Steven Lubben reviews the lawsuit by Fannie and Freddie shareholders against the government for bailing out the firm in a way that killed the value of their investment (true, it certainly did that).  Once again, you can see how the Takings Clause is basically the only way that the government's financial crisis actions are being reviewed by the courts.  And, by the way, these sorts of claims have been brought in the past by bank shareholders against European governments that bailed out banks and zeroed out shareholders - you can imagine the case to be made by someone just pointing at the breakup value of those branches, ATMs and so on as a better deal for shareholders than a bailout.

In the US, however, Lubben identifies a potential problem:

The conservator process was enacted as part of the Housing and Economic Recovery Act of 2008. That law does not indicate which power Congress was using when it enacted the act. Arguably, the conservatorship provisions might be deemed an exercise of power under the Bankruptcy Clause, which gives Congress the power to enact bankruptcy laws.

While the Supreme Court has held that laws enacted under the Bankruptcy Clauseare subject to the limits of the Fifth Amendment, it has done so only in cases involving secured creditors. Our plaintiffs here are not even unsecured creditors; they are shareholders, meaning that they are at the bottom of the capital structure in the event of a bankruptcy.

Therefore, it’s not even clear that the plaintiffs have an interest in “property” that is protected by the takings clause of the Fifth Amendment. That would seem to be kind of important if one is bringing a takings claim.

It will be interesting to see how the Court of Claims rules on this - it has let takings claims by AIG shareholders and GM auto franchisees go forward.

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O.K., so if you're looking for a review of 42 that lists all of the historical inaccuracies, this ain't it.  (Try here and here.)  Also, if you're thinking I'm going to talk about how the movie sidesteps still thorny issues of racism, I'm not going to do that, either.  I go to the movies.  I go to baseball games.  I go to baseball movies.  I saw this movie with my 11 year-old baseball player.  42 is an awesome baseball movie.

As you probably know, 42 chronicles the two years leading up to and including the 1947 season that Jackie Robinson played with the Brooklyn Dodgers, which would mark the beginning of the integration of major league baseball.  Robinson is played by Chadwick Boseman, in what seems to be his largest role yet.  Dodgers owner Branch Rickey is played by Harrison Ford, in a smaller role than usual.  They are both very good in their roles, with the screenplay giving Ford the job of articulating the moral heart of the story.  At one point, you feel bad for Pee Wee Reese, who comes to Rickey to express his reluctance to play in a game against Cincinnati, close to his Kentucky hometown, because he received a nasty letter about Reese's playing on a team with Robinson.  Then, Rickey goes to a file cabinet and shoves piles of death threats that Robinson has received in front of Reese and shuts him up.  Rickey is also the Jiminy Cricket for Robinson, warning him of what he has to face and then giving him the pep talk when he faces it. 

Lots of commentators have mentioned how the movie makes the racism of the day palatable (the racists are shown up in some way, the milder reluctant baseball players are brought around), but to a fifth grader in 2013, the racism is shocking, particularly Phillies' manager Ben Chapman's nonstop racist trash talk.  That scene is hard to watch, though I know those words and insults were not rare then and not extinct now.  Perhaps that isolated scene and the few milder ones dn't do the situation justice, but I think they get the message across.

Historical sports movies are hard (Miracle, 61* ) because most of the audience is going to know how the movie ends.  So, the trick is to create some sort of suspense beyond the outcome of a single event.  In 42, the second half of the movie is broadly about the pennant and the World Series, but the tension is in the "game within the game."  The movie plays a lot of small ball with the audience -- Will Jackie steal this base, get this hit, throw off this pitcher, or be thrown off by hecklers?  I have to say that I was along for the ride.  I literally cheered at stolen bases and at hits; I groaned and covered my eyes at strikes and pop flies.

Naysayers will say don't watch it because of the historical inaccuracies or liberties taken.  Sure, a pitcher is shown as right-handed, not left-handed.  The Dodgers' announcer is shown traveling to away games, but he did not until much later.  The movie doesn't mention that Robinson tried out for the Red Sox years earlier, or that other African-Americans followed Robinson very quickly into the major leagues.  These problems do not hinder the movie.  Some conversations and actions are necessarily fictionalized or at least merely educated guesses.  Until the season was over, the world was not recording it as a season that would make history.  The kicker for me is that it is a great baseball movie about a great even in baseball history, one that has many lessons to teach today.  And the fact that my son really loved it.

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We took some time off from unpacking here in Champaign to go see Epic yesterday afternoon.  (The "we" here is me and three kids, aged 13 to 5).  I enjoyed it; the five year-old didn't freak out or get scared; the 13 year-old said it was "lame."  (But, the 13 year-old describes pretty much everything as "lame.")

The movie is very pretty visually.  We did not see it in 3-D, though I believe that was an option before the Memorial Day 3-D offerings crowded it out at our theater.  The movie is very Tinkerbell meets Avatar.  The heroine, Mary Katherine, who wants to be known as "M.K.," is the human sized daughter of a scientist who has thrown away his marriage and career in his pursuit of proving the existence of a civilization of tiny forest people.  This civilization, of course, exists, and it is M.K. the unbeliever who is shrunk and spirited into its midst.  She falls in like with her rebellious teenage counterpart in this world, who accepts learning that she is a "Stomper" much better than Neytiri did when she learned Jake was a human in Avatar.  But the story is broader than just M.K. and Nod -- they must keep a flower bud alive until it opens under the full moon or the civilization will be destroyed by a rival group of tiny beings (not humans, the usual civilization-destroying subjects) that prefer decay and rot to chlorophyll and nectar.  (Imagine the Death-Eaters, only miniature.)  The flower will choose a successor to the Queen, who passes away quite elegantly (and predictably) in the first part of the movie.

The movie has several bright spots, including the comic relief snails (one of them is from Parks & Recreation).  Nod's mentor, voiced by Colin Farrell, is another.  I also was glad that the plot wasn't humans v. nature, but just nature v. nature.  And the humans help!  (Oops, I just gave that away.)

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My guess is that this goes to the "interesting but..." category:

Economics plays a crucial role in the rigorous scheme of competition policy in the United States and increasingly around the world. This creates a demand for economists and their students as consultants and expert witnesses on competition policy matters to defend their behavior on social welfare grounds or condemn that of their rivals or suppliers. This, in turn, creates a demand among economists who serve as teachers or consultants for academic research providing tools and frameworks for analyzing these issues. This demand shift raises the equilibrium quantity of work on allocative efficiency and the premium accruing to individuals working in this area.

On the other hand, regulation of the financial sector has not been nearly as rigorous, either in terms of it stringency or its reliance on economics. This has, on the one hand, reduced demand for economists and their students as consultants on allocative efficiency and, on the other hand, stimulated demand for their assistance on financial engineering of innovative products and profitable speculation. Just as in industrial organization, this demand increased equilibrium quantity and price of work on informational efficiency and financial engineering and reduced both on allocative efficiency. I discuss various pathways through which these external influences impact research in economics.

I'm entirely unsure that the regulation of banks has been less rigorous than the regulation of, say, capital markets.  It's rather a different form of regulation: heavy handed, hard to detect, and done by regulators who are captured by/aligned with industry (you may view that as good or bad).  I also think economists are at some point going to have to make their peace with constructivist takes on research agendas, rather than try to put everything down to material incentives.

It is interesting, however, that Weyl sees 40% of the compensation of financial economists coming from consulting.  Legal scholars in almost every case would come nowhere close to that.

Hat tip: Marginal Revolution.

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Call for Papers

AALS Joint Program of the Financial Institutions & Consumer Financial Services Section and the European Law Section

Taking Stock of Post-Crisis Reforms: Local, Global, and Comparative Perspectives on Financial Sector Regulation

AALS Annual Meeting, January 3, 2014

New York, New York

    The AALS Section on Financial Institutions & Consumer Financial Services and Section on European Law are pleased to announce that they are sponsoring a Call for Papers for their joint program on Friday, January 3, at the AALS 2014 Annual Meeting in New York, New York.

    The topic of the program and call for papers is “Taking Stock of Post-Crisis Reforms: Local, Global, and Comparative Perspectives on Financial Sector Regulation.” The financial crisis of 2008 was truly a global crisis, and the world continues to face a wide range of post-crisis economic and political challenges. Today, several years after the market turmoil began, both the United States and the European Union are in the midst of major regulatory reforms in the financial services sector. The effects of these financial regulation reforms however, remain unclear. Structural reform in the U.S. is thus far limited to a yet-to-be finalized "Volcker Rule," while in the U.K. and the Eurozone, respectively, Vickers- and Liikanen-style "ring-fencing" remain incomplete if not inchoate. Debate in the U.S. still rages around whether and how smaller "community banks" should be regulated differently from megabanks, while the E.U. continues to debate whether to form a "banking union" at all and, if so, what it might or could entail, given various political constraints. Meanwhile, the U.S. Federal Reserve continues to innovate in the realm of monetary policy in the absence of functional fiscal policy, while the European Central Bank moves furtively toward acting as a full Fed-style central bank capable of backstopping sovereign debt instruments and providing real liquidity. Where might these multiple developments be ultimately heading, and what might the Americans and Europeans learn from each other as they grope tentatively forward? What broader implications do they raise for political accountability and legitimacy in a post-crisis world?

Form and length of submission

     The submissions committee looks forward to reviewing any papers that address the foregoing topics. While the preference will be given to papers with a clearly comparative focus, the committee’s overall goal is to select papers that will facilitate discussion of, and comparisons between, American and European approaches to various aspects of financial services regulation. Potential topics include macro-prudential regulation, consumer protection, monetary policy, regulation and supervision of financial intermediaries, structural reforms, and related issues of political accountability and legitimacy.

    Abstracts should be comprehensive enough to allow the committee to meaningfully evaluate the aims and likely content of papers they propose. Eligible law faculty are invited to submit manuscripts or abstracts dealing with any aspect of the foregoing topics. Untenured faculty members are particularly encouraged to submit manuscripts or abstracts.

    The initial review of the papers will be blind. Accordingly the author should submit a cover letter with the paper. However, the paper itself, including the title page and footnotes must not contain any references identifying the author or the author’s school. The submitting author is responsible for taking any steps necessary to redact self-identifying text or footnotes.

    Papers may be accepted for publication but must not be published prior to the Annual Meeting.

Deadline and submission method

    To be considered, papers must be submitted electronically to Saule Omarova at omarova@email.unc.edu and Peter Lindseth at peter.lindseth@law.uconn.edu.

    The deadline for submission is September 3, 2013.

    Papers will be selected after review by members of a Committee appointed by the Chairs of the two sections. The authors of the selected papers will be notified by September 30, 2013.

    The Call for Paper participants will be responsible for paying their annual meeting registration fee and travel expenses.

Eligibility

    Full-time faculty members of AALS member law schools are eligible to submit papers. The following are ineligible to submit: foreign, visiting (without a full-time position at an AALS member law school) and adjunct faculty members, graduate students, fellows, non-law school faculty, and faculty at fee-paid non-member schools. Papers co-authored with a person ineligible to submit on their own may be submitted by the eligible co-author.

    Please forward this Call for Papers to any eligible faculty who might be interested.

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I've been thinking about IPOs, and the potential lack thereof, quite a bit in connection with my next project.  Today's WSJ decribes the current IPO market as hot: 

U.S.-listed companies and their financial backers have sold $19.6 billion in stock this year, putting the IPO market on track for one of its biggest years since the financial crisis, according to Dealogic. Just 25% of this year's deals have priced below companies' expectations, the lowest since 2009.

How much of the new action is due to the JOBS Act?  Not much, says DealProf Steven Davidoff.  He recounts the Act's failure to do increase small IPOs:

The act was intended to help spur a moribund market in small I.P.O.’s. But for offerings that raised less than $100 million, there were actually fewer after the JOBS Act. According to Dealogic, there were an average of 15 such I.P.O.’s per quarter in the year before the new law versus an average of 13 per quarter the year after.

Which begs the question: how many IPOs (small or large) should there be, anyway?  And what, if anything can or should the government do about it?

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Mary Jo White has vowed to bring more financial fraud cases as the SEC Chair, and Peter Henning has a nice column outlining the ways she might do so.  Policing accounting misstatements and the like often strike your average outside observer as more noble work than insider trading cases.  But:

The number of corporate accounting cases at the Securities and Exchange Commission has dropped to its lowest level in a decade, with only 79 such cases filed in the most recent fiscal year.

Over at Corp Counsel, Broc Romanek has an explanation for the decline:

From the Staff's perspective, financial fraud cases are a real bear. They chew up a lot of resources and require special expertise as an accounting background is necessary for some members of the investigatory team. Unlike insider trader cases - which often can be a slam dunk - financial fraud cases typically take years to bring, rather than months. And since the SEC tends to be graded - by Congress and the media - by how many cases it brings, financial fraud cases are mainly a lot of risk and little reward for the agency. So it will be interesting to see if the SEC's approach does change and how it goes about pulling it off...

Plausible, but unfortunate.  The IRS devotes a lot of its resources to auditing the most sophisticated filers; you have to wonder whether the SEC wouldn't be well served to take a similar sort of focus.

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Mario Draghi is the head of the European Central Bank, and he will go down as an epochal head, for good or ill, given the severity of the crises that have occurred on his watch.  It's an exciting day job.

But he just picked up a new gig for his nights and weekends:

The Group of Governors and Heads of Supervision (GHOS) has selected Mario Draghi, President of the European Central Bank, as its new Chair after consultations among its members.

The GHOS has been around for a little while, and it's an example of what I see as the increasing institutionalization of, and effort to provide oversight to, the international financial regulation done by the Basel Committee.  As the press release announcing Draghi's appointment put it, parsimoniously:

The Group of Governors and Heads of Supervision (GHOS) is the governing body of the Basel Committee on Banking Supervision.

The GHOS consists of central bank Governors and (non-central bank) Heads of Supervision from the following countries: Argentina, Australia, Belgium, Brazil, Canada, China, France, Germany, Hong Kong SAR, India, Indonesia, Italy, Japan, Korea, Mexico, the Netherlands, Russia, Saudi Arabia, Singapore, South Africa, Spain, Sweden, Switzerland, Turkey, the United Kingdom and the United States, and it includes the President of the ECB.

We don't really know what the GHOS does - the Basel Committee is nothing if not secretive about governance.  But congratulations to Draghi.  As far as I know, neither Bernanke nor Greenspan ever served as head of the GHOS.  Perhaps that will change when Draghi rotates out.

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I guess people can keep secrets way better than I thought.

I discovered George R.R. Martin's Song of Ice and Fire in about 2008 and devoured it despite the quality of the series diminishing markedly after the first few books.  I haven't read 2011's A Dance with Dragons yet, largely because of this sneaking suspicion.

Still, I remember them fondly.  Although I haven't been watching, I've been pleased with the fanaticism inspired by HBO's adaptation, now in its third season.  But this Sunday (spoiler alert--that is, if you haven't been on Facebook, watched the news, or talked to anyone this week--do not read further or click on the below links) something big happened at the Red Wedding.  

So I remember this scene from the books.  Vividly.  Which brings me to my confusion: how, in the modern information age, were so many people taken by surprise?  I'm genuinely curious:.  After all, as this interview with the showrunners observes, the news was "only a mouse-click away for the curious to find."  Any ideas?  

Also, you might enjoy this interview with GRRM on writing the scene.

Update:  I've enjoyed the comments, and want to clarify: what I'm confused about is why there isn't some website/general jerk out there 2 weeks ago trumpeting, "Guess what's coming?  Something bad!"  Maybe I have too dim a view of human nature.  Or maybe our newsfeeds are so fragmented now that it's easy to avoid such voices.  I guess that's what the comments suggest?  It seems so precarious to build a business around trusting that people won't give away the end or spoil it for others.  But I guess it worked.

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This Thomas Edison quote comes from Paul Volcker in a short interview in the Washington Post Wonkblog.  The source of Tall Paul's consternation: the decline of schools of public administration in universities and the shift in many of these schools from "public administration" to "public policy."  (Here is one example of what Volcker describes: the lawsuit (over 5 years ago) brought against Princeton by the heirs to the A&P fortune that alleged that the Woodrow Wilson School was not using an endowment to educate students for careers in government).

This decline in public administration results in a deficiency of expertise in how to run governments well.  A particularly choice quote from the former Fed Chairman:

Everybody likes to talk about big issues of war and peace and how we take care of poor people and what we do about other social problems in the United States or elsewhere.  They do all this talking but they too seldom know how to implement what they’re talking about.

The legal academy ought to take heed.  Much of the interesting spadework in financial regulation scholarship involves questions of institutional design rather than substance.  That is, not what is the right legal rule, but how do make sure agencies have the capacities and incentives to write, interpret and enforce rules in the right way and over the long haul.

In terms of education, should law schools look to fill part of the gap in teaching public administration that Volcker identifies?  

Increasing the space for public administration or public policy in the law school curriculum faces some challenges.  One challenge is economic: how much gold is in them hills?  Will this help students find jobs and build careers?  A more daunting challenge is philosophical.  Law schools largely teach rhetoric.  Public administration/policy programs are about making decisions.  Just because the first word is the same doesn't mean that policy arguments and policy analysis belong to the same genus.

Still, there are some pearls for law schools even in Volcker's short interview, for example, teaching statistics and how statistics should and should not be used.

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Money is pouring out of SAC Capital fast fast fast.  When expert networker John Kinnucan told the world that he'd told two FBI agents who asked him to wear a wire to get lost, everyone stopped doing business with him.

Why does Wall Street run when it hears about an investigation?  I'm not sure I know every jot and tittle of the answer, but in addition to looking into it myself, I bent the ear of former proseuctor, and current academic, Miriam Baer.  Some speculations, and if there's a forfeiture law out there that I missed, let me know in the comments:

• The Kinnucan case isn't so hard to suss out.  The SEC/DOJ concluded that what he was doing was insider trading.  Hiring someone to do market research for you, when the content of that market research will be based on tips from insiders, could make you a co-conspirator, if the government establishes you knew this to likely be the case.  The government has basically killed the expert network niche with its prosecutions, and you can understand why hedge funds have stopped hiring consultants like Kinnucan.  (Here, fwiw, is part of his defense: "If major banks, whose compliance departments are presumably staffed with former Securities and Exchange Commission lawyers, regularly publish industry data like iPhone build and Dell motherboard production changes, the rest of us can reasonably conclude that this must have regulators’ blessing.").
• But SAC is a little harder.  Investors in the fund are passive.  They certainly don't precisely know whether their money is being put to work based on illegal tips obtained by the fund managers.  They aren't likely to know what the fund is investing in at all.  Moreover, SAC presumably has risk management systems in place meaning that its investments will either be stable or sold the moment its principals are led away in handcuffs.  We don't freeze the assets of shareholders of public companies who benefit from insider trades commited by their managers, after all.  Why should investors of SAC run when we can presume that shareholders of I dunno, BlackRock, have nothing to worry about? 
• Still, an indictment could really tie up investor resources.  SAC will stop doing anything. Nearly all of the company's records will become evidence.  Portfolio managers will be distracted, lawyer up, etc.  That doesn't sound like a profitable opportunity.
• There could be a reputation cost to staying with SAC even after it was indicted. 
• Or, if you want to be dark about it: all sophisticated investors assume that funds look for "black edge " (i.e., basically illegal) investment behavior. But once that fund's bad behavior becomes public, or even is subject to indictment, the fund is no longer valuable to the investor.

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After spending a great few days in Boston, I decided to broaden my reading list. (Law & Society seems to attract about 10x the number of hipsters as AALS).  A few samples:

He loves to take the punch bowl away: Ben Bernanke questions meritocracy (among other things), at, of all places, Princeton's commencement.  

Too close to home: Does Colorado have a republican form of government?  Or did a anti-tax amendment to the state constitution deprive us of one?

The fat lady sings: Does the failure of a tenor to hit a High C in Verdi's Il Trovatore explain constitutional intepretation?

Stride la vampa!

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Prompted by an excellent conference at Chicago organized by William Birdthistle and Todd Henderson, I've been thinking about how the FSOC, exactly, is going to persuade agencies to do its bidding.  The result is up at the Times/DealBook, do give it a look:

The Financial Stability Oversight Council has the power, under Section 120 of Dodd-Frank, to review and make recommendations related to a member agency’s regulation of a systemically significant sector of the financial system. Ms. Schapiro and Mr. Geithner successfully persuaded it to urge the S.E.C. to adopt a floating net asset value rule or to require money market funds to hold extra capital to deal with shocks.

But the problem with the council’s Section 120 powers is that they are not paired with the ability to force a member agency to act. If the S.E.C. does not want to regulate money market funds in the way the the council suggests, it need not do so. Under Section 120, it only has to provide an explanation to the council as to why it is not adhering to the council’s recommendation.

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One of the growth areas in DC firm practice has been representation before CFIUS, a committee of agencies with the power to undo every purchase anyone with an arguably foreign interest could make of an American asset.

Only that's not really what CFIUS does.  I've argued that what it actually does is to require companies to enter into ministerial, cut-and-paste consent decrees, and to serve as a notification service for Congress, so that the legislature can have one of its periodic freakouts when the wrong sort of foreign company buys an American one.  So although some Washington lawyers would like to sell their CFIUS expertise as a target corporation's last takeover defence, I'm unconvinced that national security review poses quite such a threat; what you really want is someone who can get Chuck Schumer's attention.  Which is precisely what the jilted party in the bidding for Sprint has done. 

However, just as antitrust review can require expensive divestment, national security reviews can make acquisitions more costly:

To address the matter of Chinese equipment, SoftBank and Sprint, as part of earlier concessions, pledged to remove Huawei equipment from Clearwire’s network. the task will cost about $1 billion, according to a person briefed on the matter. They also agreed to give the government a say over non-American vendors used by Sprint.

$1 billion isn't nothing, but China is, increasingly, everything to CFIUS, the country that prods action even when it is a Japanese company that is doing the buying of the American one.

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