Banking and Finance Law Commons^™

Financial Crisis Containment, Anna Gelpern

Scholarly Articles in Law Reviews & Journals

This Article maps financial crisis containment - extraordinary measures to stop the spread of financial distress - as a category of legal and policy choice. I make three claims.

First, containment is distinct from financial regulation, crisis prevention and resolution. Containment is brief; it targets the immediate term. It involves claims of emergency, rule-breaking, time inconsistency and moral hazard. In contrast, regulation, prevention and resolution seek to establish sound incentives for the long term. Second, containment decisions deviate from non-crisis norms in predictable ways, and are consistent across diverse countries and crises. Containment invariably entails three kinds of choices: choices …

The U.S. Economic Crisis: Another "Lost Decade"?, Paula Chungsathaporn

Honors College Theses

America is experiencing the worst economic downturn since the Great Depression originating with problems from mortgage backed securities and seeping into every major sector in the economy. We have witnessed the downfall or government takeover of some of the most powerful companies in the country, contributing to the highest unemployment rate America has seen in decades. During the 1990s, Japan experienced what is commonly referred to as “the lost decade,” a period of prolonged stagnant growth. Many similarities can be drawn between the current U.S. crisis and the Japanese crisis of the late 90s. The macroeconomic conditions that caused the …

The Regulatory Response To Madoff, Anita Krug

All Faculty Scholarship

This white paper evaluates investor protection mechanisms in the securities regulatory regime at the time the Madoff fraud was exposed. It considers whether the post-Madoff call for additional regulation of hedge funds and/or their managers - and/or their respective activities - was warranted.

The Hedge Fund Transparency Act Of 2009, Anita Krug

All Faculty Scholarship

This white paper provides a review and critique of a bill introduced by Senators Charles Grassley (R-Iowa) and Carl Levin (D-Mich.) in the Senate in early 2009 that, if enacted, would have imposed certain registration and disclosure requirements on hedge funds and certain other private funds.

Financial Crisis Containment, Anna Gelpern

Georgetown Law Faculty Publications and Other Works

This Article maps financial crisis containment - extraordinary measures to stop the spread of financial distress - as a category of legal and policy choice. I make three claims.

First, containment is distinct from financial regulation, crisis prevention and resolution. Containment is brief; it targets the immediate term. It involves claims of emergency, rule-breaking, time inconsistency and moral hazard. In contrast, regulation, prevention and resolution seek to establish sound incentives for the long term. Second, containment decisions deviate from non-crisis norms in predictable ways, and are consistent across diverse countries and crises. Containment invariably entails three kinds of choices: choices …

Changing The Paradigm Of Stock Ownership From Concentrated Towards Dispersed Ownership? Evidence From Brazil And Consequences For Emerging Countries, Erica Gorga

Cornell Law Faculty Working Papers

This paper analyzes micro-level dynamics of changes in ownership structures. It investigates a unique event: changes in ownership patterns currently taking place in Brazil. It builds upon empirical evidence to advance theoretical understanding of how and why concentrated ownership structures can change towards dispersed ownership.

Commentators argue that the Brazilian capital markets are finally taking off. The number of listed companies and IPOs in the Sao Paulo Stock Exchange (Bovespa) has greatly increased. Firms are migrating to Bovespa’s special listing segments, which require higher standards of corporate governance. Companies have sold control in the market, and the stock market has …

Responding To Foreclosures In Cuyahoga County: A Pilot Initiative, Interim Report, Alan C. Weinstein, Kathryn W. Hexter, Molly Schnoke

Law Faculty Reports and Comments

The Center for Civic Education and the Cleveland-Marshall College of Law released their report, on May 12, 2008. The report, prepared for the Cuyahoga County Board of Commissioners, is an assessment of the County's comprehensive approach to addressing foreclosures on two levels: 1) Making foreclosure proceedings faster and fairer and 2) Creating an early intervention program to help residents prevent foreclosure.

The Paradox Of Financial Services Regulation: Preserving Client Expectations Of Loyalty In An Industry Rife With Conflicts Of Interest, Andrew F. Tuch

Scholarship@WashULaw

This paper considers the implications of Australian Securities and Investments Commission v. Citigroup [2007] FCA 963, a landmark decision of the Federal Court of Australia. The case highlights an apparent paradox in financial services regulation: at the same time as allowing, or even fostering, the development of financial services conglomerates, regulation in multiple jurisdictions preserves potentially incompatible general law obligations that arise from client expectations of loyalty. The paradox is most evident in the context of the modern investment bank.

The paper discusses the dynamic nature of investment banks, their organizational structure, the types of conflicts they typically face and …

Domestic Bonds, Credit Derivatives, And The Next Transformation Of Sovereign Debt, Anna Gelpern

Georgetown Law Faculty Publications and Other Works

Not long ago, financial markets in most poor and middle-income countries were shallow to nonexistent, and closed to foreigners. Governments often had to rely on risky borrowing abroad; the private sector had even fewer options. But between 1995 and 2005, domestic debt in the emerging markets grew from $1 trillion to $4 trillion. In Mexico, domestic debt went from just over 20% of the total government debt stock in 1995 to nearly 80% in 2007. Foreign and local investors are buying. Over the same period, derivative contracts to transfer emerging market credit risk surpassed the market capitalization of the benchmark …

Paying To Save: Tax Withholding And Asset Allocation Among Low- And Moderate-Income Taxpayers, Michael S. Barr, Jane Dokko

Law & Economics Working Papers Archive: 2003-2009

We analyze the phenomenon that low- and moderate-income (LMI) tax filers exhibit a “preference for over-withholding” their taxes, a measure we derive from a unique set of questions administered in a dataset of 1,003 households, which we collected through the Survey Research Center at the University of Michigan. We argue that the relationship between their withholding preference and portfolio allocation across liquid and illiquid assets is consistent with models with present-biased preferences, and that individuals exhibit self-control problems when making their consumption and saving decisions. Our results support a model in which individuals use commitment devices to constrain their consumption. …

Expanding Homeownership Opportunity Ii: The Softsecond Loan Program, 1991-2006, Jim Campen

Gastón Institute Publications

This report provides data on lending by the SoftSecond Loan Program during the most recent three-year period (2004-2006) as well as over the sixteen-year life of the program. The Mortgage Lending Committee of the Massachusetts Community & Banking Council (MCBC) has had a special interest in the SoftSecond program since its inception and has carefully monitored the performance of its loans. The report updates an earlier report prepared for MCBC by the present author in 2004: Expanding Homeownership Opportunity: The SoftSecond Loan Program, 1991-2003. Detailed information about the origins and evolution of the program, and about the details of …

Stochastic Modeling Of Retail Mortgage Loans Based On Past Due, Prepaid, And Default States, Chang Liu

Doctoral Dissertations

Stochastic models were developed that provide important measures related to retail mortgages and credit cards for the management of a bank. Based on Markov theory, two models were developed that predict mortgage portfolio size and expected duration of stay in each of the states, which are defined according to the criteria of Basel Accord II and the Federal Reserve Bank. Also, to facilitate comparisons among different types of credit products and different time periods, a model was developed to generate a health index for a retail mortgage. This model could be easily extended, using multivariate regression or multivariate time series …

Geo-Politics, The ‘War On Terror’ And The Competitiveness Of The City Of London, Richard Woodward

Books/Book Chapters

No abstract provided.

Securities Underwriters In Public Capital Markets: The Existence, Parameters And Consequences Of The Fiduciary Obligation To Avoid Conflicts, Andrew F. Tuch

Scholarship@WashULaw

This article considers whether an investment bank, when acting as underwriter of a public securities offering, owes the issuing company the fiduciary obligation to avoid conflicts of interest. The question has not arisen for final judicial determination and has been overlooked by scholars and regulators. The highly lucrative and visible nature of underwriting work creates powerful incentives for investment banks to accept instructions in the face of this duty. At the same time, the web of loyalties that these institutions owe, by virtue of their broad and diverse range of products and services, creates intractable practical difficulties for compliance with …

Borrowing Trouble Vii: Higher-Cost Mortgage Lending In Boston, Greater Boston, And Massachusetts, 2005, Jim Campen

Gastón Institute Publications

Six years ago, in response to numerous reports of the growth of predatory lending, the Massachusetts Community & Banking Council (MCBC) – whose Board of Directors has an equal number of bank and community representatives – commissioned a study of subprime refinance lending in the city of Boston and surrounding communities. The resulting report, Borrowing Trouble? Subprime Mortgage Lending in Greater Boston, 1999, was the first detailed look at subprime lending in the city of Boston and in twenty-seven surrounding communities.

This is the seventh report in the annual series begun by that initial study. Over the years, the …

Contractarianism, Contractualism, And The Law Of Corporate Insolvency, Riz Mokal

ExpressO

What is the appropriate way of theorising about corporate bankruptcy law? That lies, argues this paper, in rejecting Pareto and Kaldor-Hicks efficiency in favour of a particular conception of transaction cost efficiency, and in rejecting the ‘contractarian’ Creditors’ Bargain Model in favour of the ‘contractualist’ Authentic Consent Model. The paper vindicates these arguments with an analysis of the automatic stay which characterises the collective liquidation regime, of the pari passu principle often said to be at the heart of this regime, and of the liability imposed in some jurisdictions on the managers of terminally distressed companies for failing to take …

Responding To Foreclosures In Cuyahoga County: An Assessment Of Progress, Alan C. Weinstein, Kathryn W. Hexter, Molly Schnoke

Law Faculty Reports and Comments

In August 2006, Cleveland State University was asked to conduct an initial assessment of the Cuyahoga County Commissioners' Report and Recommendations on Foreclosure that would assist the county in planning for future phases of the project. This report presents the findings of this initial assessment of the first 18 months of the initiative. It documents the process undertaken by the county, assesses the progress made toward reaching goals, identifies successes and concerns, and offers some preliminary recommendations about program operations. It also offers suggestions for a more formal evaluation process going forward

A Complete Property Right Amendment, John H. Ryskamp

ExpressO

The trend of the eminent domain reform and "Kelo plus" initiatives is toward a comprehensive Constitutional property right incorporating the elements of level of review, nature of government action, and extent of compensation. This article contains a draft amendment which reflects these concerns.

Essay -- Preemption, Agency Cost Theory, And Predatory Lending By Banking Agents: Are Federal Regulators Biting Off More Than They Can Chew?, Christopher L. Peterson

ExpressO

A pitched battle is currently being waged for control of the American banking industry. For over a hundred years, the federal and state governments have maintained a complex, but relatively stable truce in their contest for power. At the beginning of our republic, state governments were the primary charterers and regulators of banks. In the wake of the Civil War, the National Bank Act created parity between federal and state banks, cementing the notion of a “dual banking system” that endured through the twentieth century. But in the past five years, the federal government has increasingly used its powers under …

Predatory Structured Finance, Christopher L. Peterson

ExpressO

Predatory lending is a real, pervasive, and destructive problem as demonstrated by record settlements, jury awards, media exposes, and a large body of empirical scholarship. Currently the national debate over predatory mortgage lending is shifting to the controversial question of who should bear liability for predatory lending practices. In today’s subprime mortgage market, originators and brokers quickly assign home loans through a complex and opaque series of transactions involving as many as a dozen different strategically organized companies. Loans are typically transferred into large pools, and then income from those loans is “structured” to appeal to different types of investors. …

Explaining The Value Of Transactional Lawyering, Steven L. Schwarcz

ExpressO

This article attempts, empirically, to explain the value that lawyers add when acting as counsel to parties in business transactions. Contrary to existing scholarship, which is based mostly on theory, this article shows that transactional lawyers add value primarily by reducing regulatory costs, thereby challenging the reigning models of transactional lawyers as “transaction cost engineers” and “reputational intermediaries.” This new model not only helps inform contract theory but also reveals a profoundly different vision than existing models for the future of legal education and the profession.

Revitalizing Our Urban Core Without Marginalizing Our Core People: Closing Tax Credit Loopholes For The Wealthy While Generating Ethnic Entrepreneurial Self Help Alternatives To Subsidized Gentrification, Roger M. Groves

ExpressO

This article provides the most comprehensive analysis to date of the New Markets Tax Credits program established by Congress. The purpose of the NMTCs is to use tax credits as incentives for investors to provide equity funds into low income areas. The article reveals that over $2 billion of federal tax subsidies that have been allocated to gentrified projects for the wealthy, rather than the intended beneficiaries – low income residents in the urban core – as Congress intended. The article proposes amendments to the statute and regulations to close unintended loopholes.

The article also creates a model for a …

Recent Defined Benefit Pension Reform: Reasons And Results, Daniel B. Klaff

ExpressO

In the face of corporate bankruptcies, the Pension Benefit Guaranty Corporation (“PBGC”) assures workers that their defined benefit pensions will be protected. It is this fact which has motivated recent reform of the PBGC and the overarching defined benefit plan system by Congress. This paper explores those reforms by addressing the reasons for and results of the most recent reform which had as its primary aim restoring the fiscal solvency of the PBGC. The paper challenges popular accounts of the reform process while examining the results of such reform for important stakeholders without resorting to an overly technical discussion of …

Revitalizing Our Urban Core Without Marginalizing Our Core People: Closing Tax Credit Loopholes For The Wealthy While Generating Ethnic Entrepreneurial Self Help Alternatives To Subsidized Gentrification, Roger M. Groves

ExpressO

This article provides the most comprehensive analysis to date of the New Markets Tax Credits program established by Congress. The purpose of the NMTCs is to use tax credits as incentives for investors to provide equity funds into low income areas. The article reveals that over $2 billion of federal tax subsidies that have been allocated to gentrified projects for the wealthy, rather than the intended beneficiaries – low income residents in the urban core – as Congress intended. The article proposes amendments to the statute and regulations to close unintended loopholes.

The article also creates a model for a …

Ringing The Bell On The Nyse: Might A Nonprofit Stock Exchange Have Been Efficient?, Stephen F. Diamond

ExpressO

Abstract

This spring the New York Stock Exchange, Inc. (Exchange or NYSE) completed an historic restructuring. On March 7, 2006, the NYSE completed its merger with Archipelago Holdings Inc. (Archipelago), a publicly traded electronic trading platform. As a result, the old NYSE itself became the New York Stock Exchange LLC, a wholly owned subsidiary of NYSE Group, Inc. (NYSE Group). The former members, or seat holders, of the NYSE received one of three forms of consideration: all cash, all stock in NYSE Group, or a package of cash and stock. The NYSE Group then allowed those former members to offer …

Bond Repudiation, Tax Codes, The Appropriations Process And Restitution Post-Eminent Domain Reform, John H. Ryskamp

ExpressO

This brief comment suggests where the anti-eminent domain movement might be heading next.

The Chameleon Effect: Beyond The Bonding Hypothesis For Cross-Listed Securities, Cally Jordan

ExpressO

This paper is based on a presentation made at the New York Stock Exchange Conference on the Future of Global Equity Trading, March 12, 2004, Sarasota, FL.

Looking back, was it a momentary enthusiasm? The dramatic increase in cross-listed securities, particularly in the United States, was one of the remarkable phenomena of the 1990s capital markets. The bonding, or corporate governance, hypothesis was one of the more intriguing theories to surface to explain the phenomenon. Cross-listing, the hypothesis suggested, might be a bonding mechanism by which firms, incorporated in a jurisdiction with “weak protection” of minority shareholder rights or poor …

On Fairness And Efficiency, Riz Mokal

ExpressO

What is the relationship between fairness, efficiency, accountability, and expertise? What role, if any at all, do these values play in answering the question whether a part of the law is legitimate? This paper provides an answer by introducing a distinction between the substantive and the procedural goals of any part of the legal system. Substantive goals are the ultimate ends of some part of the law, some values or objectives whose pursuit by that part of the law shows why it is desirable to have that law in the first place. Procedural goals are concerned with the methods the …

Managing Risk On A $25 Million Bet: Venture Capital, Agency Costs, And The False Dichotomy Of The Corporation, Robert P. Bartlett Iii

ExpressO

An implicit dichotomy of the corporation exists in legal scholarship. On one side of the dichotomy rests the publicly-held corporation suffering from a significant conflict of interest between its managers and dispersed shareholders; on the other side, the closely-held corporation plagued by inter-shareholder conflict.

This Article argues that understanding the agency problems that can exist within a firm demands a rejection of this traditional dichotomy and the theories of the firm built upon it. Using venture capital finance, this Article demonstrates for the first time how this dichotomy obscures how all firms - public and private - often face the …

Corporate Form And Substantive Consolidation, William H. Widen

ExpressO

This Article reformulates substantive consolidation doctrine in light of modern financing techniques. Building upon the author's research showing the prevalence of substantive consolidation in large public bankruptcies, it offers an economic account (based on Coase's theory of firm size) to explain why we should expect that the circumstances giving rise to substantive consolidation should be common (rather than rare as suggested by the rhetoric of case law). Extending the asset partitioning theory developed by Professors Hannsmann and Kraakman, it offers a model for looking at the corporate form within corporate groups, particularly in the insolvency context. The recent Third Circuit …