Category: Financial Institutions

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Stanford Law Review, 64.5 (2012)

Stanford Law Review

Volume 64 • Issue 5 • May 2012

Articles
The City and the Private Right of Action
Paul A. Diller
64 Stan. L. Rev. 1109

Securities Class Actions Against Foreign Issuers
Merritt B. Fox
64 Stan. L. Rev. 1173

How Much Should Judges Be Paid?
An Empirical Study on the Effect of Judicial Pay on the State Bench

James M. Anderson & Eric Helland
64 Stan. L. Rev. 1277

Note
How Congress Could Reduce Job Discrimination by Promoting Anonymous Hiring
David Hausman
64 Stan. L. Rev. 1343

British Paradoxes

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.

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Stanford Law Review, 64.4 (2012)

Stanford Law Review

Volume 64 • Issue 4 • April 2012

Articles
The Tragedy of the Carrots:
Economics and Politics in the Choice of Price Instruments

Brian Galle
64 Stan. L. Rev. 797

“They Saw a Protest”:
Cognitive Illiberalism and the Speech-Conduct Distinction

Dan M. Kahan, David A. Hoffman, Donald Braman, Danieli Evans & Jeffrey J. Rachlinski
64 Stan. L. Rev. 851

Constitutional Design in the Ancient World
Adriaan Lanni & Adrian Vermeule
64 Stan. L. Rev. 907

The Copyright-Innovation Tradeoff:
Property Rules, Liability Rules, and Intentional Infliction of Harm

Dotan Oliar
64 Stan. L. Rev. 951

Notes
Testing Three Commonsense Intuitions About Judicial Conduct Commissions
Jonathan Abel
64 Stan. L. Rev. 1021

Derivatives Clearinghouses and Systemic Risk:
A Bankruptcy and Dodd-Frank Analysis

Julia Lees Allen
64 Stan. L. Rev. 1079

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Stanford Law Review, 64.3 (2012)

Stanford Law Review

Volume 64 • Issue 3 • March 2012

The Material Foundations of Corporate Culture: Goldman’s Lessons for Silicon Valley

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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On the Servicing Settlement

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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The Poor Get One Strike; Banks Get Thousands

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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Pope Benedict’s Message on Peace, Justice, and Wealth Redistribution

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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Complexity, Opacity, and Permanent Crisis

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.

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Resisting Elites’ Resistance to the Rule of Law (Review of Glenn Greenwald’s With Liberty and Justice for Some)

(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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