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Full-Text Articles in Law
The Conundrum Of Covered Bonds, Steven L. Schwarcz
The Conundrum Of Covered Bonds, Steven L. Schwarcz
Steven L Schwarcz
Covered bonds, which have been part of European finance since the time of Frederick the Great, are now being widely touted as the answer to securitization’s imperfections. There is great confusion, though, about the nature of covered bonds and their relationship to secured bond financing and securitization. This article attempts to demystify covered bonds, examining how they fit within a larger financing framework, analyzing their legal rights and obligations, and comparing their costs and benefits. The benefits of covered bonds are similar to those of securitization; both can access low-cost capital market funding with low risk to their investors, and …
Disintermediating Avarice: A Legal Framework For Commercially Sustainable Microfinance, Steven L. Schwarcz
Disintermediating Avarice: A Legal Framework For Commercially Sustainable Microfinance, Steven L. Schwarcz
Steven L Schwarcz
Although microfinance has emerged as a key tool to alleviate poverty, the need for microfinance lending vastly exceeds the amount of funds that can be raised from charitable donors. Commercial bank lending is supplementing donor money, but microfinance loans made by banks are expensive and sometimes even exploitive. This article examines how innovative legal structures can enable microfinance loans to be funded directly from lower-cost, and virtually limitless, capital market sources by removing, or “disintermediating,” the need for a bank intermediary. In that context, the article identifies and attempts to resolve the resulting law-and-business issues of first impression and also …
Distorting Legal Principles, Steven L. Schwarcz
Distorting Legal Principles, Steven L. Schwarcz
Steven L Schwarcz
This article explores the important but until now largely neglected problem of distorting legal principles. Although legal principles enable society to order itself by preserving broadly based expectations, parties sometimes transact in ways that are so inconsistent with accepted principles as to create uncertainty or confusion that undermines the basis for reasoning afforded by the principles. The article starts by examining a fundamental distortion of the nemo dat legal principle (one cannot give what one does not have), which was a trigger of Lehman Brothers’ recent downfall. A practice called “rehypothecation” so distorted nemo dat that Lehman’s customers were uncertain …
Bond Defaults And The Dilemma Of The Indenture Trustee , Steven L. Schwarcz, Gregory M. Sergi
Bond Defaults And The Dilemma Of The Indenture Trustee , Steven L. Schwarcz, Gregory M. Sergi
Steven L Schwarcz
This article, attached for your review, rethinks the standard of care for trustees of public bonds. The present standard is intolerably vague, generating cost and inefficiency in the public bond markets. Yet bondholder governance is increasingly recognized as a critical component of the larger realm of corporate governance, and indeed more than eighty percent of capital market financing raised by U.S. corporations now occurs through public bond offerings. This article examines how that standard of care should be modified to make indenture trustees more effective.
To Make Or To Buy: In-House Lawyering And Value Creation, Steven L. Schwarcz
To Make Or To Buy: In-House Lawyering And Value Creation, Steven L. Schwarcz
Steven L Schwarcz
In recent years, companies have been shifting much of their transactional legal work from outside law firms to in-house lawyers, and some large companies now staff transactions almost exclusively in-house. Although this transformation redefines the very nature of the business lawyer, scholars have largely ignored it. This article seeks to remedy that omission, using empirical evidence as well as economic theory to help explain why in-house lawyers are taking over, and whether they are likely to continue to take over, these functions and roles of outside lawyers. The findings are surprising, suggesting that in-house lawyers may now be performing as …