaign: “I love New York.” The troubled New York of the 1970s turned into the prosperous New York of the 1980s that has thrived ever since. Real estate investments made in the New York of the 1970s returned enormous value and stand as symbols of American achievement.

Today, it is a different symbol, and perhaps it is fitting that it should be retired as a center of commerce in favor of residential use.  Though the government, dutifully followed by media, announced that the billions it funneled through AIG were intended to “save” it, “rescue” it, or “bail it out,” it did nothing of the sort, but destroy AIG and save, rescue and bail out Goldman Sachs and other recipients of the billions. The destruction of AIG, at a significant cost to taxpayers, is symbolized by the clumsy sale of this building at a discount to market value. Among other such sales underscoring both the destruction of AIG and the potential cost to taxpayers of money left on the table:

12/08  Hartford Steam Boiler $742 million (less than a year’s worth of earnings)

2/09 Tokyo office building $1.2 billion (huge tax bill on asset buyers had bid $2 billion for in past decade)

4/09 21st Century $2 billion

6/09 TransAtlantic $1.14 billion (subject of heated takeover battle this past summer with escalating bid)

3/10 ALICO $15.5 billion to Met Life (what a deal for an iconic franchise of a business)

10/10 AIA $25 billion (the crown jewel of AIG and heart of the company’s origins and essence, though in a public offering the price was not terrible)

1/11 Nan Shan $2.16 billion (venerable Taiwan life insurer with powerful position)

That adds to nearly $50 billon of consideration received; the value of the assets transferred is almost certainly not double that but it likely is short at least in the double digit billions, alas.

The old Directory at 70 Pine, about to be banished to the dust bins of history.  AIG, RIP.

I’ve written about the book’s purpose and apppeal elsewhere, including on this blog and at Conglomerate. We are now designing the cover and the creative folks at CUP imagine a headline collage, using actual or adapted headlines to indicate some of the stories and issues in the book.  They invited me to make [...]]]> Contracts in the Real World is the title of my next book, which Cambridge University Press will publish in the spring of 2012.  It rips stories from the headlines about contracts disputes, showing how old-fashioned cases and doctrines still taught in law schools apply to cases arising every day in this country. (Contra the absurd claim made by David Segal’s infamous NYT piece denigrating the teaching of such old cases as Hadley v. Baxendale.) 

I’ve written about the book’s purpose and apppeal elsewhere, including on this blog and at Conglomerate. We are now designing the cover and the creative folks at CUP imagine a headline collage, using actual or adapted headlines to indicate some of the stories and issues in the book.  They invited me to make a list for the team to consider as they do this work.  A draft follows.  I’d welcome suggestions for improvement!

Mistaken Madoff Victim Wants Divorce Contract Do-Over

Donald Trump Says Recession Excuses Bank Loan Deal

Scrivener’s Error in Case of Who Owns the Los Angeles Dodgers

NBC Pays Conan $45M To Go

Charlie Sheen Settles Suit in “Two and a Half Men” Firing

Obama Tells Treasury to Block AIG Bonus Contracts

Paris Hilton Escapes Paying Damages in “Pledge This” Lawsuit

Washington Redskins Take Hard Line on Ticket Contracts

Courts Calls Sprint Fees for Early Contract Terminations Unreasonable

Rod Stewart Owes “Restitution” on Vegas Show Contract

“Sopranos” Creator Wins Contract Case as Jury Says Fuhgeddaboutit

Court Upholds Eminem Royalties Deal

Meaning of Golden Globes Contract Disputed

Boxing Promoter Fights Maya Angelou over Hallmark Cards Pact

Novelist Clive Cussler Breached “Sahara” Movie Contract

Kevin Costner Says Contract Gave Him Buffalo Sculpture

Cost Overruns in Sandra Bullock’s Lake House Contract

Michael Jordan’s Ex Loses Palimony Case

Judge Tosses Suit by 50 Cent’s Ex-Girlfriend

Lady Gaga Smells a Rat in Spat with Ex-Lover  

As AIG’s controlling shareholder, FRBNY thereby breached its fiduciary duties to AIG and its other shareholders, charges a complaint filed in Federal court in Manhattan.  The complaint, filed by AIG’s largest private shareholder, Starr International and its CEO Maurice (“Hank”) Greenberg, was drafted by David Boies (Boies, Schiller & Flexner) and John Gardiner (Skadden Arps). It accompanies the commencement [...]]]> In September 2008, at the depth of the financial crisis, the U.S. Government arranged for control of the American International Group to be lodged in the Federal Reserve Bank of New York.  With that power, FRBNY for two years caused AIG and its board and top managers to engage in a series of deals that, to AIG shareholders, were designed more to benefit the financial system and other financial institutions than AIG. 

As AIG’s controlling shareholder, FRBNY thereby breached its fiduciary duties to AIG and its other shareholders, charges a complaint filed in Federal court in Manhattan.  The complaint, filed by AIG’s largest private shareholder, Starr International and its CEO Maurice (“Hank”) Greenberg, was drafted by David Boies (Boies, Schiller & Flexner) and John Gardiner (Skadden Arps). It accompanies the commencement of a parallel case filed in the Federal Court of Claims against the United States under the takings clause of the Fifth Amendment. Following are some excerpts from the complaint against the FRBNY.

6.  FRBNY [caused] AIG to pay AIG’s credit default swap counterparties 100 cents on the dollar . . . which at the time could have been compromised for substantially less than 100 cents on the dollar.

7. FRBNY was ostensibly motivated in these transactions by a desire to help the counterparties weather the financial crisis without confronting the public and political opposition that the FRBNY feared would arise if it aided the coutnerparties openly and directly. Regardless of whether the FRBNY’s support of the counterparties was good or bad public policy, in using AIG and AIG’s assets to accomplish a secret “backdoor bailout” of AIG’s counterparties, FRBNY breached the duties it, and those acting in concert with FRBNY, owed to AIG.

8. FRBNY then concealed both the identityof the counterparties receivving payments as well as the fact that those counterparties were paid in full. . . .

11. FRBNY [caused the evasion] of AIG’s existing Common Stock shareholders’ right to approve the massive issuance of the new Common Stock shares required to complete the Government’s taking of a nearly 80% interest in the Common Stock of AIG [in violation of Delaware corporate law].

14. [I]n a series of self-dealing transactions, FRBNY used its control over AIG to divert the rights and assets of AIG and its shareholders to itself and favored third parties . . .

To owners of AIG stock, this amounts to a taking in violation of their Fifth Amendment rights, according to their class action lawsuit against the United States in the  U.S. Court of Federal Claims. The complaint, filed by AIG’s largest private shareholder, Starr International and its CEO [...]]]> When the federal government seized control of American International Group at the depths of the financial crisis in 2008, officials commandeered nearly 80% of the company’s equity in exchange for what were nominally called “loans”, without ever obtaining a shareholder vote or paying shareholders compensation for the seizure.  The government treated all other financial firms far more favorably, even using some of the “loans” to secretly bail out other financial institutions.  The government never conducted a valuation of the assets it commandeered. 

To owners of AIG stock, this amounts to a taking in violation of their Fifth Amendment rights, according to their class action lawsuit against the United States in the  U.S. Court of Federal Claims. The complaint, filed by AIG’s largest private shareholder, Starr International and its CEO Maurice (“Hank”) Greenberg, was drafted by David Boies (Boies, Schiller & Flexner) and John Gardiner (Skadden Arps).  The suit seeks at least $25 billion in damages. 

Pivotal paragraphs from the complaint read as follows:

10. The Government is not empowered to trample shareholder and property rights even in the midst of a financial emergency. The Fifth Amendment . . . directs that the Federal Government shall not deprive any person of “property without due process of law” and forbids the Government from appropriating private property “for public use, without just compensation.”

11. [A]lthough public policy goals may justify the taking of private property to serve public ends, when the Government does so it is required by the Constitution to ensure that the property is acquired in accordance with law, that the burdens associated with the taking are not imposed in a disparate and unfair manner, and that just compensation is paid. . . .  As Justice Holmes long ago admonished, “a strong public desire to improve the public condition is not enough to warrant achieving the result by a shorter cut than the constitutional way of paying for the change.”

13. The Government’s actions were ostensibly designed to protect the United States economy and rescue the country’s financial system. Although this might be a laudable goal, as a matter of basic law, the ends could not and did not justify the unlawful means employed by the Government to achieve that goal. Even in exigent times, and perhaps most especially then, the Government may not ignore basic protections afforded under the United States Constitution or disregard established legal rights.

A few additional paragraphs laying out the factual basis for the claim follow.

2. [The government] concluded that survival of the United States economy and financial system required avoiding further bankruptcy filings by major financial institutions [but that] the bailout of large companies . . . was politically unpopular.

5. The Government loaned billions of dollars to numerous other financial institutions without taking ownership in those institutions . . . and it guaranteed hundreds of billions of dollars in loans to various institutions . . .

6. The Government’s taking of an approximately 80% equity stake in AIG . . .  depended on the authorization of additional shares of AIG’s common stock. . . . [The company conducted a vote on this matter, which its shareholders rejected, but the Government ignored this vote and relevant state corporate law in taking control of these shares.]

9. [The government's purpose in its unusual treatment of AIG compared to other companies was to enable it] to use AIG as a vehicle to covertly funnel billions of dollars to other preferred financial institutions . . . in a now well-documented “backdoor bailout” of these financial institutions.

The plaintiffs simultaneously filed another action against the Federal Reserve Bank of New York in federal court in Manhattan, for breach of fiduciary duty.  It alleges that the FRBNY, as controlling shareholder and lender of AIG after the government takeover, engaged in a series of transactions intended to benefit the financial system and other financial institutions, rather than AIG, in violation of the FRBNY’s fiduciary duties to AIG and its shareholders.

Above all, I’m delighted by the kind criticism Kent offers on the piece and how he broadens the context of my piece into a general critique of prevailing corporate law, especially of the dominant metaphors used in corporate law and literature. 

From the Iowa Law Review web site, Kent’s piece is available here and mine is available here.   Thanks to the editors and to Kent.

Among my favorites is this one by Hiro Aragaki of on how the Court’s jurisprudence is a regression to status, not an embrace of contract.  My own piece explores the costs of the Court’s misleading habit of packaging its cases in this area in the rhetoric of freedom of contract. 

Some pieces (e.g., Jean Sternlight, Brian Fitzpatrick) rivet closely on the future of class actions in light of the recent AT&T v. Concepcion case while others range more broadly over the Court’s approach to the field (e.g., Thomas Stipanowich, Myriam Gilles).

Reading these pieces reinforces a view, held by [...]]]> The SCOTUS blog hosts an impressive symposium on the law of arbitration. A score of pieces from active participants in the practice and literature are collected, covering a wide range of vital topcis. 

Among my favorites is this one by Hiro Aragaki of on how the Court’s jurisprudence is a regression to status, not an embrace of contract.  My own piece explores the costs of the Court’s misleading habit of packaging its cases in this area in the rhetoric of freedom of contract. 

Some pieces (e.g., Jean Sternlight, Brian Fitzpatrick) rivet closely on the future of class actions in light of the recent AT&T v. Concepcion case while others range more broadly over the Court’s approach to the field (e.g., Thomas Stipanowich, Myriam Gilles).

Reading these pieces reinforces a view, held by many and summed up by Cliff Palefsky in his contribution, that the Court’s jurisprudence in this area is “one of the low points in the Court’s history.” In my view, that is charitably put.

Hat Tip: Dinah Shelton

But please note that it is not altruism or patriotism that induces the rescues.  Instead, Buffett’s value investing philosophy leads him to show up when the chips are down.  Value investing means to commit private capital only when the price you may is substantially below [...]]]> In today’s Financial Times, Dan McCrum cites one of my books and quotes me when portraying Warren Buffett as the investor of last resort in the US.  Inspired by Buffett’s investment in preferred stock and warrants of Bank of America (in which I have owned stock for 20 years, through predecessors), it is interesting to think of Buffett as rescuer of troubled American financial institutions: from Salomon Brothers in the late 1980s through Goldman Sachs in the 2008 crisis and B of A today. 

But please note that it is not altruism or patriotism that induces the rescues.  Instead, Buffett’s value investing philosophy leads him to show up when the chips are down.  Value investing means to commit private capital only when the price you may is substantially below the value you get.  “Be greedy when others are fearful and fearful when others are greedy,” Buffett has written.

In the depths of the 2008 crisis, Buffett shrewdly negotiated great investment deals at Goldman Sachs, with a 10% dividend rate, and at General Electric. He made a calculation that what he paid was way less than what he got. (And he was correct.)

Buffett, a friend of mine for 15 years whom I admire greatly,  also turned down other opportunities presented to him during the crisis, including at AIG. He found the price insufficiently below the value.

He also proposed an investment opportunity in 1997 in Long Term Capital Management, giving the firm an hour to accept, but they balked. He offered a steep discount, which he insisted on and they could not accept.

The Bank of America position today is likewise a shrewd value proposition: preferred stock with a hefty 6% dividend, along with warrants (options) to buy common shares at the bargain basement price of $7.14.  Notably, that price was above the trading price when the deal was inked but, foreseeably, the market shot up on news of Buffett’s investment and is now in the money—an instant profit.

So Berkshire is certainly a fortress (a kind of Fort Knox in American folklore) and Buffett, a patriot and altruist, is as beloved as Will Rogers for all his folksy home-spun wisdom and “tax me and other billionaires” populism. But Buffett is an investor first and foremost and you see him stepping up in these big ways in times of stress because that’s where value investing takes him.

Photo Credit: Cardozo Law School (Buffett guest teaching my class in 1998).

But as Nick notes, equally important is a debtor’s will to pay.  The differences appear in the contrast between the United States and Greece.When  Standard & Poor’s recently lowered its credit rating of the U.S. Treasury by one notch, it registered doubt not so much about the country’s ability to pay its debt, but the will [...]]]> In this week’s New Yorker, Nick Paumgarten, in the Talk of the Town, kindly draws on my work  about the cultural contingency of financial reporting; he quotes me on the need to update the idea of insolvency.  Usually defined as the ability to pay debts as they come due, or assets exceeding liabilities, there has always been a strong objective thrust to the notion.  The emphasis is on measured financial activity reduced to a verifiable expression of ability. 

But as Nick notes, equally important is a debtor’s will to pay.  The differences appear in the contrast between the United States and Greece.When  Standard & Poor’s recently lowered its credit rating of the U.S. Treasury by one notch, it registered doubt not so much about the country’s ability to pay its debt, but the will of its incumbant political class to do so. In contrast, Greece’s political elite seem committed to finding ways to meet that country’s debts; alas, its resources compared to its obligations raise real doubt about their ability to do so. 

Another example of the difference between the ability and the will to pay debts arose in the September 2008 tussle over what to do about American International Group. It was then the world’s largest insurance company and shortly before the crisis  boasted a market capitalization of $180 billion. Much of its trillion-dollar balance sheet was securely housed in walled-off insurance subsidiaries. 

The roiling financial crisis infected two dozen banks with which AIG had financial contracts.  The U.S. Treasury, reeling from a series of bank failures and criticism of its responses to them, feared that those banks could disintegrate one-by-one. It had run out of good ideas to boost their solvency. 

So Henry Paulson, then Treasury Secretary, and his successor Tim Geithner, then head of the New York consortium of private banks misleadingly called the New York Fed, opted to wrest control of AIG in order to rescue those banks.  The government loaned the company $85 billion and the government siezed 80% of its equity.  The government then used that money, along with additional loans about twice that, to pay the two dozen banks off, dollar for dollar, under the financial contracts.

AIG may have been facing a liquidity squeeze while at the center of the financial crisis. But it had ample capital. And it was engaged in heavy negotiations with its counterparties about settling payments under the financial contracts–whose value was highly uncertain given the frozen capital markets.   AIG, in short, had the ability to pay its debts.

AIG’s shareholders, of course, including Hank Greenberg, who built the company from the 1960s to 2005 when he retired as CEO, objected vigorously to the Paulson-Geithner move.  Not only did AIG command ample capital internally, at its super-solvent insurance companies, many investors around the world were lining up to invest more. 

What divided the government and the shareholders was less the question of whether AIG had the ability to pay its debts, but whose will mattered.  The government’s will won out.  It was an ironic result, considering that U.S. culture is generally against governmental nationalization of private business, and that AIG had stood for the principle in fighting nationalization of its property and that of its customers around the world for decades.

Those interested in speaking at the conference or organizing a panel are welcome to submit proposals on any law and religion topic, by September 15, 2011 to:   lauren.hartley@pepperdine.edu. 

The conference will be the basis of a spring 2012 Pepperdine Law Review symposium edition.   Papers submitted by January 7, 2012 will be considered by the law review for [...]]]> On February 23-25, Pepperdine will host the third Religious Legal Theory conference.  It will deal with: “The Competing Claims of Law & Religion: Who Should Influence Whom?”  Some speakers will address the topic as a matter of constitutional law, some as a matter of “good citizenship,” some as a matter of religious faith.  The speakers who have already agreed to speak at the conference include those listed down below this post.  Details are here.

Those interested in speaking at the conference or organizing a panel are welcome to submit proposals on any law and religion topic, by September 15, 2011 to:   lauren.hartley@pepperdine.edu. 

The conference will be the basis of a spring 2012 Pepperdine Law Review symposium edition.   Papers submitted by January 7, 2012 will be considered by the law review for publication.  Submission of presentations is optional and publication is not guaranteed.  

The most important implication is that hiring is a local thing, so that you have a much better chance of becoming a partner at a large L.A. firm if you go to Loyola Los Angeles rather than Vanderbilt. 

Another important thing: throw your U.S. News magazine away if you care about which law schools graduate the people who become big-law partners. 

Spoiler alert, here is an excerpt from Table 1, showing the Top Feeder Partners in the National Law Journal 100 :

1. Harvard

2. Georgetown

3. NYU

4. U. Va.

5. Columbia

6. GW

7. Michigan

8. Chicago

9. Texas

10. Northwestern

A dozen papers will be chosen from those submitted for presentation at the Workshop (last year’s finalists are listed and pictured here). At the Workshop, one or more senior scholars will comment on each paper, followed by general discussion of each paper among all participants. The Workshop audience will include invited junior scholars, faculty from GW’s Law School and Business School, faculty from other institutions, and invited guests.

At the conclusion of the Workshop, up to three papers will [...]]]> The Center for Law, Economics and Finance at George Washington University Law School (C-LEAF)  has formally announced its second annual Junior Faculty Business and Financial Law Workshop and Junior Faculty Scholarship Prizes.    The Workshop will be held and Prizes awarded on February 10-11, 2012, at GW Law School in Washington, DC.

A dozen papers will be chosen from those submitted for presentation at the Workshop (last year’s finalists are listed and pictured here). At the Workshop, one or more senior scholars will comment on each paper, followed by general discussion of each paper among all participants. The Workshop audience will include invited junior scholars, faculty from GW’s Law School and Business School, faculty from other institutions, and invited guests.

At the conclusion of the Workshop, up to three papers will be awarded Junior Faculty Scholarship Prizes, of $3,000, $2,000, and $1,000, respectively. Chosen papers will be featured on C-LEAF’s website as part of its Working Paper Series. In addition to participating in the Workshop, all scholars selected to present at the  Workshop will be invited to become Fellows of C-LEAF.

Scholars who have held a full-time academic appointment for less than seven years as of the submission date are eligible.   Subject matters encompass accounting, banking, bankruptcy, corporations, economics, finance, and securities.

Interested scholars should submit a summary or  draft, preferably by e-mail, before October 7, 2011.  Submissions, along with any inquiries related to the Workshop, should be directed to:  Professor Lisa M. Fairfax, Leroy Sorenson Merrifield Research Professor of Law, George Washington University Law School, Washington, DC 20052.  Email: lfairfax@law.gwu.edu

Papers and Junior Faculty Scholarship Prizes will be selected after a blind review by a committee of C-LEAF’s Executive Board. Authors of accepted papers will be notified by November 15, 2011.   

The Workshops and Prizes are made possible by generous sponsorship of Schulte Roth & Zabel LLP, one of the leading law firms serving the financial services industry and known for its premier practice in the area of private investment funds and private equity M&A.

This is obviously a childish retaliation for S&P’s decision to downgrade the U.S. Treasury’s debt rating from AAA to AA+.  The politicians now tread on dangerous territory: the First Amendment.

S&P and other rating agencies have long resisted regulation of their businesses on the grounds that what they do and say are matters of freedom of speech under the First Amendment. 

However laughable that may have seemed to some, even the staunchest critics must see its poignancy now.   S&P attributes its opinion about the U.S. position to political [...]]]> Just when you think the ineptness of Congress and the President has reached its depth, they act in yet more confounding ways.  We now see that official Washington intends to open up hearings and conduct formal investigations into the rating agency Standard & Poor’s.  

This is obviously a childish retaliation for S&P’s decision to downgrade the U.S. Treasury’s debt rating from AAA to AA+.  The politicians now tread on dangerous territory: the First Amendment.

S&P and other rating agencies have long resisted regulation of their businesses on the grounds that what they do and say are matters of freedom of speech under the First Amendment. 

However laughable that may have seemed to some, even the staunchest critics must see its poignancy now.   S&P attributes its opinion about the U.S. position to political weaknesses that the Congress and the President have displayed.  It is difficult to deny that what S&P said and did was an exercise of free speech. 

The case simply strengthens when official Washington not merely rebukes the agency but threatens it.   At minimum, this complicates the task Congress and the President gave federal agencies last year to rewrite regulations applicable to rating agencies and how their ratings are used. 

Thus do Congress and the President make even worse the consequences of their political gamesmanship. As my GW colleague Jeff Manns wrote in today’s NY Times, the rating agencies are a clever crowd engaged in their own kind of game.  But official Washington must get over that and somehow gain a modicum of sophistication instead of acting like a bunch of boobs.