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Full-Text Articles in Law
Compensating Market Value Losses: Rethinking The Theory Of Damages In A Market Economy, Steven L. Schwarcz
Compensating Market Value Losses: Rethinking The Theory Of Damages In A Market Economy, Steven L. Schwarcz
Steven L Schwarcz
The BP Gulf oil spill and the Toyota car recalls have highlighted an important legal anomaly that has been overlooked by scholars—judicial inconsistency and confusion in ruling whether to compensate for the loss in market value of wrongfully affected property. This article seeks to understand the anomaly and, in the process, build a stronger foundation for enabling courts to decide when—and in what amounts—to award damages for market value losses. To that end, the article analyzes the normative rationales for generally awarding damages, adapting those rationales to derive a theory of damages that not only covers market value losses of …
Marginalizing Risk, Steven L. Schwarcz
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 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 …
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 …
Complexity As A Catalyst Of Market Failure', Steven L. Schwarcz
Complexity As A Catalyst Of Market Failure', Steven L. Schwarcz
Steven L Schwarcz
This article examines how the complexities of modern financial markets and investment securities can trigger market failure. The article also analyzes what steps, including possible regulation, should be taken to reduce the potential for failure. Because market complexities and failures are characteristic of complexities and failures in engineering systems with nonlinear feedback, the article employs a law and engineering analysis, drawing on the literature analyzing those systems.
Complexity As A Catalyst Of Market Failure, Steven L. Schwarcz
Complexity As A Catalyst Of Market Failure, Steven L. Schwarcz
Steven L Schwarcz
This article examines how the complexities of modern financial markets and investment securities can trigger market failure. The article also analyzes what steps, including possible regulation, should be taken to reduce the potential for failure. Because market complexities and failures are characteristic of complexities and failures in engineering systems with nonlinear feedback, the analysis draws on the literature analyzing those systems.
Complexity As A Catalyst Of Market Failure: A Law And Engineering Inquiry, Steven L. Schwarcz
Complexity As A Catalyst Of Market Failure: A Law And Engineering Inquiry, Steven L. Schwarcz
Steven L Schwarcz
This article examines how the complexities of modern investment securities and the assets underlying them can trigger a breakdown of financial markets and also analyzes what should be done to mitigate the potential for market failure. Because these complexities are characteristic of complexities in nonlinear engineering systems, the article’s analysis draws on the literature analyzing these systems.
Protecting Financial Markets: Lessons From The Subprime Mortgage Meltdown, Steven L. Schwarcz
Protecting Financial Markets: Lessons From The Subprime Mortgage Meltdown, Steven L. Schwarcz
Steven L Schwarcz
Why did the recent subprime mortgage meltdown undermine financial market stability notwithstanding the protections provided by market norms and financial regulation? This article attempts to answer that question by identifying anomalies and obvious protections that failed to work, and then by examining hypotheses that might explain the anomalies and failures. The resulting explanations provide critical insights into protecting financial markets.
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 …
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 …
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
No abstract provided.