Law Commons^™

Private Equity Firms As Gatekeepers, Elisabeth De Fontenay

Faculty Scholarship

Notwithstanding the considerable attention private equity receives, there continues to be substantial confusion about what private equity does and whether this creates value. Calls for more aggressive regulation of the industry reflect a skeptical view of private equity as—at best—a zero-sum game, in which profits are generated only at the expense of other constituencies. The standard defense of private equity points to its corporate governance advantages as a source of value. This Article identifies an overlooked and increasingly important way in which private equity creates value: private equity firms act as gatekeepers in the debt markets. As repeat players, private …

Toward A More Resilient Financial System?, Joanna Gray

Seattle University Law Review

The concept of “resilience” in the context of financial systems calls for closer analysis, as most of the current efforts to reshape financial systems seek to render them more resilient. Resilience has become a necessary complement to the paradigm shift taking place in global financial regulation toward “macroprudential” regulation—a term used to describe a new viewing platform and decisionmaking plane for financial regulation. From this new perspective, regulators can address the state of the financial system as a whole, as well as its component parts. This Article seeks to illustrate how legal and regulatory measures that foster resilience have become …

Financial Hospitals: Defending The Fed’S Role As A Market Maker Of Last Resort, José Gabilondo

Seattle University Law Review

During the last financial crisis, what should the Federal Reserve (the Fed) have done when lenders stopped making loans, even to borrowers with sterling credit and strong collateral? Because the central bank is the last resort for funding, the conventional answer had been to lend freely at a penalty rate against good collateral, as Walter Bagehot suggested in 1873 about the Bank of England. Acting thus as a lender of last resort, the central bank will keep solvent banks liquid but let insolvent banks go out of business, as they should. The Fed tried this, but when the conventional wisdom …

The Long Road Back: Business Roundtable And The Future Of Sec Rulemaking, Jill E. Fisch

Seattle University Law Review

The Securities and Exchange Commission (SEC or Commission) has faced a number of challenges in the last few years. Judge Rakoff’s decision in Citigroup, the Madoff scandal, and the Business Roundtable decision are just a few of the developments that have dealt lasting damage to the SEC’s reputation. Critics have scrutinized the agency’s decisionmaking on multiple fronts—from its enforcement policy to the quality of its rulemaking—and the SEC has largely come up short in the analysis. The once-revered top cop of the securities markets has taken a hit, and it is unclear whether it can recover. The Business Roundtable decision …

The Future Of Shareholder Democracy In The Shadow Of The Financial Crisis, Alan Dignam

Seattle University Law Review

This Article argues that the U.K. regulatory response to the financial crisis, in the form of “stewardship” and shareholder engagement, is an error built on a misunderstanding of the key active role shareholders played in the enormous corporate governance failure represented by the banking crisis. Shareholders’ passivity, rather than activity, has characterized the reform perception of the shareholder role in corporate governance. This characterization led to the conclusion that if only they were more active they would be more responsible “stewards” of the corporation. If, as this Article argues, shareholder activity was part of the problem in the banks, then …

Limits Of Disclosure, Steven M. Davidoff, Claire A. Hill

Seattle University Law Review

One big focus of attention, criticism, and proposals for reform in the aftermath of the 2008 financial crisis has been securities disclosure. Many commentators have emphasized the complexity of the securities being sold, arguing that no one could understand the disclosure. Some observers have noted that disclosures were sometimes false or incomplete. What follows these issues, to some commentators, is that, whatever other lessons we may learn from the crisis, we need to improve disclosure. How should it be improved? Commentators often lament the frailties of human understanding, notably including those of everyday retail investors—people who do not understand or …

The Market For Corporate Control: New Insights From The Financial Crisis In Ireland, Blanaid Clarke

Seattle University Law Review

In an ever-changing legal and economic environment, it is incumbent on us to subject all such premises to scrutiny in order to consider their continued application. This Article considers the effect of the MCC on the management of Irish credit institutions in the run-up to the financial crisis. Part II sets the background by explaining how the MCC has become an integral part of takeover regulation in Europe. The weaknesses in the efficient market hypothesis, which underlie the MCC and are summarized in Part III, appear not to have undermined the theory’s credibility in the minds of public policy makers …

Banking And Competition In Exceptional Times, Brett Christophers

Seattle University Law Review

This Article has two main aims: to provide a critical consideration of this contemporary antitrust “revival” from an explicitly political–economic perspective and to point toward some theoretical resources that might facilitate such an assessment.Part II looks backward at the evolution and application of competition law in the banking sector over the relatively longue durée. In this Part, I invoke the concept of “exception” to understand how antitrust policy has developed, and my chief interlocutors are the perhaps unlikely figures of Giorgio Agamben and Karl Marx. Part III looks forward and considers the central question around which the recent resurgence of …

Conceptions Of Corporate Purpose In Post-Crisis Financial Firms, Christopher M. Bruner

Seattle University Law Review

American “populism” has had a major impact on the development of U.S. corporate governance throughout its history. Specifically, appeals to the perceived interests of average working people have exerted enormous social and political influence over prevailing conceptions of corporate purpose—that is, the aims toward which society expects corporate decision-making to be directed. In this Article, I assess the impact of American populism upon prevailing conceptions of corporate purpose, contrasting its unique expression in the context of financial firms with that arising in other contexts. I then examine its impact upon corporate governance reforms enacted in the wake of the financial …

Shareholders And Social Welfare, William W. Bratton, Michael L. Wachter

Seattle University Law Review

This Article addresses the questions of whether and how shareholders matter for social welfare, finding that different and contrasting answers have prevailed during different periods of recent history. Observers in the mid-twentieth century believed that the socioeconomic characteristics of real-world shareholders were highly pertinent to social welfare inquiries. But those observers went on to conclude that there followed no justification for catering to shareholder interest, for shareholders occupied elite social strata. The answer changed during the twentieth century’s closing decades, when observers came to accord the shareholder interest a key structural role in the enhancement of economic efficiency even as …

Central Bank-Led Capitalism?, Andrew Bowman Et Al.

Seattle University Law Review

Since the first acute episode of financial crisis in autumn 2008, the world has manifestly changed in dramatic ways that reinforce skepticism and challenge the old assumptions of political economy. Hence this Article about central banks, whose pivotal role in post-crisis capitalism has not been adequately politically or theoretically addressed in any existing literature and can now be opened up by a conjunctural analysis that recognises uncertainty and mutability. There are several reasons why this is an intellectually and politically interesting task. Central banks have become an object of controversy and public attention after being pivotally involved in crisis management, …

Making Money: Leverage And Private Sector Money Creation, Margaret M. Blair

Seattle University Law Review

Contrary to the beliefs of most macroeconomists, the financial sector in the United States has grown too large in the last few decades as a consequence of financial innovation that has encouraged the use of too much “leverage” (financing with debt) by financial institutions (as well as by consumers and other borrowers). In Part II, I connect the dots between excessive leverage, risk, and financial market volatility. In Part III, I explore the role that the “shadow-banking sector” has had in driving leverage. In Part IV, I explain why leverage at the level of financial institutions matters for the macroeconomy. …

The Governance And Disclosure Of The Firm As An Enterprise Entity, Yuri Biondi

Seattle University Law Review

During recent decades, the rapid pace of financial markets involving new modes of management, governance, and regulation has framed business firms. This corporate drift toward financialization is summarized under the “shareholder value” label. What do financial markets do? Unequivocally, they organize trading on shares that are securities: tradable financial entitlements established by law, which formalize expectations, and claims of financial rents paid by the issuing company. Actually, how continued quotation on share exchanges came to be the barometer of economic or social welfare is a different matter. The latter adoption has required quite a great leap from “the euthanasia of …

Rationales And Designs To Implement An Institutional Big Bang In The Governance Of Global Finance, Emilios Avgouleas

Seattle University Law Review

The colossal challenges facing international finance pertain to both its governance system and its dual utility and speculative functions, which have become ever more intertwined with the advent of financial innovation. In the aftermath of the Global Financial Crisis (GFC), a number of significant reforms are under way to address the second issue, including additional capital and liquidity requirements for banks, measures to battle interconnectedness in the financial sector, new resolution regimes that would allow banks to fail more easily, and stricter frameworks for bank supervision and monitoring of systemic risk. Yet limited progress has been made with respect to …

Making Money: Leverage And Private Sector Money Creation, Margaret M. Blair

Vanderbilt Law School Faculty Publications

In the wake of the financial crisis of 2008-2009, practitioners and theorists in law, finance, and economics are rethinking our theories about how the financial sector influences the real economy. In particular, they are reexamining the linkages among financial innovation, supply of credit and money, monetary policy, bubbles, financial stability, and economic growth. One of the key issues that is being reconsidered is the dynamics of how banks and other financial institutions drive credit creation and credit allocation, and how these factors, in turn affect the performance of the macroeconomy. In this article, I argue that, by providing an alternative …

Improving Fraudulent Transfer Law In Leverage Buy-Outs Through Judicial Certainty & Reliability, Vincent V. Hilldrup

Vincent V. Hilldrup

LBOs that file for bankruptcy are routinely challenged under fraudulent transfer law, where plaintiffs allege that the LBO unreasonably reduced the target’s liquidity and capital adequacy, saddled it with debt and was completed as a means of funneling company assets to both current and former shareholders. These cases will bestow upon bankruptcy courts the responsibility and power of efficiently allocating billions of dollars to classes of creditors and clawing back funds from shareholders. Since these cases will have a crucial impact on the overall economy, it is imperative that bankruptcy courts wield their authority and power in a predictable, fair, …

Toward A Legal Theory Of Finance, Katharina Pistor

Katharina Pistor

This paper develops the building blocks for a legal theory of finance. LTF holds that financial markets are legally constructed and as such occupy an essentially hybrid place between state and market, public and private. At the same time, financial markets exhibit dynamics that frequently put them in direct tension with commitments enshrined in law or contracts. This is the case especially in times of financial crises when the full enforcement of legal commitments would result in the self-destruction of the financial system. This law-finance paradox tends to be resolved by suspending the full force of law where the survival …

An Innovative Link Between The Internet, The Capital Markets, And The Sec: How The Internet Direct Public Offering Helps Small Companies Looking To Raise Capital, Daniel Everett Giddings

Pepperdine Law Review

No abstract provided.

Reconsidering The Separation Of Banking And Commerce, Mehrsa Baradaran

Scholarly Works

This Article examines the long-held belief that banking and commerce need to be kept separate to ensure a stable banking system. Specifically, the Article criticizes the Bank Holding Company Act (“BHCA”), which prohibits nonbanking entities from owning banks. The recent banking collapse has caused and exacerbated several problematic trends in U.S. banking, especially the conglomeration of banking entities and the homogenization of assets. The inflexible and outdated provisions of the BHCA are a major cause of these trends. Since the enactment of the BHCA, the landscape of U.S. banking has changed dramatically, but the strict separation of banking and commerce …

Are Short Sellers Really The Enemy Of Efficient Securities Markets Or Are They Just Public Patsies?, Abel C. Ramirez Jr.

Abel C Ramirez Jr.

When the 2008 global financial crisis caused the stock market to drastically decline, short selling generated intense political and economic scrutiny that negatively characterized the practice as a predatory scheme. When the 2008 global financial crisis caused the stock market to drastically decline, short selling generated intense political and economic scrutiny that negatively characterized the practice as a predatory scheme. As a legitimate investment strategy, short selling is a method by which investors can capitalize on over-valued stocks that decline – this is NOT the same as “contributing” to the stock’s decline, which short selling’s detractors might believe.

Economic Crisis And Share Price Unpredictability: Reasons And Implications, Edward G. Fox, Merritt B. Fox, Ronald J. Gilson

Faculty Scholarship

The volatility of share returns for individual companies increased sharply during the recent financial crisis. The larger part of this increase was due to a dramatic rise – five fold as measured by variance – in idiosyncratic risk. We find that this pattern repeats itself during each major economic reversal going back 85 years. Because idiosyncratic risk is what is involved, this increase cannot be explained by changes in predictions concerning the future course of the economy as a whole.

Our first goal is to explain why difficult economic times, which are defined in terms of market wide phenomena, make …

• The Credit Crisis And Subprime Litigation: How Fraud Without Motive ‘Makes Little Economic Sense’, Peter Hamner

Peter Hamner

The recent collapse of the financial markets spurred numerous lawsuits seeking a faulty party. Many plaintiffs argue that market participants committed securities fraud. They claim that deficient subprime loans caused the financial crisis. These risky loans were allegedly originated by banks to be sold off to third parties. The subprime loans were securitized and spread throughout the financial markets. The risk these loans presented was allegedly not disclosed to the buyers of the loans and securities on the loans. As these deficient loans and securities began to default the financial markets came to a halt. This article argues that securities …

Can Do: Training Lawyers To Be Effective Counselors To Entrepreneurs, Anthony J. Luppino

Faculty Works

This Report is the result of a grant to the University of Missouri-Kansas City from the Ewing Marion Kauffman Foundation to research and describe current methods of training law students and lawyers destined to represent entrepreneurs, and to identify promising pedagogy in pursuit of the goal of educating effective counselors to entrepreneurial clients. Entrepreneurs clearly need help in dealing with a multitude of increasingly complex laws and regulations. They may also require counsel in obtaining financing and negotiating their transactions, within the bounds of the applicable rules, to achieve their goals. The research reflected in this Report indicates that there …

Remapping The Charitable Deduction, David Pozen

Faculty Scholarship

If charity begins at home, scholarship on the charitable deduction has stayed at home. In the vast legal literature, few authors have engaged the distinction between charitable contributions that are meant to be used within the United States and charitable contributions that are meant to be used abroad. Yet these two types of contributions are treated very differently in the Code and raise very different policy issues. As Americans' giving patterns and the U.S. nonprofit sector grow increasingly international, the distinction will only become more salient.

This Article offers the first exploration of how theories of the charitable deduction apply …

Business & Finance Issues With Traditional Finance And Capitalization

William & Mary Annual Tax Conference

No abstract provided.

Lesson From The Trenches: Debtor Educator In Theory And Practice, Susan Block-Lieb, Karen Gross, Richard L. White

Fordham Journal of Corporate & Financial Law

No abstract provided.

Strategic Planning For Financial Institutions In A New Legal And Economic Environment, Carl Felsenfeld, William T. Lifland, Ernest T. Patrikis, Frank Scifo, William J. Sweet Jr.

Fordham Journal of Corporate & Financial Law

No abstract provided.

The A.A. Sommer Annual Lecture On Corporate Securities & Financial Law, Foreward, John F.X. Peloso

Fordham Journal of Corporate & Financial Law

No abstract provided.

But Can She Keep The Car? Some Thoughts On Collateral Retention In Consumer Chapter 7 Cases, Marianne B. Culhane, Michaela M. White

Fordham Journal of Corporate & Financial Law

No abstract provided.

Mandatory Bankruptcy Counseling: The Canadian Experience, Lain Ramsay

Fordham Journal of Corporate & Financial Law

No abstract provided.