Law Commons^™

Resolving Large, Complex Financial Firms, Thomas Fitzpatrick, Mark Greenlee, James Thomson

James B Thomson

How to best manage the failure of systemically important fi nancial fi rms was the theme of a recent conference at which the latest research on the issue was presented. Here we summarize that research, the discussions that it sparked, and the areas where considerable work remains.

Restoring The Natural Law: Copyright As Labor And Possession, Alfred C. Yen

Alfred C. Yen

In this Article, Professor Yen explores the problems associated with viewing copyright solely as a tool for achieving economic efficiency and advocates for the restoration of natural law to copyright jurisprudence. The Article demonstrates that economics has not been solely responsible for copyright’s development and basic structure, but has rather developed along lines suggested by neutral law, despite modern copyright jurisprudence. The Article considers the consequences of extinguishing copyright’s natural law facets in favor of the blind pursuit of efficiency and concludes by exploring the implications of restoring natural law thinking to copyright jurisprudence.

Justice, The Bretton Woods Institutions And The Problem Of Inequality, Frank J. Garcia

Frank J. Garcia

The Bretton Woods Institutions are, together with the WTO, the preeminent international institutions devoted to managing international economic relations. This mandate puts them squarely in the center of the debate concerning development, inequality and global justice. While the normative analysis of the WTO is gaining momentum, the systematic normative evaluation of the World Bank and the International Monetary Fund is comparatively less developed. This essay aims to contribute to that nascent inquiry. How might global justice criteria apply to the ideology and operations of the Bank and Fund? Political theory offers an abundance of perspectives from which to conduct such …

Evaluating Imf Crisis Prevention As A Matter Of Global Justice, Frank J. Garcia

Frank J. Garcia

No abstract provided.

Save The Economy: Break Up The Big Banks And Shape Up The Regulators, Charles W. Murdock

Charles W. Murdock

Save the Economy: Break Up the Big Banks and Shape Up the Regulators

The U.S. economy is still reeling from the financial crisis that exploded in the fall of 2008. This article asserts that the big banks were major culprits in causing the crisis, by funding the non-bank lenders that created the toxic mortgages which the big banks securitized and sold to unwary investors. Paradoxically, banks which were then too big to fail are even larger today.

The article briefly reviews the history of banking from the Founding Fathers to the deregulatory mindset that has been present since 1980. It …

The Myth Of Investor Protection: The Dodd-Frank Act And The Office Of The Investor Advocate, Chelsea Ferrette

Chelsea P. Ferrette

Are security investors protected when investor advocacy is a form of regulation? This article asks that question and answers “no.” This article looks at the SEC’s Office of the Investor Advocate (“OIA”) mandated by the Dodd-Frank Act of 2010. The OIA’s prime-objective is the advocacy and protection of investors. The OIA plans to meet its objective by ensuring retail investors’ interests are adequately represented, assisting them in conflict resolution, and identifying areas where regulatory changes benefit investors. This article posits, however, that the OIA cannot achieve its goals, because, first, the ever-increasing complexity of financial securities; second, the conflicts of …

Eliminating Wall Street's Safety Net: How A Systemic Risk Premium Can Solve "Too Big To Fail", Jason Rudderman

Jason Rudderman

Eliminating Wall Street’s Safety Net: How a Systemic Risk Premium Can Solve “Too Big to Fail” The financial crisis of 2007 – 2009 sent the United States and the global economy into its worst recession since the great depression. Large, interconnected financial and non-financial institutions were at the center of the financial crisis. The institutions highly leveraged positions during the crisis led the government to take extreme measures, including bailing out some of these “too big to fail,” but failing institutions. The crisis led the United States Congress to pass the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank …

The Case Against The Dodd-Frank Act’S Living Wills: Contingency Planning Following The Financial Crisis, Nizan Geslevich Packin

Nizan Geslevich Packin

The Dodd-Frank Act’s “living will” requirement mandates that systemically important financial institutions develop wide-ranging strategic analyses of their business affairs, and submit comprehensive contingency plans for reorganization or resolution of their operations to regulators. The goal is to mitigate risks to the financial stability of the US and encourage last-resort planning, which will allow for a rapid and efficient response in the event of an emergency. Beyond the general framework set forth in the Dodd-Frank Act, very little is known about living wills; no legal literature currently exists on what the concept entails, and regulators have not yet created any …

A Pattern Of Unaccountability: Rating Agency Liability, The Dodd-Frank Act, And A Financial Crisis That Could Have Been Prevented, Stephen P. Alicanti

Stephen P Alicanti

By opining on the credit quality of structured debt products, credit rating agencies guide investment decisions and facilitate the debt capital markets. In the years leading up to the financial crisis of 2007, loans were commonly issued to individuals with poor credit histories and insufficient income. After those loans were originated, investment banks packaged them into securitized debt products and sold sections (tranches) to investors. Many of those products received credit rating agencies’ highest endorsement of creditworthiness. Despite their high ratings, those products failed during the financial crisis and devastated individual investors, investment banks, and insurance companies. The financial shockwaves …

No More Abuse: The Dodd-Frank And Consumer Financial Protection Act's "Abusive" Standard, Tiffany S. Lee

Tiffany S Lee

The Dodd-Frank Wall Street Reform and Consumer Financial Protection Act creates the new Bureau of Consumer Financial Protection. This consumer watchdog will be responsible for the most powerful consumer protections in American history. Under section 1031(d) of the Act, the Bureau may ban acts and practices that are unfair, deceptive, or abusive. While the unfair and deceptive standards have existed for some time, “abusive” is a relatively new legal standard with limited jurisprudential history. Thus, ironically, critics assert that the inclusion of the abusive standard is itself an abuse of legislative power. This Article asserts that despite some criticism to …

Allocating Loss In Securities Fraud: Time To Adopt A Uniform Rule For The Special Case Of Ponzi Schemes, Grant Christensen

Grant Christensen

The Global Financial Crisis precipitated a condensing of capital and a fall in global equities markets that resulted not solely in the necessity of government bailouts of the financial industry but also exposed a number of Ponzi schemes that collectively will cost investors tens of billions of dollars. With a new wave of litigation by innocent investors against Ponzi scheme operators just beginning, and likely to take years, it becomes important to clearly identify the methodologies used to value the loss and allocate existing assets among remaining creditors. To that end I offer this article to argue that courts ought …

Finding Shelter In A Time Of Crisis: A Process-Oriented Approach To Risk Management, Kristin Johnson

Kristin N Johnson

Success in financial markets rests on the effectiveness of a business’s risk management strategy: manage risks well and profits follow; fail to manage risks and a crisis ensues. It has long been evident that inadequate enterprise risk management policies, or internal risk-reducing strategies, create perilous consequences for a business. The recent financial crisis illustrates that the often disparate regulatory guidance and multiplicity of regulators who influence enterprise risk management policies were ill-suited to address conflicts and weaknesses in risk management accountability and enforcement mechanisms. During the crisis, a chorus of commentators demanded a federal solution to address the devastating economic …

Law And Venture Capital: The Case Of Japanese Entrepreneurs, Zenichi Shishido

Zenichi Shishido

The biggest difference in the incentive bargains made in the venture capital industries in the US and Japan is that American entrepreneurs abandon control while Japanese entrepreneurs do not. Years ago, this difference was thought to be caused by a lack of liquid IPO markets by some experts in the field. However, there are currently multiple liquid IPO markets in Japan, yet Japanese entrepreneurs are still reluctant to abandon control of their companies to venture capitalists. While there are likely to be many complementary reasons for this difference, it can be partly explained by the different legal systems in the …

Capture In Financial Regulation: Can We Channel It Toward The Common Good?, Lawrence G. Baxter

Lawrence G. Baxter

Abstract

“Regulatory capture” is central to regulatory analysis yet is a troublesome concept. It is difficult to prove and sometimes seems refuted by outcomes unfavorable to powerful interests. Nevertheless, the process of bank regulation and supervision fosters a closeness between regulator and regulated that would seem to be conducive to “capture” or at least to fostering undue sympathy by regulators for the companies they oversee. The influence of very large financial institutions has also become so great that financial regulation appears to have become excessively distorted in favor of these entities and to the detriment of many other legitimate interests, …

The Dodd-Frank Wall Street Reform And Consumer Protection Act: What Caused The Financial Crisis And Will Dodd-Frank Succeed In Preventing Future Crises?, Charles W. Murdock

Charles W. Murdock

Summary: The Dodd-Frank Wall Street Reform and Consumer Protection Act: What Caused the Financial Crisis and Will Dodd-Frank Succeed in Preventing Future Crises?

We are still experiencing the devastating impact of the financial crisis which came to a head on September 18, 2008 when Secretary Paulson told Congressional leaders that “[u]nless you act, the financial system of this country and the world will melt down in a matter of days.”

To prevent future crises of this magnitude, last year Congress enacted the Dodd-Frank Wall Street Reform and Consumer Protection Act. However, this year, legislation has already been introduced to repeal …

Allowing Dual Status For Purchase-Money Security Interests In Consumer-Goods Transactions, Richard Nowka

Richard H. Nowka

This article advocates that courts should allow a purchase-money security interest in consumer goods to have dual status—part purchase-money and part nonpurchase-money—after the parties refinance the purchase-money obligation or after the secured party makes a future advance. Courts have struggled with this issue since the enactment of Article 9 because the definition of purchase-money security interest (U.C.C. 9-103) arguably permits a court to apply dual status or to hold that a refinancing or future advance “transforms” the purchase-money security interest into a nonpurchase-money security interest. Although Revised Article 9 adopts the dual status rule, a compromise among the drafting committee …

Financial Crises In The United States And The European Union: Policy Responses, Successes And Failures And The Need For Further, Cross-National Reform, Jason Rudderman

Jason Rudderman

This paper examines the causes of the global financial crisis of 2008-2009 and explores the major financial reforms in the United States and the EU, offers comparisons of the legislation and recommends changes to the legislations that are aimed at minimizing the burden on taxpayers, and balancing the necessary intervention of governments in financial markets and the economy with capitalistic ideals. The lack of government oversight, predatory lending practices, and an overall environment of deregulation leading up to the financial crisis ultimately led to its collapse in late 2008. In response to the collapse of the global financial system, the …

Marginalizing Risk, Steven L. Schwarcz

Steven L Schwarcz

A major focus of finance is reducing risk on investments, a goal commonly achieved by dispersing the risk among numerous investors. Sometimes, however, risk dispersion can cause investors to underestimate and under-protect against risk. Risk can even be so widely dispersed that rational investors individually lack the incentive to monitor it. This article examines the market failures resulting from risk dispersion, and analyzes when government regulation may be necessary or appropriate to limit these market failures. The article also examines how such regulation should be designed, including the extent to which it should limit risk dispersion in the first instance.

The Legal Aspects Of Non-Financial Market Central Counterparties (Ccp): A Case Comment On Iata V. Ansett, Christian Chamorro-Courtland

Christian Chamorro-Courtland

International Air Transportation Association (IATA) v. Ansett (2008) was decided correctly by the High Court of Australia. However, the reasoning of the judges was unsound due to their apparent unfamiliarity with the operation of Central Counterparty (CCP) systems. The judges failed to recognize that ‘open offer’ was the mechanism of counterparty substitution used in the IATA clearing rules to create mutuality and guarantee multilateral insolvency set-off. This article analyses the Ansett decision and describes the legal principles that should have been used to decide the case. Only financial market CCPs receive special statutory protections from burdensome corporate insolvency laws. Therefore, …

The Subprime Virus: Reckless Credit, Regulatory Failure, And Next Steps

Patricia A. McCoy

In this lively new book, Kathleen C. Engel and Patricia A. McCoy tell the full story behind the subprime crisis. The authors, experts in the law and economics of financial regulation and consumer lending, offer a sharply reasoned, but accessible account of the actions that produced the greatest economic collapse since the Great Depression.

Book Review: The Subprime Virus: Reckless Credit, Regulatory Failure, And Next Steps, David J. Reiss

David J Reiss

John Godfrey Saxe’s 19th century poem, “The Blind Men and the Elephant,” opens with six learned men

Who went to see the Elephant

(Though all of them were blind),

That each by observation

Might satisfy his mind.

The financial crisis is the Elephant of our time. Over the last couple of years, more than six wise men and women have written books purporting to explain the financial crisis and many more such books are surely in the works. Most of these wise ones suffer from the same limitations as the poem’s learned men. As each reaches out, he or she …