Law Commons^™

Beneficial Ownership And The Remic Classification Rules, Bradley T.` Borden, David J. Reiss

David J Reiss

REMICs are securitized pools of mortgages that qualify for special flow-through taxation. To qualify for flow-through tax treatment, the pool must satisfy several requirements. An intended REMIC that fails to satisfy those requirements will likely be taxed as a corporation and payments made to holders of interests in a failed REMIC will likely be nondeductible dividend payments, subjecting the REMIC to significant tax and penalties. Such tax and penalties will cause beneficial interests in the pool to lose value and frustrate investors who relied upon REMIC classification as an incentive to purchase interests. Thus, tax classification is critical to REMICs …

Comment On The Use Of Eminent Domain To Restructure Performing Loans, David J. Reiss

David J Reiss

There has been a lot of fear-mongering by financial industry trade groups over the widespread use of eminent domain to residential mortgages. While there may be legitimate business reasons to oppose its use, its inconsistency with Takings jurisprudence should not be one of them. To date, the federal government’s responses to the current crisis in the housing markets have been at cross purposes, half-hearted and self-defeating. So it is not surprising that local governments are attempting to fashion solutions to the problem with the tools at their disposal. Courts should, and likely will, give these democratically-implemented and constitutionally-sound solutions a …

The Good Faith Approach To Foreclosure Mediation: An Assessment Of Washington's Foreclosure Mediation Program, Scott P. Kennedy

Scott P. Kennedy

Since 2007, concerns over high home foreclosure rates have played a dominant role in U.S. economic news and policy, and several states have responded with bold statutory and regulatory innovations. In July of 2011, Washington State implemented one such innovation: the Foreclosure Fairness Act (FFA). It grants defaulting homeowners the right to initiate a mediation in which lenders must consider the alternatives to foreclosure in good faith. This article assesses the Washington model's potential to mitigate the forces frustrating foreclosure prevention. Despite the increasing viability of foreclosure's alternatives, national foreclosure rates remain high. Poor lender-borrower dialogue, a system of perverse …

U.S.Foreign Trade Zones, Tax-Free Trade Zones Of The World, And Their Impact On The U.S. Economy, Susan W. Tiefenbrun

Susan W Tiefenbrun

ABSTRACT

U.S. Foreign Trade Zones, Tax-Free Trade Zones of the World, and Their Impact on the United States Economy , by Susan Tiefenbrun

Free trade zones (FTZs) date back to the time of the Phoenicians; they developed in the l970s and proliferated from 1980 until today. FTZs are duty-free areas where goods may be warehoused, processed, sold, serviced, distributed, showcased, packaged, labeled, sorted, assembled, and/or manufactured as finished goods prior to re-exporting them as duty-exempt finished products. More than one 135 countries operate tax-free trade zones. There are more than 3,500 of these zones and subzones all over the world, …

Epic Fail: An Institutional Analysis Of Financial Distress, Jonathan C. Lipson

Jonathan C. Lipson

This paper presents an institutional analysis of financial distress. “Institutional analysis” compares the effectiveness of large-scale processes, such as markets, courts, and governments, at solving social problems. Although financial distress is one of our most acute problems, there has been virtually no effort to analyze it from an institutional perspective. This paper begins to fill that gap.

Institutional analysis shows that, contrary to conventional wisdom, financial distress is not a problem that courts, such as bankruptcy courts, usually solve by themselves. Instead, it is increasingly a problem that political organs (whether elected or regulatory) both create and purport to resolve. …

If The Shoe Of The Sec Doesn't Fit: Self-Regulatory Organizations And Absolute Immunity, Jennifer M. Pacella, Esq.

Jennifer M. Pacella, Esq.

In recent years, the absolute legal immunity granted to self-regulatory organizations (“SROs”) in the securities industry has incited increasingly controversial concerns about the lack of accountability of financial regulators. Although SROs like the Financial Industry Regulatory Authority (“FINRA”) are deemed to “stand in the shoes” of the Securities and Exchange Commission (“SEC”) by carrying out delegated, quasi-governmental duties in monitoring securities markets, their alternate role as private, commercial entities raises questions as to the fairness of expansive SRO immunity. Plaintiffs have historically been denied any redress even in instances of alleged SRO fraud, misconduct and bad faith. Earlier this year, …

A New Philosophy For Financial Stability Regulation, Hilary J. Allen

Hilary J. Allen

The financial crisis of 2007-2008 showed up many inadequacies in the pre-crisis approach to financial stability regulation. The response from legislators and regulators has been to implement a broad new range of regulatory tools – individual solutions to individual regulatory failings highlighted by the crisis. But the prevailing cost-benefit philosophy that informed financial stability regulation in the United States prior to the crisis persists today - there has been no real effort to rethink the overarching philosophy behind financial stability regulation. Because a cost-benefit approach gives too much primacy to the short-term interests of the financial industry, this Article rejects …

Private Lawmaking And The Architecture Of Confidentiality In Nonprofit Boardrooms, Norman I. Silber

Norman I. Silber

Abstract

Placement of the boundary line between transparent and confidential deliberation inside a boardroom affects the quality, efficiency, and fairness of corporate decision making. Policies which do not insist upon confidentiality can improve the perceived legitimacy of decisions and of those who make them; confidentiality can improve the ability to implement decisions effectively. The degree of transparency facilitated by these policies affects the volume and quality of available information. In the nonprofit boardroom, the boundaries that are set by governance rules also reflect and give shape to institutional structures and cultural norms.

This article explores justifications for changing from a …

Comment On The Federal Housing Finance Agency’S Strategic Plan: Fiscal Years 2013-2017, David J. Reiss

David J Reiss

This is a comment upon Performance Goal 4.3 from the Federal Housing Finance Agency’s Strategic Plan: Fiscal Years 2013-2017. Performance Goal 4.3 addresses the future of Fannie Mae and Freddie Mac as well as the future of the infrastructure of the residential housing finance market. This comment will address the future of Fannie and Freddie after they exit conservatorship. Once analyzed in the context of regulatory theory, Fannie and Freddie’s future seems clear. They should be privatized so that they can compete on an even playing field with other financial institutions, and their public functions should be assumed by pure …

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.

Congressional Intent Regarding The Qualified Mortgage Provision, Raymond Natter

Raymond Natter

The Consumer Financial Protection Bureau (CFPB) is currently considering a regulation that could well have a significant impact on the cost and availability of mortgage loans in the United States. The regulation is intended to implement the Qualified Mortgage (QM) provisions in the Dodd-Frank Act. These provisions impose significant legal liability on any mortgage originator that does not make a determination before making a mortgage loan that the borrower has a “reasonable ability to repay” the loan, before the mortgage is made. In light of the subjective nature of this standard, the Dodd-Frank Act also establishes a safe harbor for …

Is The Middle East Moving Toward Islamism After The Arab Spring? The Case Study Of The Egyptian Commercial And Financial Laws, Radwa S. Elsaman Ms., Ahmed Eldakak Mr.

Radwa S Elsaman

The parliamentary elections that followed the Egyptian Revolution witnessed an unprecedented success for Islamists as they secured an overwhelming majority of seats, suggesting that they may intend to amend many laws to bring it in compliance with the Islamic Shari’a. This article addresses legal challenges that will face the new majority if they decide to Islamize laws and regulations related to business and finance. Particularly, the article discusses Islamic money theory, trade, banking systems, consumer protection, insurance, competition, and tax systems. The article analyzes the Egyptian business and finance laws to examine whether they comply with Islamic law. It then …

Debtor’S Prison In The Neoliberal State: “Debtfare” And The Cultural Logics Of The Bankruptcy Abuse Prevention And Consumer Protection Act Of 2005, Linda E. Coco

Linda E. Coco

The enactment of the Bankruptcy Abuse Prevention and Consumer Protection Act (“BAPCPA”) of 2005, amending the Bankruptcy Reform Act of 1978, marks a transformation in bankruptcy law and policy that is representative of larger shifts in dominant economic and political models from “embedded liberalism” to free market “neoliberalism.” BAPCPA’s provisions are part of the new practices of the emergent neoliberal state as they relate to the American middle class segment of the population. In disciplining the middle class, BAPCPA shifts the risk and the responsibility of the lending relationship onto consumer debtors. BAPCPA does this by keeping financially distressed individuals …

Municipal Securities: The Crises Of State And Local Government Indebtedness, Systemic Costs Of Low Default Rates, And Opportunities For Reform, Christine Sgarlata Chung

Christine Sgarlata Chung

Municipal securities are securities that state and local governments issue to pay for large infrastructure projects like roads and power plants, to fund economic development and public welfare initiatives like sports stadiums and hospitals, and to meet day-to-day funding needs. According to conventional wisdom, municipal securities are safe because state and local government issuers rarely default. State and local governments rarely default because they may be legally obligated to collect taxes, fees and assessments in amounts necessary to pay bondholders. In addition, legal and non-legal constraints may make it difficult or impossible for state and local governments to obtain discharge. …

Preventing Future Economic Crises Through Consumer Protection Law Or How The Truth In Lending Act Failed The Subprime Borrowers, Jeff Sovern

Jeff Sovern

This paper argues that one cause of the current economic crisis was that the federal Truth in Lending Act failed to provide mortgage borrowers with the tools to determine whether they would be able to meet their loan obligations, and that as a result many borrowers assumed loans on which they would later default. The paper first explores the disclosures for adjustable rate mortgages—which were commonly used for subprime loans—and explains how those disclosures misled borrowers about their monthly payments. Next, the paper reports on a survey of mortgage brokers conducted in July of 2009. The brokers were nearly unanimous …

Preventing Future Economic Crises Through Consumer Protection Law Or How The Truth In Lending Act Failed The Subprime Borrowers, Jeff Sovern

Jeff Sovern

This paper argues that one cause of the current economic crisis was that the federal Truth in Lending Act failed to provide mortgage borrowers with the tools to determine whether they would be able to meet their loan obligations, and that as a result many borrowers assumed loans on which they would later default. The paper first explores the disclosures for adjustable rate mortgages—which were commonly used for subprime loans—and explains how those disclosures misled borrowers about their monthly payments. Next, the paper reports on a survey of mortgage brokers conducted in July of 2009. The brokers were nearly unanimous …

The Virtue Of Home Ownership And The Vice Of Poorly Secured Lending: The Great Financial Crisis Of 2008 As An Unintended Consequence Of Warm-Hearted And Bone-Headed Ideas, Mark S. Klock

Mark S Klock

This article utilizes a simple economic model of asymmetric information to model a pooling equilibrium in the housing market. There are two types of households in the model—disciplined and undisciplined. Disciplined households are able to distinguish themselves by saving a significant portion of their income for a down payment on a home leading to a stable equilibrium. A change in government policy which requires a rate of home ownership greater than the proportion of disciplined households causes the equilibrium to collapse. I argue that changes in U.S. housing policy driven by federal legislation had exactly this effect on the housing …

Challenges And Opportunities For The Indonesian Securities Takeover Regulations: General Framework And Analysis From Dutch Law And Theoretical Perspectives, Yozua Makes

Yozua Makes

This article examines question of the extent to which the rules in Indonesia concerning takeover of a public listed company: (1) facilitate efficient exchange of shares in the capital market with fair protection for all stakeholders in a takeover transaction pursuant to Good Corporate Governance (GCG) principles; and (2) accommodate principles and protection provided in the securities laws of more developed jurisdictions. These issues are addressed by analyzing the current Indonesian legal framework from the perspective of fairness and efficiency in the securities regulations and corporate governance principles. A comparative discussion of laws and regulations in Indonesia and the Netherlands …

Executive Compensation And Income Inequality, Dan Morrissey

Dan Morrissey

Abstract of Morrissey Article The Articles explores the connection between exorbitant executive compensation and the growing income inequality in our country. It discusses the tradition legal attempts to rein in corporate remuneration as well as the more recent “Say-on-Pay” right given shareholders in the Dodd-Frank Wall Street Reform Act of 2010. The Article concludes that negative stockholder votes there can be evidence that directors have breached their fiduciary duties by granting overly generous pay hikes to their top officials.

Regulatory Effectiveness In Onshore & Offshore Financial Centers, Andrew P. Morriss, Clifford C. Henson

Andrew P Morriss

Onshore jurisdictions, such as the United States, United Kingdom, France and Germany, are critical of offshore financial centers (OFCs), such as Bermuda, the Cayman Islands, and the Channel Islands. Arguments against OFCs include claims that their regulatory oversight is lax, allowing fraud and criminal activity. In this article, we present cross-jurisdictional data, showing that OFCs are not lax. We also provide qualitative analyses of regulatory effectiveness, demonstrating that input-based measures of regulation are inappropriate metrics for comparing jurisdictions. Based on both quantitative input measures and a qualitative assessment, we reject the onshore critique of OFCs as bastions of laxity

Robo-Signers: The Legal Quagmire Of Invalid Residential Foreclosures Proceedings And The Resultant Potential Impact Upon Stakeholders, Pearson Liddell Jr.

Pearson Liddell Jr.

Press reports exposed a potentially virulent financial mishap in the mortgage industry wherein some of the largest mortgage companies used the same document processor to process foreclosure paperwork. These document processors, and others like them, who have come to be known as “robo-signers”, are alleged to have falsified documents to speedily effectuate foreclosures. Attorneys General in all fifty (50) states conducted an investigation and have recently reached a settlement with various financial institutions. In this process, one of the most prominent institutions in the mortgage recordation system, MERS, has had to reinvent itself as a result of the revelations. We …

Ezra Bronstein: In Defense Of The “Better Bailout,” A Heter-Iska Comparison, Ezra Bronstein

Ezra Bronstein

No abstract provided.

Non-Recourse Mortages – A Fresh Start, Ron Harris, Asher Meir

Ron Harris

In about a quarter of US states, all residential mortgages are essentially non-recourse, meaning that in case of default, the lender can only repossess the house but cannot collect on the private assets and future income of the borrower. This American innovation is now beginning to attract extensive interest abroad, but ironically in the US itself is getting a bad name. The law has been blamed for exacerbating the financial crisis, while stricken homeowners who take advantage of it have been scolded by lenders and even by the Secretary of the Treasury. We propose a fresh and more balanced look …

Executive Compensation And Income Inequality, Dan Morrissey

Dan Morrissey

The Articles explores the connection between exorbitant executive compensation and the growing income inequality in our country. It discusses the tradition legal attempts to rein in corporate remuneration as well as the more recent “Say-on-Pay” right given shareholders in the Dodd-Frank Wall Street Reform Act of 2010. The Article concludes that negative stockholder votes there can be evidence that directors have breached their fiduciary duties by granting overly generous pay hikes to their top officials.

Standard Contract Clauses As Public Goods: A New Way To Approach The Problem, Enrico Baffi

enrico baffi

The aim of this work is to show how it is possible to identify market failures other than those traditionally identified by lawyers and law and economics scholars to justify the mandatory provisions of contracts between professionals and consumers and the equally mandatory provisions governing the abuse of economic dependency. This is a new approach that can be extended to other provisions and appears to rest on fairly solid microeconomic foundations. There is no doubt, however, that many criticisms can be leveled against it. Very briefly, I shall argue that the production of clauses characterized by being rather vague, indeterminate …

Threats Escalate: Corporate Information Technology Governance Under Fire, Lawrence J. Trautman

Lawrence J. Trautman Sr.

In a previous publication The Board’s Responsibility for Information Technology Governance, (with Kara Altenbaumer-Price) we examined: The IT Governance Institute’s Executive Summary and Framework for Control Objectives for Information and Related Technology 4.1 (COBIT®); reviewed the Weill and Ross Corporate and Key Asset Governance Framework; and observed “that in a survey of audit executives and board members, 58 percent believed that their corporate employees had little to no understanding of how to assess risk.” We further described the new SEC rules on risk management; Congressional action on cyber security; legal basis for director’s duties and responsibilities relative to IT governance; …

Regulation Not Prohibition: The Comparative Case Against The Insurable Interest Doctrine, Sharo Michael Atmeh

Sharo M Atmeh

American law requires an insurable interest—a pecuniary or affective stake in the subject of an insurance policy—as a predi-cate to properly obtaining insurance. In theory, the rule prevents both wagering on individual lives and moral hazard. In practice, the doctrine is avoided by complex insurance transaction structuring to effectuate both origination and transfers of insurance by individuals without an insurable interest. This paper argues that it is time to ab-andon the insurable interest doctrine. As both the English and Aus-tralian experiences indicate, elimination of the insurable interest doctrine will have little detrimental pecuniary effect on the insurance industry, while freeing …

Property Title Trouble In Non-Judicial Foreclosure States: The Ibanez Time Bomb?, Elizabeth Renuart

Elizabeth Renuart

The economic crisis gripping the United States began when large numbers of homeowners defaulted on poorly underwritten subprime mortgage loans. Demand from Wall Street seduced mortgage lenders, brokers, and other players to churn out mortgage loans in extraordinary numbers. Securitization, the process of utilizing mortgage loans to back investment instruments, not only fanned the fire; the parties to these deals often handled and transferred the legally important documents that secure the resulting investments—the loan notes and mortgages—in a careless and sometimes fraudulent manner.

The consequences of this behavior are now becoming evident. All over the country, courts are scrutinizing whether …

Congress Protected The Troops: Can The New Cfpb Protect Civilians From Payday Lending?, Creola Johnson

Creola Johnson

In 2007, Congress enacted a law, commonly referred to as the Military Lending Act (MLA), which placed a 36% interest rate cap on several consumer loans, including payday loans, and prohibits lenders from engaging in several practices considered predatory. However, the MLA grants these protections only to active-duty military members and their dependent family members.

In the wake of the mortgage foreclosure crisis, Congress passed and President Obama signed into law the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (Dodd–Frank Act), which creates a new federal agency, the Bureau of Consumer Financial Protection (CFPB), to focus on …

America's First Consumer Financial Watchdog Is On A Leash: Can The Cfpb Use Its Authority To Declare Payday-Loan Practices Unfair, Abusive, And Deceptive?, Creola Johnson

Creola Johnson

No abstract provided.