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Banking and Finance Law

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Full-Text Articles in Securities Law

Financial Hospitals: Defending The Fed’S Role As A Market Maker Of Last Resort, José Gabilondo Aug 2016

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

José Gabilondo

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 …


Limits Of Disclosure, Steven M. Davidoff, Claire A. Hill Jul 2014

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

Steven Davidoff Solomon

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 …


Implementing Dodd-Frank: A Review Of The Cftc‟S Rulemaking Process: Testimony, Michael Greenberger Mar 2012

Implementing Dodd-Frank: A Review Of The Cftc‟S Rulemaking Process: Testimony, Michael Greenberger

Michael Greenberger

The Relationship of Unregulated OTC Derivatives to the Meltdown. It is now accepted wisdom that it was the non-transparent, poorly capitalized, and almost wholly unregulated over-the-counter (“OTC”) derivatives market that lit the fuse that exploded the highly vulnerable worldwide economy in the fall of 2008. Because tens of trillions of dollars of these financial products were pegged to the economic performance of an overheated and highly inflated housing market, the sudden collapse of that market triggered under-capitalized or non-capitalized OTC derivative guarantees of the subprime housing investments. Moreover, the many undercapitalized insurers of that collapsing market had other multi-trillion dollar …


The Role Of Derivatives In The Financial Crisis – Testimony Before The Financial Crisis Inquiry Commission, June 30, 2010, Michael Greenberger Aug 2010

The Role Of Derivatives In The Financial Crisis – Testimony Before The Financial Crisis Inquiry Commission, June 30, 2010, Michael Greenberger

Michael Greenberger

It is now almost universally accepted that the unregulated multi-trillion dollar OTC CDS market helped foment a mortgage crisis, then a credit crisis, and finally a ―once-in-a-century systemic financial crisis that, but for huge U.S. taxpayer interventions, would have in the fall of 2008 led the world economy into a devastating Depression. Before explaining below the manner in which credit default swaps fomented this crisis, it worth citing in the margin those many economists, regulators, market observers, and financial columnists who have described the central role unregulated CDS played in the crisis. Even those once skeptical of arguments about the …