Law Commons^™

Code, Crash, And Open Source: The Outsourcing Of Financial Regulation To Risk Models And The Global Financial Crisis, Erik F. Gerding

Erik F. Gerding

The widespread use computer-based risk models in the financial industry in the last two decades enabled the marketing of more complex financial products to consumers, the growth of securitization and derivatives, and the development of sophisticated risk management strategies by financial institutions. Over this same period, regulators increasingly delegated or outsourced vast responsibility for regulating risk in both consumer finance and financial markets to these private industry models. The proprietary risk models of financial institutions thus came to serve as a “new financial code” that regulated transfers of risk among consumers, financial institutions, and investors.

The spectacular failure of financial …

Laws Against Bubbles: An Experimental-Asset-Market Approach To Analyzing Financial Regulation, Erik F. Gerding

Erik F. Gerding

This article analyzes the effectiveness of proposed and actual securities, financial, and tax laws designed to prevent, or dampen the severity of asset price bubbles, including laws designed to mitigate "excessive" speculation. The article employs experimental asset market research to measure the effectiveness of these "anti-bubble laws" in correcting mispricings. Experimental asset markets represent complex simulations of stock markets in which subjects trade securities over a computer network. These markets allow scholars to test causal links between legal policies and market effects in ways that empirical research alone cannot. With these virtual markets, researchers can identify asset price bubbles - …