Law Commons^™

Got Bounded Rationality And Political Gridlock? There's A Loan Disclosure Hack For That, Debra Pogrund Stark, Jessica M. Choplin, Andrew Pizor

Cleveland State Law Review

For decades, Congress has primarily relied upon the use of mandatory disclosure forms to protect consumers from entering into ill-advised loans by disclosing the terms of an offered loan before the borrower enters into it. This policy is not likely to change any time soon due to congressional gridlock. Frustratingly, despite improvements, consumers still have difficulties using these forms to obtain the key information and data they need to make wise decisions. These disclosures contain a great deal of information, and assume that consumers are capable of reading, understanding, and using all of it. Contrary to this assumption, research on …

Conspiracy Allegations In The Stock Loan Market: Why Plaintiffs Should Be Seeking A Remedy In Congress And Not In Court, Danielle P. Katz

Et Cetera

This Article first provides a comprehensive analysis of conspiracy allegations in over-the-counter markets, focusing on the stock loan market as an exemplar.

Multiple conspiracy claims, implicating antitrust law, have been brought regarding over the counter markets since the financial crisis of 2008. The biggest banks in the country have been the center of novel complaints, new regulations, and innovative legislation in the recent years. But, despite regulation and legislation, Sherman Act litigation alleging conspiracy has endured as plaintiffs claim that big banks are conspiring to fix markets when, in fact, they are exercising economies of scale to provide unique, tailored …

Conceptualizing The Regulation Of Virtual Currencies And Providers: Friction Points In State And Federal Approaches To Regulating Providers Of Payments Execution And Custody Services And Products In The United States, Sarah J. Hughes

Cleveland State Law Review

This essay evaluates the state of regulation by the United States government and State legislatures of participants in emerging virtual-currency businesses. It points to friction points as both the federal government and the States experiment with their own regulatory authority over virtual-currency businesses and provides a taxonomy of differing approaches to regulating such businesses. The essay takes the position that the States need to act in the near term if they wish to maintain their longstanding role as regulators of non-depository providers of financial products and services—or they risk being preempted by Congress or federal regulatory actions. This essay also …

Blockchain Symposium Introduction: Overview And Historical Introduction, Brian Ray

Cleveland State Law Review

Imagine a world where human drivers can access on-demand micro-insurance contracts tailored to cover only the actual time spent driving. How about a secure, decentralized identity system that allows individuals to purchase a vehicle and obtain insurance without sharing unnecessary private information exposing it to cyber criminals? Take that a step further and consider a system of driverless cars that transact with autonomous gas stations and take payments directly from passengers. These are some of the fascinating applications that blockchain technology could enable. But these applications give rise to significant technical, social, and legal questions, all of which we explored …

When Good Policies Go Bad: Controlling Risks Posed By Flawed Incentive-Based Compensation, Nicole Vincent

Cleveland State Law Review

The recent Wells Fargo scandal revealed the harm that can result from flawed incentive-based compensation arrangements. Large financial institutions have both a legal and an ethical obligation to ensure that any incentive-based compensation arrangements that are in place will not encourage risky or fraudulent employee behavior. The continued existence of inappropriate and poorly structured arrangements demonstrates that existing regulations are inadequate to ensure compliance and protect consumers. Regulations should include increased penalties and should more evenly distribute the burden of oversight and compliance between the public and private sectors. In addition to regulatory reform, the government should prosecute culpable high-level …

Testing Fannie Mae's And Freddie Mac's Post-Crisis Self-Preservation Policies Under The Fair Housing Act, Shelby D. Green

Cleveland State Law Review

Beginning in the 1930s, the federal government adopted programs and policies toward safe and decent housing for all. The initiatives included the creation of the Federal Housing Administration that, among other things, spurred mortgage lending by guaranteeing mortgage loans to low- and moderate-income borrowers. The creation of the secondary mortgage market by Fannie Mae and Freddie Mac (GSEs) helped provide more liquidity for loan originators. However, somewhere along the way, these GSEs lost their way, as they pursued profitability without regard to risk and heedlessly bought mortgages without considering quality.

The overabundance of poor quality mortgages led to the housing …

One Fund Solution And The Pension Crisis, Gordon Butler

Cleveland State Law Review

The next forty years of economic life will be dominated by one underlying theme: dealing with the retirement income security of a growing, aging and longer-lived global population. This is a "can’t run, can’t hide" problem that will affect the lives of almost every human being on the planet . . . Whether you are light in your pension account, whether you have more money than Croesus, whether you live in the well-funded Netherlands, or whether you are a put-upon unambitious young male in Japan who sees no future for himself, you cannot escape this problem.

Before you read very …

Replacing Havoc: Creating Rules For Sovereign Default, Edward J. Kelley

Cleveland State Law Review

Sovereign debt is an ongoing threat to a State’s economic stability and its citizens’ standard of living. A single occurrence of default begins a cycle in which it becomes increasingly more difficult for an indebted State to pay its debts and ensure the survival of its citizens. Because central banking systems and direct spending are often inadequate methods to boost an indebted State’s economy, a more expansive solution to sovereign debt is required. The initial solution to the growing problem of sovereign debt is an international treaty that will allow the world economy to establish monitoring mechanisms to prevent debt …

Who Owns The Mirage? Comments On A Recent Chinese Securitization Case From A Comparative Perspective, Lingyun Gao

Global Business Law Review

With China's restrictions on directly granting loans to real estate companies and the restrictions on establishing cash trusts, the trust companies had been seeking alternatives to engage in real estate investment. They actually might help the real estate developers to establish a trust to securitize the real estate project they own; however, for the reasons analyzed below, most of them decided to get financing only through using the “proceeds accruing from” their real estate project. These trusts are given a fancy name “XXX资产收益财产权信托”, and literally translated as “Trusts on the Right to Proceeds to be Accrued from XXX Project Assets.” …

Dodd-Frank And Basel Iii’S Skin In The Game Divergence And Why It Is Good For The International Banking System , Eric Thompson

Global Business Law Review

The recent financial collapse has illuminated many problems with the global financial system. One of these problems was that the financial system developed in a way that allowed banks to profit by simply making more loans instead of quality loans. After the financial collapse, regulators scrambled to enact new legislation to better manage the financial system and avoid the problems that caused the collapse. One way in which regulators attempted to improve the system was to remove the ability of banks to generate limitless loans in which the banks had no stake. Two such pieces of regulation, the Dodd-Frank Wall …

Turnabout Is Fair Play: The U.S. Response To Mexico’S Request For Bank Account Information, Kevin Presian

Global Business Law Review

This Note argues that the United States needs to come to a compromise with Mexico over Mexico’s request for information concerning interest paid by U.S. banks to residents of Mexico. The United States could ignore Mexico’s request, but that may create animosity between the two nations. Alternatively, the United States could fully comply with Mexico’s request; however, that may lead to strong opposition from the banking sector. It is in the best interest of the United States to model its compromise on the recent compromise between the United States and Switzerland. While there are issues with this compromise that would …

Foreword, Mark J. Sundahl

Global Business Law Review

No abstract provided.

Recurring Storms: Weathering The Future By Understanding The Past , Robert L. Brown Ph.D.

Global Business Law Review

In this article, I describe the major financial crises that evolved into economic crises during the past four hundred years in Europe, the United States, and Asia, before turning to the 2007-10 global financial and economic crisis. My focus will be Tulipmania of 1637, Mississippi Scheme of 1720, South Sea Bubble of 1720, Great Crash of 1929, Crash of 1987, Asian Financial Crisis of 1997, Dot-com Bubble of 2000, and Financial Crisis of 2007-10. I identify commonalities as well as distinguishing characteristics among the events. In the discussion and description that follows, I note that the tendency is for more …

China’S Response To The Global Financial Crisis: Implications For U.S. – China Economic Relations , Daniel C.K. Chow

Global Business Law Review

The consequences of the global financial crisis for United States-China economic relations are still unfolding, and it is still unclear whether trade tensions will escalate into trade sanctions. What seems clear, however, is that there is a rising tide of protectionism in both countries based upon what hardliners on each side perceive to be unfair practices and policies implemented by the other. Historically, mutual policies of protectionism between trading partners leads to trade sanctions, which would be an unfortunate result for United States-China economic relations. It remains to be seen whether hardliners in both countries will push the two trading …

The Response To The Financial Meltdown In The U.K., Bruce J.L. Lowe

Global Business Law Review

It is now over two years since the September 15, 2008 bankruptcy filing by Lehman Brothers sent shockwaves through an already tremulous and jittery financial and political world. In the dark days of the ensuing months, in the United States (U.S.), in Britain and Europe, and in many other parts of the world, markets crashed or severely slumped, commercial and investment banks failed, credit froze, trade and commerce slowed dramatically, profits evaporated, businesses tightened belts, and unemployment figures skyrocketed. In most major economic zones, including the U.S. and Europe, governments and central banks, often in consultation with each other over …

The Effect Of The Financial Crisis On The Middle East, Isam Salah

Global Business Law Review

The impact of the world economic crisis on the Middle East, and in particular on the countries of the GCC, was similar to the impact elsewhere in the West − collapse of the real estate sector, credit constraints, and economic contraction. The reaction of governments of the GCC was similar to the reaction of governments in the West − support of financial institutions and provisions of liquidity to the financial markets. Islamic finance has established itself as an important component of the commercial and financial sectors in these countries, so it is interesting to examine whether this segment of the …

Piigs, Itraxx Soyx, Neoliberalism, And Unshackled Finance Capital, Tayyab Mahmud Ph.D.

Global Business Law Review

Banking and finance play a critical role in the economy by channeling savings towards productive investments. By the early twentieth century the lessons were learned that, left to its own devices, finance capital tends towards unbridled speculation and ends up playing havoc with the economy. The collective response was a Keynesian compromise whereby finance capital was regulated both nationally and internationally to put a check on speculation and to channel it to support the productive economy. The result was an extended period of economic growth and stability. Over the last thirty years, the neoliberal counter revolution reversed these regimes and …

Faith-Based Financial Regulation: A Primer On Oversight Of Credit Rating Organizations, Christopher L. Sagers, Thomas J. Fitzpatrick

Law Faculty Articles and Essays

In light of the present economic crisis and their role in it, the world seems suddenly keen to know more about the handful of private corporations--variously known as bond rating agencies, credit rating agencies, credit rating organizations (CROs), or the like--that rate the creditworthiness of corporate and government debt securities. By most accounts, these companies hold extensive sway in public capital markets, and for about thirty years, a few of them have enjoyed literally de jure delegation of federal regulatory oversight over much of the U.S. financial sector. With that power their ratings have value regardless of their accuracy, and …

Hope For Homeowners: Too Little, Too Late, Carole O. Heyward

Law Faculty Articles and Essays

Heyward argues that the HOPE for Homeowners Act of 2008 is too little, too late for the many homeowners who faced foreclosure in 2007 and the three million homeowners who are predicted to default. Given the significant barriers to success, it is unlikely that the program will prevent a significant number of foreclosures or that it will stabilize the mortgage market. Providing help to 400,000 homeowners is simply not enough, given the magnitude of the problem. The housing market is plagued by 12 million homeowners who owe more than their homes are worth. The problem is compounded by the record …

Responding To Foreclosures In Cuyahoga County: A Pilot Initiative, Interim Report, Alan C. Weinstein, Kathryn W. Hexter, Molly Schnoke

Law Faculty Reports and Comments

The Center for Civic Education and the Cleveland-Marshall College of Law released their report, on May 12, 2008. The report, prepared for the Cuyahoga County Board of Commissioners, is an assessment of the County's comprehensive approach to addressing foreclosures on two levels: 1) Making foreclosure proceedings faster and fairer and 2) Creating an early intervention program to help residents prevent foreclosure.

Capital In Chaos: The Subprime Mortgage Crisis And The Social Capital Response , Raymond H. Brescia

Cleveland State Law Review

Can law create trust? Can law make people more trustworthy? These are some of the questions posed by scholars across the political spectrum interested in the impact of law on society. There is no shortage of arguments on both sides of these questions: that law can be a tool for promoting trust, or destroying it. This Article is an attempt to address these questions through an analysis of a single market, to explore the interplay between law and trust in a situation of abject market failure: the subprime mortgage crisis in the United States. Initially, I will introduce the concept …

Responding To Foreclosures In Cuyahoga County: An Assessment Of Progress, Alan C. Weinstein, Kathryn W. Hexter, Molly Schnoke

Law Faculty Reports and Comments

In August 2006, Cleveland State University was asked to conduct an initial assessment of the Cuyahoga County Commissioners' Report and Recommendations on Foreclosure that would assist the county in planning for future phases of the project. This report presents the findings of this initial assessment of the first 18 months of the initiative. It documents the process undertaken by the county, assesses the progress made toward reaching goals, identifies successes and concerns, and offers some preliminary recommendations about program operations. It also offers suggestions for a more formal evaluation process going forward

Should Banks Be Permitted To Engage In Real Estate Brokerage And Management Services: How The Current Debate Demonstrates The Inadequacies Of The Gramm-Leach-Bliley Act, Patrick J. Burke

Cleveland State Law Review

One of the first major efforts by regulators to expand the list of permissible activities under the Gramm-Leach-Bliley Act is to allow financial holding companies and financial subsidiaries of nationally chartered banks to engage in real estate brokerage and real estate management services. Part II of this Note will provide a brief history of the financial service regulations that preceded the Gramm-Leach-Bliley Act. Part III will discuss the legislative history of the Gramm-Leach-Bliley Act, provide a brief overview of the Act, and detail the provision which may allow financial holding companies to engage in real estate brokerage and management activities. …

Regulatory Theory And Deposit Insurance Reform, R. Mark Williamson

Cleveland State Law Review

The purpose of this article, however, is not to summarize the maze of federal and state banking regulation. Instead, recognizing that deposit insurance is a centerpiece of the overall regulatory scheme to which any financial institution in the United States is subject, this article is primarily concerned with subjecting this form of bank regulation to analysis based upon general principles of regulatory theory. This article is less concerned with the details of banking law than it is with using regulatory to shape policy guidelines for the coming process of deposit insurance reform.

Judicial Construction In The Wake Of The Nation's S & (And) L Crisis: Build A Better Status And The Fdic Will Beat A Path To Your Courtroom, Alison L. Drake

Cleveland State Law Review

This note proposes that the Fifth Circuit's opinion in handling these claims provides a better rationale than the Ninth Circuit's opinion. The first factor examined is the degree of control exercised by the corporate officer(s) who had been aware of the financial woes that the outside professionals allegedly overlooked. The second factor discussed is whether the insiders' misconduct was for or against the institution. Finally, policy considerations will be evaluated to determine whether the FDIC should be accorded the special status that immunizes it from defenses which could have been asserted against the failed thrift through imputation from the thrift's …

Regulatory Theory And Deposit Insurance Reform, R. Mark Williamson

Cleveland State Law Review

The purpose of this article, however, is not to summarize the maze of federal and state banking regulation. Instead, recognizing that deposit insurance is a centerpiece of the overall regulatory scheme to which any financial institution in the United States is subject, this article is primarily concerned with subjecting this form of bank regulation to analysis based upon general principles of regulatory theory. This article is less concerned with the details of banking law than it is with using regulatory to shape policy guidelines for the coming process of deposit insurance reform.

Judicial Construction In The Wake Of The Nation's S & (And) L Crisis: Build A Better Status And The Fdic Will Beat A Path To Your Courtroom, Alison L. Drake

Cleveland State Law Review

This note proposes that the Fifth Circuit's opinion in handling these claims provides a better rationale than the Ninth Circuit's opinion. The first factor examined is the degree of control exercised by the corporate officer(s) who had been aware of the financial woes that the outside professionals allegedly overlooked. The second factor discussed is whether the insiders' misconduct was for or against the institution. Finally, policy considerations will be evaluated to determine whether the FDIC should be accorded the special status that immunizes it from defenses which could have been asserted against the failed thrift through imputation from the thrift's …

Erisa: Punitive Damages For Breach Of Fiduciary Duty, Deborah A. Geier

Law Faculty Articles and Essays

Fiduciary duty principles are central to the protection provided by the Employee Retirement Income Security Act (ERISA or Act). The law is unsettled, however, about whether Congress intended to extend punitive damages, a typical remedy for breach offiduciary duty under the common law, to the applicable ERISA provision. This Note argues that the plain meaning of the ERISA fiduciary duty provision, the legislative history underlying the purposes and policies of the Act, and the availability of punitive damages under analogous law, taken together, support the recovery of punitive damages for a breach of ERISA's fiduciary duty provision.

Urban Housing Finance And The Redlining Controversy, Daniel F. Reidy

Cleveland State Law Review

This note will focus upon three basic issues raised by the redlining controversy: first, whether or not redlining is in fact occurring; second, the role of government through legislation and regulatory agencies; third, emerging areas of litigation.

The Federal Bank Commission Act: A Proposal To Consolidate The Federal Banking Agencies, Laurie Leader

Cleveland State Law Review

As background to an examination of the Federal Bank Commission Act, this Note will explore the two most important causes of the deficiencies in the present commercial banking system. The first cause is the existence of a "dual banking" system, under which banks may choose between state or federal charters. The resulting division of regulatory authority encourages banks to "shop" for the most favorable regulation. The second major cause of deficiencies in the banking system is the three-tiered organization of federal regulation. The Act consolidates the three federal agencies into a single regulatory Commission. Emphasis also will be placed on …