Archive for the ‘Financial Institutions’ Category
UCLA Law Review Vol. 61, Discourse
posted by UCLA Law Review
Volume 61, Discourse
Discourse
| The New Investor Cliffhanger | Stephen M. Bainbridge | 2 |
| 2013 William Rutter Award Acceptance Speech | Patrick D. Goodman | 12 |
May 25, 2013 at 2:36 am
Posted in: Corporate Finance, Current Events, Education, Financial Institutions, Law Rev (UCLA), Technology
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Market Efficiencies Come to Legal Practice
posted by Frank Pasquale
Dustin A. Zacks has posted a fascinating article on the role of “foreclosure mills” in bringing a more corporate, bottom-line oriented mentality to law firms:
The recent housing crisis increased demand for attorneys to process foreclosures through state courts. [High volume foreclosure firms developed; they] differ in makeup from traditional large law firms. Notable characteristics of these foreclosure firms include lenders and servicers’ relentless demand for increased speed and low costs, lack of firm-specific capital at foreclosure law firms, and a factory-like atmosphere of legal practice.
[As they developed] the fastest and cheapest legal services available. . . .these firms consistently generated complaints about their conduct, including questions about their ethical decision-making and about the veracity of the pleadings and documents they filed. . . . The Article accordingly examines the curiously muted reaction from state bar associations, judges, and state legislators.
May 5, 2013 at 2:39 pm
Posted in: Financial Institutions, Legal Ethics
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Stanford Law Review Online: Dodd-Frank Regulators, Cost-Benefit Analysis, and Agency Capture
posted by Stanford Law Review
The Stanford Law Review Online has just published an Essay by Professors Paul Rose & Christopher J. Walker entitled Dodd-Frank Regulators, Cost-Benefit Analysis, and Agency Capture. Professors Rose and Walker argue that Dodd-Frank regulators should consider more
seriously the democratic accountability concerns at play when regulating the financial markets.
The lack of attention to accountability is particularly troubling in the Dodd-Frank con-text, where most regulators are independent agencies and thus less demo-cratically accountable via presidential oversight. In particular, independent agencies are not required to submit proposed rules and accompanying eco-nomic analyses for presidential review. Nor are their high-ranking officials subject to plenary presidential removal authority. Without another means of accountability—e.g., a robust cost-benefit analysis embedded in notice-and-comment rulemaking—independent agencies are more vulnerable to agency capture.
They conclude:
Despite decades-long bipartisan support for cost-benefit analysis, regu-lators of financial markets (whose rulemaking is not subject to presidential review) have been slower and more haphazard in adopting this method than their executive agency counterparts. Especially now that Dodd-Frank has exponentially increased the amount of financial rulemaking and considera-bly raised the stakes for regulating the financial markets, financial regula-tors can and should ground their rulemaking in a proper cost-benefit analy-sis to arrive at more rational decisionmaking and more efficient regulation. Conducting a rigorous cost-benefit analysis via notice-and-comment rule-making also makes for good governance. Without such public transpar-ency—especially in the context of independent agencies—democratic accountability suffers, and agency capture becomes a greater threat.
Read the full article, Dodd-Frank Regulators, Cost-Benefit Analysis, and Agency Capture at the Stanford Law Review Online.
April 29, 2013 at 3:57 am
Posted in: Financial Institutions
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The New York Fed and the Rule of Law
posted by Lawrence Cunningham
In Sunday’s New York Times, business columnist Gretchen Morgenson reported a piece of investigative journalism that is transcendently important, but whose complexity may have obscured that. It concerns secret dealings of the Federal Reserve Bank of New York. Morgenson explains the importance of her topic in terms of the threatened erosion of social trust that can occur when central banking officials engage in dubious behavior.
I would add that her topic, dubious dealings of central bankers, is of vital importance because those who run the FRBNY have enormous power in the field of banking regulation. They oversee the largest banks and provide direct input into the Financial Stability Oversight Council, the interagency government organization created by the Dodd Frank Act to oversee the financial system. It is empowered to intervene when the next financial crisis occurs, which could be later this year or five years or ten or what have you.
As with the financial crisis of 2008, these government actors, dominated by the FRBNY, will call all the shots about which institutions to save, sell or seize, on the one hand, and which creditors and shareholders to pay, wipe out or shortchange, on the other. How they exercise these powers is thus a matter of the utmost national interest. How they exercised them in the 2008 crisis remains both obscure and questionable. Read the rest of this post »
March 5, 2013 at 10:52 am
Posted in: Administrative Law, Bankruptcy, Corporate Finance, Current Events, Financial Institutions
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What’s Wrong with the Financial Services Industry?
posted by Frank Pasquale
I tried to answer this question at length in a review of Robert Shiller’s Finance and the Good Society. But if you want the short version, look no further than Barry Ritholtz’s list. One could easily expand it into an ever-growing wiki, but sometimes succinctness is supreme. Here’s Ritholtz on the multiple intermediary problem:
Too many people have a hand in your pocket[.] The list of people nicking you as an investor is enormous. Insiders (CEO/CFO/Boards of Directors) transfer wealth from shareholders to themselves, with the blessing of corrupted Compensation Consultants. Active mutual funds charge way too much for sub par performance. 401(k)s are disastrous. NYSE and NASDAQ Exchanges have been paid to allow a HFT tax on every other investor. FASB and accountants have done an awful job, allowing corporations to mislead investors with junk balance statements. The media’s job is to sell advertising, not provide you with intelligent advice. The regulators have been captured.
And while we’re on the topic of the personal consequences of finance, do take a look at Helaine Olen’s Pound Foolish. Olen has been making the intellectual podcast rounds, and offers a devastating portrait of a personal finance industry warped by ideology and greed.
February 21, 2013 at 10:48 am
Posted in: Consumer Protection Law, Financial Institutions
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Squatter in BofA’s Boca Mansion
posted by Frank Pasquale
Bank of America (BofA) is moving to evict a squatter in one of its many foreclosed Florida properties:
Andre Barbosa’s days of stylish squatting in a $2.5-million Boca Raton mansion may be numbered. . . . Adverse possession is a state law which allows someone to move into a property and claim the title — if they can stay there seven years. Barbosa, who calls himself “Loki boy,” posted a signed copy of his “adverse possession” note in the home’s front window.
I’m sure Florida’s efficient judicial system will put this to right forthwith. And if they mess up a bit of paperwork along the way, no worries—independent reviewers can investigate. BofA has been the conscience of the finance community. It would be a grave injustice to see it facing losses due to people claiming title to property they don’t really own.
February 18, 2013 at 3:38 pm
Posted in: Financial Institutions
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Young Business Law Scholar Call for Papers
posted by Lawrence Cunningham
The Center for Law, Economics & Finance (C-LEAF) at The George Washington University Law School has announced its third annual Junior Faculty Business and Financial Law Workshop and Junior Faculty Scholarship Prizes. This year’s Workshop will be held on April 5-6, 2013 at GW in Washington.
The Workshop supports and recognizes the work of young legal scholars in accounting, banking, bankruptcy, corporations, economics, finance and securities, while promoting interaction among them and selected senior faculty. By providing a forum for the exchange of creative ideas in these areas, C-LEAF aims to encourage new and innovative scholarship.
I’ve participated in both previous Workshops and can attest that participants have benefited from the exchange of ideas and getting acquiainted with newer scholars. About 100 papers are submitted and the C-LEAF faculty select about 10 for presentaiton. At the Workshop, senior scholars comment on each paper, followed by a general discussion.
Three papers receive Junior Faculty Scholarship Prizes of $3,000, $2,000, and $1,000, respectively. All prize winners will be invited to become Fellows of C-LEAF. C-LEAF makes no publication commitment, but chosen papers are featured on its website as part of the C-LEAF Working Paper series. Read the rest of this post »
September 11, 2012 at 8:06 am
Posted in: Accounting, Administrative Announcements, Corporate Finance, Corporate Law, Financial Institutions
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Private Equity Achieves Extraordinary Numbers in Health and Education
posted by Frank Pasquale
The N.Y. Times has recently profiled a chain of for-profit hospitals known as HCA. The two articles are well worth reading, particularly for insights into the manipulation of medical billing and coding:
At HCA in 2006, slightly more than a quarter of the payments it received from Medicare were for patients classified in the two highest-paying categories, far behind the 58 percent reported at other hospitals, according to an analysis of Medicare payments by The Times, using data provided by the American Hospital Directory. During that time, HCA was still operating under a corporate integrity agreement resulting from its Medicare fraud settlement, and an independent reviewer was scrutinizing its billing.
By late 2008, however, just as the agreement with federal regulators was ending, HCA introduced a new coding system for its emergency rooms. HCA said the system, based on a method developed by the American College of Emergency Physicians, was less complicated and better captured the time and resources used by the hospital. Nearly overnight, HCA’s patients appeared to be much, much sicker. By 2010, HCA had surpassed other hospitals, with 76 percent of its payments coming from the two most expensive classifications, versus 74 percent for other hospitals.
Perhaps some Freakonomist will conclude that independent reviewers are vital to improving public health. But the better explanatory variable appears to be the role of private equity firms in reshaping HCA after buying it in 2006. They are revolutionizing the service sector. Just consider the miraculous work of a private equity group in getting “50 full-time faculty members to teach 90,000 online students” at a university it controls. Truly the business model of the future.
August 17, 2012 at 1:23 pm
Posted in: Financial Institutions, Health Law
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Lies and Libor
posted by Frank Pasquale
It’s fashionable for some finance experts to dismiss reporters like Matt Taibbi as hyperbolic. How dare he compare a muni bond rigging scandal to Mafia tactics? But the more one digs into high finance’s behavior, the clearer a pattern of criminality and recklessness emerges. Taibbi was on a cordial and enlightening panel with Gillian Tett back in 2009, and if any finance reporter’s work is considered impeccable by the establishment, it is hers. Consider her perspective on the latest outrage regarding the setting of Libor:
Five long years ago, I first started trying to expose the darker underbelly of the Libor market. . . .At the time, this sparked furious criticism from the British Bankers’ Association, as well as big banks such as Barclays; the word “scaremongering” was used. But now we know that, amid the blustering from the BBA, the reality was worse than we thought. As emails released by the UK Financial Services Authority show, some Barclays traders were engaged in a constant and pervasive attempt to rig the Libor market from 2006 on, with the encouragement of more senior managers. And the British bank may not have been alone.
June 29, 2012 at 9:20 am
Posted in: Criminal Law, Financial Institutions
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Stanford Law Review, 64.5 (2012)
posted by Stanford Law Review
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Volume 64 • Issue 5 • May 2012 |
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Articles Securities Class Actions Against Foreign Issuers How Much Should Judges Be Paid? Note |
June 19, 2012 at 1:37 am
Posted in: Administrative Law, Anonymity, Behavioral Law and Economics, Civil Rights, Courts, Disability Law, Economic Analysis of Law, Employment Law, Financial Institutions, Law Rev (Stanford), Law Rev Contents
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British Paradoxes
posted by Frank Pasquale
I’ve recently heard Martin Wolf described as one of the world’s preeminent financial journalists (here and here). I was therefore puzzled to read his column characterizing banking as a “high productivity sector[].” In March, 2011, Wolf called the financial sector “locusts” in his Ralph Milliband Lecture. I doubt anyone who listened to the lecture would get the idea that Wolf wanted to praise the implicit governmental backing that is at the heart of the sector’s prosperity as a model of “productivity.” The paradoxes here are enough to make me turn to James Livingston’s discussion of productive capacity in the appendix of his recent book Against Thrift.
On another puzzling note from Britain: it appears that Nassim Taleb has become a key advisor to David Cameron, the Prime Minister. The Tories have seized on Taleb’s withering skepticism as an epistemological foundation for a politics of austerity (that is, since no one has any idea what to do, the safest thing is for government to do nothing but downsize itself). I think Taleb may be poised for a long career as a bipartisan advisor, since Labour could use theories of epistemic modesty to prove that no one knows if government intervention would fail.
The Tories aren’t going whole hog for Taleb, though: they appear singularly uninterested in his proposals to end bonuses at TBTF banks, or to break them up. I strongly suspect that the only parts of the Taleb program that will pass are those that help entrench existing elites—a selective adoption that only exacerbates the fragility he identifies as the critical problem of modern society.
June 2, 2012 at 3:19 pm
Posted in: Economic Analysis of Law, Financial Institutions
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Stanford Law Review, 64.4 (2012)
posted by Stanford Law Review
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Volume 64 • Issue 4 • April 2012 |
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Articles “They Saw a Protest”: Constitutional Design in the Ancient World The Copyright-Innovation Tradeoff: Notes Derivatives Clearinghouses and Systemic Risk: |
May 23, 2012 at 8:35 pm
Posted in: Behavioral Law and Economics, Constitutional Law, Corporate Finance, Courts, Economic Analysis of Law, Financial Institutions, First Amendment, Innovation, Intellectual Property, Law Rev (Stanford), Law Rev Contents
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Stanford Law Review, 64.3 (2012)
posted by Stanford Law Review
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Volume 64 • Issue 3 • March 2012 |
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Articles From Multiculturalism to Technique: Fragmentation Nodes: Note Comment |
April 20, 2012 at 1:36 pm
Posted in: Constitutional Law, Corporate Finance, Courts, Criminal Law, Criminal Procedure, Culture, Current Events, Financial Institutions, Law Rev (Stanford), Law Rev Contents, Tort Law
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The Material Foundations of Corporate Culture: Goldman’s Lessons for Silicon Valley
posted by Frank Pasquale
Two resignation letters rocked Wall Street and Silicon Valley this week. Greg Smith elegized a once-great Goldman Sachs, now reduced to “ripping eyeballs out” of clients. (The industry sure has changed since the 90s, when the goal was to rip off the whole face of the client. I guess Dodd-Frank is working.)
On the West Coast, James Whittaker explains “Why I Left Google.” His complaints are more measured than Smith’s: “The old Google made a fortune on ads because they had good content. It was like TV used to be: make the best show and you get the most ad revenue from commercials. The new Google seems more focused on the commercials themselves.” Whittaker laments that the company has become obsessed, Ahab-like, with the social web’s whale, Facebook.
On one level, it’s not fair to compare the companies: the engineers at Google have contributed far more to society than finance’s “money-massagers.” Goldman represents the terminal phase of a liquidationist capitalism unmoored from social value. But its culture did not rot overnight. Rather, legal and material factors accelerated decay. Silicon Valley’s managers and regulators should take notice: the same process could happen there.
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March 15, 2012 at 6:18 pm
Posted in: Corporate Finance, Corporate Law, Financial Institutions, Google & Search Engines, Law and Inequality, Privacy
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On the Servicing Settlement
posted by Frank Pasquale
Today, Jon Walker tweeted that “No one man has done more to protect the power of the financial elites than President Obama.” Is that a fair assessment? Here are some views expressed on the mortgage settlement today:
Adam Levitin, The Servicing Settlement: Banks 1, Public 0:
[The settlement] cover[s] robosigning and overbilling in foreclosures. Given the relatively narrow scope of this settlement, it’s not surprising that the dollars involved are quite small compared to the overall harms created by the housing bubble and aftermath.
The formal price tag for the settlement is $25 billion, although it is projected to accomplish up to $40 billion in relief. Only $5 billion of that is hard cash contributed by the banks. Let me repeat that. The five banks involved in the settlement, which have a combined market capitalization of over $500 billion, are putting in only $5 billion. That’s less than 1% of their net worth. And they are admitting no wrongdoing. To call that accountability is laughable. . . . $32 billion of the settlement is being financed on the dime of MBS investors such as pension funds, 401(k) plans, insurance companies, and the like—-parties that did not themselves engage in any of the wrong-doing covered by the settlement.
William K. Black, How Liberals are Getting Spun in the Mortgage Settlement Debate:
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February 9, 2012 at 9:47 pm
Posted in: Financial Institutions, Property Law
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The Poor Get One Strike; Banks Get Thousands
posted by Frank Pasquale
Most readers of this blog are already familiar with draconian treatment of the poor by various law enforcers and state bureaucracies. Here’s yet another example:
[A] one-strike clause . . . allows the public housing authority to evict [the tenant] if any member of her household or any guest engages in certain kinds of criminal activity. . . . Stories abound about the one-strike policy being wielded in seemingly egregious ways to evict “innocent tenants,” such as a disabled elderly man in California whose caretaker was caught with crack. . . .The Chicago Reporter wrote in September that 86 percent of Chicago’s one-strike evictions last year did not arise from criminal activity by the person named on the lease.
“These policies, the effect of them on children, families, women, families of color, were not thought through. And I think now a national conversation is beginning to rethink that,” said Ariela Migdal, a senior staff attorney with the Women’s Rights Project of the American Civil Liberties Union. Migdal pointed to a June 2011 letter from HUD Secretary Shaun Donovan to public housing directors, encouraging the directors to use their “broad discretion” to create a flexible set of standards for who will be admitted to and allowed to stay in public housing.
Certainly the Obama administration has ample experience deploying “discretion” and “mercy” in other areas. For example, consider Barry Ritholtz’s summary of a shocking Reuters report by Scott Paltrow on foreclosure fraud:
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December 26, 2011 at 12:26 pm
Posted in: Corruption, Criminal Law, Financial Institutions, Law and Inequality, Tax
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Pope Benedict’s Message on Peace, Justice, and Wealth Redistribution
posted by Frank Pasquale
Pope Benedict’s interpretations of Catholic Social Thought have been consistently inspiring. His recent message on the World Day of Justice and Peace focused on the material foundations of a just and well-ordered society.
“Blessed are the peacemakers, for they shall be called sons of God”, as Jesus says in the Sermon on the Mount (Mt 5:9). Peace for all is the fruit of justice for all, and no one can shirk this essential task of promoting justice, according to one’s particular areas of competence and responsibility. . . .
Peace . . . is not merely a gift to be received: it is also a task to be undertaken. In order to be true peacemakers, we must educate ourselves in compassion, solidarity, working together, fraternity, in being active within the community and concerned to raise awareness about national and international issues and the importance of seeking adequate mechanisms for the redistribution of wealth, the promotion of growth, cooperation for development and conflict resolution.
This position confirms a long line of encyclicals urging the fair distribution of global resources. As Pope Benedict earlier stated in Caritas in Veritate, “Without internal forms of solidarity and mutual trust, the market cannot completely fulfil its proper economic function.”
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December 23, 2011 at 3:44 pm
Posted in: Financial Institutions, Religion, Tax
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Complexity, Opacity, and Permanent Crisis
posted by Frank Pasquale
Finance crises have baffled recently. Jon Corzine says he has no idea where hundreds of millions of dollars in MF Global money went. Judge Rakoff says the proposed SEC-Citi settlement would whitewash the megabank’s wrongdoing:
An application of judicial power that does not rest on facts is worse than mindless, it is inherently dangerous . . . . In any case like this that touches on the transparency of financial markets whose gyrations have so depressed our economy and debilitated our lives, there is an overriding public interest in knowing the truth.
And Sheila Bair suggests that we are still in the dark about critical aspects of the financial system:
Credit exposure reports are essential to make sure regulators understand crucial inter-relationships between distress at one institution and its potential to cause major losses at other institutions. This type of information was missing during the crisis. I know that many members of [Congress] heard the same arguments that I heard during the crisis — that bailouts were necessary or the “entire system” would come down.
December 12, 2011 at 2:15 pm
Posted in: Financial Institutions, First Amendment
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Resisting Elites’ Resistance to the Rule of Law (Review of Glenn Greenwald’s With Liberty and Justice for Some)
posted by Frank Pasquale
(Glenn Greenwald is having a fundraiser; link here. I think his work is well worth supporting.)
There are few (if any) “free markets” in the largest sectors of the US economy. The health care industry is a labyrinth of public and private payers. Sectors known as “guard labor” are also larded with subsidies. The Departments of Defense and Homeland security contract with thousands of companies. The communications industry enjoys various government “givings.” And at this point, everyone knows that our largest financial institutions are taxpayer supported entities. Without the implicit backing of the federal government, they would collapse.
Government subsidy to large industries is not, in and of itself, a bad thing. When wages are stagnant and capital gains are mainly enjoyed by the top thousandth of the population, some entity has to spend for common provision. But the price of that spending should be higher standards for the propped-up industry. In health care, for instance, Medicare Conditions of Participation (and laws like the 1986 EMTALA) require many hospitals to provide care regardless of patients’ ability to pay. Tough fraud and abuse enforcement subjects providers’ bills to rigorous audits; privacy law will soon require audit-capability for digital medical records. Legislation passed in 2009 and 2010 creates many other requirements to channel private provision of health care toward more public ends. It’s certainly not a perfect system, but regulation is serious and purposeful. There are real consequences for many lawbreakers.
Glenn Greenwald tells a very different story about three other heavily subsidized industrial sectors. He gives us serious reason to doubt that law has constrained banks, telcos, and the security sector when they posed critical threats to our economy, privacy, and liberty. His book With Liberty and Justice for Some is a passionate indictment of four distinct trends:
1) elites who violate laws with impunity,
2) retroactive immunity for acts unlawful at the time they were committed,
3) lobbyists’ power to influence legislators to render bad conduct lawful or even subsidized, and
4) a radical increase in punishment of those who fall outside the charmed circle of political and economic elites.
Greenwald has examined each area in his blog, as have other, lonely voices in corporate law (and a more robust chorus in communications & cyberlaw troubled by telecomms’ sweetheart deals). The vital contribution of With Liberty and Justice for Some is to show how the four trends mutually reinforce one another, contributing to a politics of wealth and privilege defense commonly known as oligarchy.
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December 9, 2011 at 8:51 am
Posted in: Book Reviews, Corruption, Criminal Law, Financial Institutions, Law and Inequality
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Unconditional Bailouts: Capitalism’s Undoing
posted by Frank Pasquale
What are we to make of Bob Ivry, Bradley Keoun and Phil Kuntz’s blockbuster report on the Fed’s bailouts? The three journalists conclude that “taxpayers paid a price beyond dollars as the secret funding helped preserve a broken status quo and enabled the biggest banks to grow even bigger.” Yves Smith argues that “banks lied” and grabbed $13 billion in profit. She also notes that their favorite water carrier, Timothy Geithner, “told Congressmen they were too stupid to be able to shrink banks, and they should leave those questions to the Basel Committee (which has no interest in making big banks smaller).”
For another perspective on the corrupt relationship between megabanks and our central bank, consider John Kay’s recent description of the “martingale” strategy among bettors:
Each time you lose, you increase your stake: to the point at which a win on the next game would recoup all your losses and leave you ahead. Since you will win sooner or later, you are certain to come home with a small profit. Provided you are infinitely rich before you start. Otherwise, if you regularly engage in martingales, you will eventually go bankrupt – and the richer you are, the larger the scale of bankruptcy.
November 28, 2011 at 9:07 am
Posted in: Corruption, Financial Institutions, Law and Inequality
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