Law and Economics Commons^™

Imperfect Alternatives: Networks, Salience, And Institutional Design In Financial Crises, Robert B. Ahdieh

Faculty Scholarship

With the benefit of hindsight — and some aspiration to foresight — it is useful to consider the type of regulatory regime that might best address financial crises. What could policymakers have done to prevent the recent crisis? And once the crisis started, what interventions might have alleviated it? These questions have been widely debated, with an eye to both substantive policy and the design of effective regulatory institutions. This Article speaks to the latter project — one of comparative institutional analysis — though with a framework that implicates our substantive policy choices as well. It begins with an account …

• The Credit Crisis And Subprime Litigation: How Fraud Without Motive ‘Makes Little Economic Sense’, Peter Hamner

Peter Hamner

The recent collapse of the financial markets spurred numerous lawsuits seeking a faulty party. Many plaintiffs argue that market participants committed securities fraud. They claim that deficient subprime loans caused the financial crisis. These risky loans were allegedly originated by banks to be sold off to third parties. The subprime loans were securitized and spread throughout the financial markets. The risk these loans presented was allegedly not disclosed to the buyers of the loans and securities on the loans. As these deficient loans and securities began to default the financial markets came to a halt. This article argues that securities …

Deregulation Pas De Deux: Dual Regulatory Classes Of Financial Institutions And The Path To Financial Crisis In Sweden And The United States, Erik F. Gerding

Erik F. Gerding

This article presents the following model of two regulatory classes of financial institutions interacting in financial and political markets to spur deregulation and riskier lending and investment, which in turn contributes to the severity of a financial crisis:

1) Regulation creates two categories of financial institutions. The first class faces greater restrictions in lending or investment activities but enjoys regulatory subsidies, such as an explicit or implicit government guarantee, while the second class is more loosely regulated and can make riskier loans or investments and earn additional profits.

2) These additional profits leads to calls for deregulation to enable the …

Host’S Dilemma: Rethinking Eu Banking Regulation In Light Of The Global Crisis, Katharina Pistor

Faculty Scholarship

The quest for integrating financial markets into a single global marketplace has produced a host of legal and regulatory measures over the past two decades aimed at taming national protectionism, easing access to foreign markets, and lowering the regulatory burden for financial intermediaries that operate trans-nationally. Home country regulation and supervision – based on commonly agreed prudential standards – has become the core principle in the design of regulatory structures. This principle, first established as the “Basel Concordat” in a series of reports issued by the Bank of International Settlement in Basel has also informed financial regulation in the EU. …

Guilty By Association? Regulating Credit Default Swaps, Houman B. Shadab

Articles & Chapters

A wide range of U.S. policymakers initiated a series of actions in 2008 and 2009 to bring greater regulation and oversight to credit default swaps (CDSs) and other over-the-counter derivatives. The policymakers’ stated motivations echoed widely expressed criticisms of the regulation, characteristics, and practices of the CDS market, and focused on the risks of the instruments and the lack of public transparency over their utilization and execution. Certainly, the misuse of certain CDSs enabled mortgage-related security risk to become overconcentrated in some financial institutions.

Yet as the analysis in this Article suggests, failing to distinguish between CDS derivatives and the …

Black Tuesday And Graying The Legitimacy Line For Governmental Intervention: When Tomorrow Is Just A Future Yesterday, Donald J. Kochan

Donald J. Kochan

Black Tuesday in October 1929 marked a major crisis in American history. As we face current economic woes, it is appropriate to recall not only the event but also reflect on how it altered the legal landscape and the change it precipitated in the acceptance of governmental intervention into the marketplace. Perceived or real crises can cause us to dance between free markets and regulatory power. Much like the events of 1929, current financial concerns have led to new, unprecedented governmental intervention into the private sector. This Article seeks caution, on the basis of history, arguing that fear and crisis …