Penn State has two openings, and something like one in every 720 Americans is an alum, which is one of my favorite statistics. Details after the jump.
The WSJ's front page observes that Tech Firms Are Notably Scarce in IPO Parade. Unlike last week's news, this one didn't surprise me one whit. Here's why: the JOBS Act of 2012 was ballyhooed as a much-needed way to make it easier for companies to go public, rather than having to look to foreign markets or staying private to avoid the burdensome regulation epitomized by those dreaded words "Sarbanes-Oxley."
But the thing is, the JOBS Act didn't just make it easier for firms to go public. Instead, it was more like enabling legislation in the securities field. Here's what Congress says to private companies in the JOBS Act.
Congress: "Hey, do you want to go public? We'll make it easier! You don't have to report as much and you can do a test run with the SEC and once you're public you don't have to report as much stuff as you used to" (Title I).
Company: "Actually, we'd prefer to stay private."
Congress: "Oh, we can help you with that, too! We used to force companies like Facebook to go public if they had too many shareholders, but we'll change that (Title V). And now you can advertise to the general public (Title II) and raise more money (Title IV)! Oh, and your brother-in-law that has the crazy idea of making tea out of lawn-clippings? We'll let the general public invest in that, as long as they don't risk too much money and he wants $1 million or less...well, we'll let the SEC sort out the details on that one. (Title III, crowdfunding, final rules expected sometime this fall. Maybe)"
Company: "Cool, thanks. So I think we're going to stay private because even with the JOBS Act the public market is kind of harsh."
Harsh is right. Per the WSJ: Shares of Chinese e-commerce giant Alibaba Group Holding Ltd. dropped below their IPO price in August and are down nearly 39% this year. Shares of Twitter Inc. are down 23% this year and, at $27.71, aren’t much above their $26 IPO. Productivity-software company Box Inc.’s shares closed Thursday at $13.86, below their $14 IPO price... Zulily Inc., an online retailer that went public in 2013, agreed to be acquired by Liberty Interactive Corp. in August for $18.75 a share, after going public at $22."
Meanwhile, we have a multiplicity of "unicorns," privates companies worth over $1 billion. Paul Bard, director of research at Renaissance, is quoted in the article as saying “Private valuations…are supposed to factor in a discount for the added risk an investor is taking...Many of these private valuations are ignoring the fundamental risks involved in achieving their projections."
The understatement of the year, Mr. Bard. Sounds like a bubble to me. I'm not surprised that there aren't more tech IPOs. Given how easy the JOBS Act made it to stay private, I'm surprised that there are any.
I can't really figure out the denominator in this chart expressing the three year performance of university endowment managers, who are apparently paid too much (that's the gist of the story). And they are probably underperforming an S&P index over that period. But if the returns to these managers are annualized? Most big universities are able to get their lumbering endowments to do 11-12% a year? In return for a couple of million bucks in compensation? Promising that kind of return for your gold/real estate play usually constitutes grounds for prosecution by the SEC. Also interesting: Emory and Notre Dame have more money that Cornell, Dartmouth, and UVA.
So, my Labor Day weekend consisted of a thousand loads of laundry, creating a dry erase wall with whiteboard paint and watching THREE Fantastic Four movies. Yes, THREE. For some ridiculously low price, my eight year-old and I bought a DVD collection of Fantastic Four (2005), Fantastic 4: Rise of the Silver Surfer (2007); Elektra (2005); and Daredevil (2003). (The DVD irrationally contains the director's cut of the latter, making it rated R and unappealing for the family. Sorry, Ben Affleck, we won't be needing you.) So, we watched the first two and then decided we had to catch the 2015 version at the dollar movie. Because it had a 9% rating on Rotten Tomatoes, I was understandably skeptical.
So, none of the F4 movies are very good. I guess no one knew how to make a good superhero movie until Iron Man in 2008. The early versions are a little campy and silly, and even Chris Evans, who makes an darn good Captain America, grates on me as Johnny Storm/Human Torch. The 2015 reboot reinterprets the four accidental superheroes as teenagers/young adults, but this doesn't improve upon the original story. Reed Richards is an underappreciated genius being flunked out of science fairs by his ignorant teachers, and Ben Grimm is his grittier (grimmer?) best friend, whose abusive family conveniently runs a junkyard. Reed is snapped up at the science fair (Meet the Robinsons, anyone?) by Dr. Storm, who wants Reed to be a scholarship student at his "institute," where he can perfect his teleportation machine. Unbeknownst to Reed, his teleportation machine hasn't been teleporting objects to some unknown spot on Earth and back, but to a separate dimension. And, although Dr. Storm and his scientists (including his daughter, Sue) hadn't been able to make the objects return from the other dimension, Reed has. So, Reed joins Sue, her brother Johnny, and a recluse named Victor Von Doom (no foreshadowing there) to complete the project to send humans to the other dimension to learn of its powers. Once the team successfully sends a monkey to the other dimension and back, they learn their project will be completed by NASA astronauts who will be the first humans in the other dimension.
This rubs Reed, Johnny and Victor the wrong way. This bitterness seems illogical given the fact that none of these young guys have had any sort of astro-anything training. In the original F4, all of the team worked for NASA at one time, and Johnny and Ben were pilots. Sending these kids in space to a different world would seem fairly unbelievable and negligent. But, the boys share a flask after hours and decide to take the teleportation machine for a spin before NASA can get "first steps" credit. But, before they go, Reed calls Ben and invites him to tag along on the joyride. Amazingly, there's no sort of security to get through to launch the teleportation machine, so the boys go. Bad things happen, and when they are trying to come back, the new dimension "alters their DNA." Sue, who ran to the control room when she (and she alone, apparently) received a notice on her phone that the machine had been launched, is also affected by the re-entry. (As my 13 year-old put it, "she got some dimension on her."). Voila, the Fantastic Four and Dr. Doom.
The movie suffers badly in comparison to the recent movie additions to the Marvel Cinematic Universe which combine really good special effects, a great cast and smart writing. The science here is so sloppy and poorly presented that it makes it hard not to laugh. The characters have very little witty banter or even intelligent dialogue. The "action" takes up a small part of the movie, and the special effects seem decades old. The difficulty in presenting the F4 story is that most of it is backstory (the five become a team, bad things happen, the team learns to use their powers, an ending showdown with Dr. Doom over a vague power conflict). Both the 2005 and the 2015 version struggle with how to have an action movie that requires a great bit of wind-up and that does not have a concrete conflict. But, Captain America had the same problem of a long backstory. However, the wind-up there is told really well with a great script and about 20 more minutes of movie, and the conflict of WWII and Hydra provides enough action. Another problem is that the comic book powers of the F4 characters don't translate well to a realistic superhero genre. Reed Richards can stretch his body in a lot of directions? That's really hard to depict in live-action without looking stupid. Invisibility (Sue) is also hard to depict on film, though the 2015 version seems to do it better than the 2005/2007 films. The Incredibles family makes all this look cool in Pixar animation, but it's tough to pull off in live-action.
Apparently, a sequel is already in the works. We can only hope that the Avengers aren't in it.
Last week, I received news that a great mentor and colleague in corporate law, Claire Moore Dickerson, passed away. I feel very fortunate to have been one of the many recipients of her warm and generous spirit. The following comes from Lynne Dallas:
Claire passed away Wednesday morning, September 2, 2015, from pancreatic cancer. She was one of the founders of our Women’s Corporate Law Professor Group and a great scholar, teacher, colleague, and dear friend to many of us.
A compilation of her scholarly work is published under the title “Challenging Borders in Business Law,” published by University of British Columbia Law Faculty 2014, ISBN 978-088865-152-5. Dr. Janis Sarra edited the book and worked tirelessly to publish it before her death. Terry O’Neill, Kellye Testy, Dr. Martha S. Tumnde, Dr. Janis Sarra, Faith Stevelman, Cheryl Wade, Cynthia Williams and myself wrote introductions to her many articles for the book. Claire was very pleased and honored by this tribute to her work.
Claire died peacefully, pain-free, and surrounded by her family. Post diagnosis – a period of two years –she experienced a good quality of life. She took advantage of her retirement from Tulane, reading good books, taking long walks around Gloucester, and visiting with family and friends. She was a delight to talk to virtually up to the end. Her humor, concern for all those around her, and intelligence animated all her conversations. She has provided an inspirational model for those of us in contact with her during this period due to the courage and upbeat attitude she exhibited throughout her illness.
Claire’s husband, Tom Dickerson, informs me that there will be a burial service in either Gloucester or Beverly Farms, Massachusetts on Saturday, September 12th at 11am, as well as a memorial service in Rye, New York on Saturday, October 17th at 2pm. Please e-mail Tom,firstname.lastname@example.org, if you are able to join his family at either of these events, so that he can provide details when they become available.
Donations may be made in Claire’s memory to the Dana-Farber Cancer Institute, http://www.dana-farber.org/gift.
“ABOUT CLAIRE DICKERSON” from Challenging Borders in Business Law, The Scholarship of Claire Moore Dickerson (Dr. Janis Sarra ed. 2004)
“Professor Claire Moore Dickerson is Senator John B. Breaux Professor Emerita of Business Law at Tulane University Law School, United States, and permanent visiting Professor at the University of Buea in Cameroon, Professor Dickerson has been awarded the International Academy of Comparative Law, Medaille d’honneur, Centre Francais du commerce exterieur, Republic of France. Acknowledged globally as a distinguished scholar in business associations, contracts, comparative law, and international business transactions, her scholarship frequently examines the intersection between commerce and human rights.
Claire Moore Dickerson practiced at the international law firm of Coudert Brothers in New York, and following twelve years and partnership there, she became partner of, and later counsel to, Schnader Harrison Segal & Lewis, a Philadelphia-based firm. In 1986, Professor Dickerson began her teaching career at St. John’s University School of Law, New York, and then held the title of Professor of Law and Arthur L. Dickon Scholar, Rutgers Law School, Newark. She was co-director of Rutgers’ Global Legal Studies program, and, later, holder of the Visiting Lowenstein Chair.
Professor Dickerson’s research interests include the application of socioeconomic principles to business-related areas of law, her research allowing her to travel extensively within Africa, the United States and internationally. Claire Moor Dickerson graduated AB magna cum laude, 1971, Wellesley College; graduated JD in 1974 from Columbia Law School where she was a Stone Scholar; and she holds an LLM in taxation, 1981, New York University.
Active in several legal organizations, including the Law & Society Association and the American Society of International Law, Professor Dickerson has served on the executive committee of the socioeconomic section of the Association of American Law Schools. In 2008, she authored a report for the World Bank, assessing the legal framework for nano-businesses in developing countries. She is a founding member of the ad hoc women’s corporate law scholars’ collective.
Claire is fluently bilingual in French and English, and is a passionate kayaker, skier and mountain hiker all of which she does with her wonderful daughters, Caroline Dickerson and Susannah Dickerson, and her husband and co-traveler of many years, Tom Dickerson.”
Notification has gone out from the Business Law Section of the AALS that Claire will be honored at the 2016 meeting for her "thoughtful, caring and inspiring mentorship."
Kim Davis, the Rowan, Kentucky county clerk held in contempt of court for refusing to issue marriage licenses to same-sex couples, has sparked a fair amount of debate and outrage about laws accommodating religion, that is rules that allow religious objectors to opt out of otherwise applicable laws in some circumstances. Some of Davis's supporters have suggested that the same conception of religious freedom that justifies such accommodations ought to justify Davis's actions. Some of Davis's critics have insisted that her behavior is the reductio ad absurdum of that conception. I think that plain old fashioned agency law explains why both responses are mistaken.
Typically I read the WSJ over breakfast and then careen through the day from class prep to administrative tasks to meetings to emails, all in a virtual news vacuum. My husband catches me up on the day's events over dinner. Altogether I generally get a good picture of what's going on.
1.Were circuit breakers the problem or the solution on Monday, August 24? Circuit breakers, or the Limit Up/Limit Down Plan, was adopted after the May 2010 Flash Crash. I learned from this WSJ article that "The rise of ETFs has its roots in the Black Monday selloff of 1987, when investors holding mutual funds were frustrated that they couldn't sell shares until the market closed—at which point the Dow industrials had tumbled 23%." But ETFs became less liquid that fateful Monday. According to the next day's WSJ, circuit-breakers halted trading in many stocks (they were triggered 1,279 times on the 24th) and that many ETF market makers couldn't accurately calculate the value of the underlying stocks. "That caused them to lowball their buy offers and overprice their sell orders to ensure they didn’t take on too much risk. This sent ETF market values tumbling, too, and caused disruptions in the trading of other assets."
A later WSJ post-mortem suggested that "at times on Monday they exacerbated trading problems and prevented some securities from recovering after a big initial drop in the day.“The limit-up prevents the stocks from recovering quickly,” said Reginald Browne, head of ETF trading at Cantor Fitzgerald. “You have this staggered effect where the underlying stocks can’t move quickly.”
2.What about the decision of the NYSE to invoke its Rule 48? Rule 48 suspends the requirement that stock prices be announced at market open. According to the WSJ, some question whether that decision affected Monday's market. "Many stocks listed on the NYSE didn’t start trading for up to 10 or more minutes, even while exchanges operated by BATS and Nasdaq OMX Group Inc. started trading at the open."
3. What went wrong in the BNY Mellon glitch on August 24? The markets that day were extremely volatile. Here's from today's WSJ: "People can trade thousands of securities betting on assets around the world in a blink of an eye. Ultimately, though, they all end up with BNY Mellon or rivals that officially record who owns what and what those holdings are worth. If the system that tracks that information fails, trades can’t flow smoothly, and some investors may have difficulties getting their money. Last week, that system failed." The "system" is SunGard's InvestOne, and here's their joint statement, which says that it was not "related to the recent turmoil in the equity markets." It was just an upgrade gone wrong. Hmm, somehow that's not comforting me.
4. Did the interrelation between #1, #2, and #3 make things worse? If so, how much of the problem was attributable to each?
5. Why did the market go up 442 points on Tuesday August 25 and then crater in the last half-hour? Was there some important news item I missed?
Generally I watch the markets with detached interest. We're long-term investors and I nearly always think the market is overvalued and we're due for a correction. It's not that the market is down that worries me. It's that I don't understand how it's working. And I'm not sure if anyone does.
The Wall Street Journal reports that the White House is considering our colleague for the SEC. Bainbridge thinks she'd be an excellent choice, and so do we. I won't gush, but Lisa has it all - she would be perfect for the agency.
Imagine my surprise and delight while skimming over today's WSJ and finding a report that the Obama administration is considering our very own Lisa Fairfax to fill Democratic seat currently held by Georgia Law alum Luis Aguilar! The article makes much of the fact that Lisa is favored by Senator Elizabeth Warren. Equally importantly, she has the full backing of her fellow bloggers. Lisa for the SEC!
If you are on the AALS Business Associations listserv, then you may have already seen that the BA section will honor 13 law professors for exemplary mentorship, including our own Gordon Smith:
Lynne L. Dallas (San Diego); Claire MooreDickerson (Tulane); Christopher Drahozal (Kansas); Egon Guttman (American); William A. “Bill” Klein (UCLA); Donald C. Langevoort (Georgetown); Juliet Moringiello (Widener Commonwealth); Marleen O’Connor (Stetson); Terry O’Neill (Emerita, Tulane); Charles “Chuck” O’Kelley (Seattle); Alysa L. Rolack (formerly of Indiana-Bloomington); Roberta Romano (Yale); and Gordon Smith (BYU).
What a great group of scholars, teachers and mentors! This list has great meaning to me because so many generous souls on that list have helped me enormously in my career. I could blog about most of the names here, but I'll take the time to mention two.
Many of you know the story of how Gordon and I "met on the internet" in 2004 when I cold-called him and basically said "Hi, I'm Christine and I'm 80 miles from you. Here are all the things we have in common." I guest blogged on his then-blog Venturpreneur, we started Conglomerate, and the rest is history. I can't imagine where my career would have gone without the great advice and introductions that have come my way since that day. And now we are two doors down from each other! Thanks, Gordon, for being so gracious as to help out a new corporate law professor. I've never cold-called anyone before or since -- thanks! I know that 20 other people could say something similar, and obviously did in the call for nominations.
Another story that I haven't told on the blog is how I met Marleen O'Connor. When I was going through the market in 2002 (for 2003-04), I briefly met Marleen at Stetson when I interviewed there. Before I left the building, she found me and put a book in my hands: I Don't Know How She Does It. (I had a 3 year old and an infant at the time.) I read the book the whole way home. She also gave me a list of corporate law professors I should get to know, and several of them are on this list (Claire Moore Dickerson, Lynne Dallas). I ended up choosing to go to Marquette, but Marleen stayed in touch with me and got me included on emails and the annual Law & Society conference-in-a-conference of corporate law professors. Again, including me in that group has meant the world to me and my career. I have such great mentors and friends from that group! Thank you, Marleen, for everything! When I talk to junior scholars going through the market, I always say to have fun and keep in touch with the people that you meet -- they are your next mentors, even if they don't become colleagues right away!
I wrote in DealBook about SEC ALJs. Here's a taste:
I read every decision issued by the S.E.C.’s administrative law judges from the enactment of Dodd-Frank in 2010 to March of this year. Graded toughly – on whether the S.E.C. received everything it wanted from the case – the agency’s rate of success is high, but not unblemished.
In those decisions where at least one of the defendants was represented by counsel, the agency received everything it asked for only 70 percent of the time; that is not too different from the “rule of thumb” rate for victories by any federal agency in a federal court.
Of course, there is not getting everything the agency asks for, and there is losing the case. It is true that S.E.C. administrative law judges are willing to reduce the penalties sought by the agency’s enforcement division, either by reducing the amount of money that the defendant must pay to the S.E.C. or by reducing the length of their bar from practicing in their industry.
But in my sample, the agency rarely lost cases that it pursued to the point at which an administrative law judge would issue a decision. I identified only six of the first 359 decisions issued since Dodd-Frank was enacted that rejected the arguments of the enforcement division wholesale.
I wrote a paper on the SEC's ALJs, which I think are plenty independent and not at all unconstitutional. They cite federal judges and write sentences with the same degree of difficulty, and though the SEC usually wins before them, there are plenty of reasons for that.
It's forthcoming in the Texas Law Review, and here's the abstract. Do give it a look and let me know if you have any thoughts.
The Dodd-Frank Wall Street Reform Act allowed the Securities & Exchange Commission to bring almost any claim that it can file in federal court to its own Administrative Law Judges. The agency has since taken up this power against a panoply of alleged insider traders and other perpetrators of securities fraud. Many targets of SEC ALJ enforcement actions have sued on equal protection, due process, and separation of powers grounds, seeking to require the agency to sue them in court, if at all.
This article evaluates the SEC’s new ALJ policy both qualitatively and quantitatively, offering an in-depth perspective on how formal adjudication – the term for the sort of adjudication over which ALJs preside – works today. It argues that the suits challenging the SEC’s ALJ routing are without merit; agencies have almost absolute discretion as to who and how they prosecute, and administrative proceedings, which have a long history, do not threaten the Constitution. The controversy illuminates instead dueling traditions in the increasingly intertwined doctrines of corporate and administrative law; the corporate bar expects its judges to do equity, agencies, and their adjudicators, are more inclined to privilege procedural regularity.
Dan Katz (Michigan State), Michael James Bommarito, Tyler Soellinger (Michigan State), and Jim Chen (Michigan State) have posted a new paper that studies empirically the impact of SCOTUS opinions on the share prices of the winning and losing corporate parties. WSJ Blog blurb here. As corporate law professors know, the SCOTUS docket is not mainly corporate law cases or cases in which one corporation's prospects might be substantially changed (employment case, etc.), but the study did find 79 cases in the relevant period that seem to match changes in stock price equal to $140 billion.
Why do the authors think that's important? Obviously, in cases in which corporations get large securities fraud lawsuits dismissed or on the other hand, get a ruling that opens the door to a class action or multiple lawsuits, the share price could react. But what the authors are really interested is predicting that movement and exploiting it. Here is there information market website: https://fantasyscotus.lexpredict.com/. Here is their algorithm: http://arxiv.org/abs/1407.6333.
From a securities law standpoint, I can't help but wonder when predictive trading on court decisions begins to cross the "outside trading" line. No, the information isn't nonpublic -- the information is public, but only accessible through an enormous amount of computing power. Bud Fox following a corporate raider around all day and making very informed guesses as to his next target is one thing, but following every CEO around with invisible drones is another. At some point, does technology make information gathering cross the line? I don't have an answer for this, but I know that Larry Ribstein and Bruce Kobayashi hinted at the positive aspects of this in "Outsider Trading as Incentive Device," which responded to Ian Ayres and Steven Choi's "Internalizing Outsider Trading" and the concern that the ability to trade in similar ways would lead to excessive search costs. (None of the authors contemplated a scenario in which technology makes information that for all practical purposes was nonpublic and uses it for trading purposes.) I look forward to hearing more.
It's an interesting mix of law professors and business professors, empirical projects, and the opposite. And bitcoin! Ranked by most downloads since being filed in the last 60 days.
|1||1,822||Hedge Funds: A Dynamic Industry in Transition
Mila Getmansky, Peter A. Lee and Andrew W. Lo
University of Massachusetts at Amherst - Eugene M. Isenberg School of Management - Department of Finance, AlphaSimplex Group, LLC and Massachusetts Institute of Technology (MIT) - Sloan School of Management
Date posted to database: 29 Jul 2015
Last Revised: 29 Jul 2015
Hilary J. Allen
Suffolk University Law School
Date posted to database: 17 Aug 2015
Last Revised: 17 Aug 2015
|3||141||Law on the Market? Evaluating the Securities Market Impact of Supreme Court Decisions
Daniel Martin Katz, Michael James Bommarito, Tyler Soellinger and James Ming Chen
Illinois Tech - Chicago Kent College of Law, Bommarito Consulting, LLC, Michigan State University - College of Law and Michigan State University - College of Law
Date posted to database: 24 Aug 2015
Last Revised: 24 Aug 2015
|4||137||Opportunism as a Managerial Trait: Predicting Insider Trading Profits and Misconduct
Usman Ali and David A. Hirshleifer
MIG Capital and University of California, Irvine - Paul Merage School of Business
Date posted to database: 24 Jul 2015
Last Revised: 25 Jul 2015
|5||94||Towards Sovereign Equity
Stephen Park and Tim R. Samples
University of Connecticut - School of Business and University of Georgia - Terry College of Business
Date posted to database: 15 Jul 2015
Last Revised: 13 Aug 2015
|6||81||Strategic News Bundling and Privacy Breach Disclosures
University of Chicago - Department of Economics
Date posted to database: 15 Aug 2015
Last Revised: 15 Aug 2015
|7||80||Risk, Uncertainty, and 'Super-Risk'
Jose Luis Bermudez and Michael S. Pardo
Texas A&M University (TAMU) - Department of Philosophy and University of Alabama School of Law
Date posted to database: 28 Jun 2015
Last Revised: 28 Jun 2015
|8||80||How Corporate Governance Is Made: The Case of the Golden Leash
Matthew D. Cain, Jill E. Fisch, Sean J. Griffith and Steven Davidoff Solomon
U.S. Securities and Exchange Commission, University of Pennsylvania Law School - Institute for Law and Economics, Fordham University School of Law and University of California, Berkeley - School of Law
Date posted to database: 24 Jul 2015
Last Revised: 10 Aug 2015
|9||80||The Unsophisticated Sophisticated: Old Age and the Accredited Investors Definition
Tao Guo, Michael S. Finke and Chris Browning
Texas Tech University, Texas Tech University and Texas Tech University
Date posted to database: 25 Jul 2015
Last Revised: 25 Jul 2015
|10||77||Regulating Equity Crowdfunding in India - A Response to SEBI's Consultation Paper
Arjya B. Majumdar
Jindal Global Law School
Date posted to database: 26 Jun 2015
Last Revised: 3 Jul 2015
After stepping away to enjoy the pleasures of a summer virus, courtesy of my local one-year-old, I’m back for one last post to finish out my guest-blogging here, which I hope has been edifying or thought-provoking or at least mildly amusing for some readers. (Any and all thoughts, about my posts here or about To the Edge, would be greatly appreciated: pwallach at brookings.edu). For this last post, I want to return to the theme of “So Now What?”—this time not in the sense of policy prescriptions, but for the way we think about the law and how it relates to the legitimacy of crisis actions.
What I was driving at in my second AIG post, and what I explain in a number of contexts in the book, is that when Treasury and Fed officials adopt the role of financial crisis responders, they are unlikely to be subject to our stereotypical notion of the rule of law that centers on judges as the key enforcers of statutory and constitutional restraint. In this sense, I am in agreement with Eric Posner and Adrian Vermeule’s The Executive Unbound—though I reject their further inference that law itself becomes nothing more than a distraction for the nostalgic or naive, for reasons I’ve explained.
I like to think of this as a realist turn of thought: when we think about what the law means in practice, we ought to look at the evidence of what it does rather than starting with any hard and fast interpretive rules. But, like other uses of legal realism, this one is likely to generate backlash. Some of that will come from steadfast practitioners of legal dogmatics, who resent the heresy. But since I have no hopes of ever impressing the Senate Judiciary Committee, that doesn’t worry me much.
But ordinary people have their own reverence for the idea that our government and its instrumentalities are strictly creatures of law (see the fascinating Law’s Quandary, by Steven D. Smith). Their offense at deviation from this norm (perhaps rallied and organized by the professional formalists) is a far more troubling affair. Since the people’s judgment of the legitimacy of government’s actions is the ultimate determinant of legitimacy, that broader impression of lawlessness matters a great deal; indeed, it hangs like a cloud over future crisis responses.
Posner and Vermuele’s view is that in crises, “legality and legitimacy diverge, and legitimacy prevails.” In other words, our government and polity together slide over into a non-legal regime in which direct political checks are the only ones that matter. My contention is that this transition is likely to be much messier than they let on, in part because political channels are ill-defined.
This is especially the case for the Fed. American anxieties about paper money are older than the republic, not to mention fears of the “creature from Jekyll Island.” So the Fed will always face resistance in legitimizing its operations, especially in crises, when it is most visible. The Fed’s imposing presence can be accepted most readily as a valid delegation from Congress—but most such logic relies on confidence in the force of legal bonds. In other words, the Fed must at least seem legally accountable. This is all the more true because of the Fed’s perceived independence from politics. If we think the Fed is rightly insulated from sudden political passions, then we cannot count on direct-to-the-people accountability to substitute for legality.
In short, the central bank must style itself as a more accountable organ of government in some way that convinces at least some portion of skeptics; that is what legitimacy seems to require today. Discussion with Peter Conti-Brown has partially convinced me of the anachronistic nature of this view—but expectations are not necessarily any less influential because they are anachronistic. The political environment of America in 2015 is very different from what it was a century ago, and the Fed’s weirdness has become an obstacle to legitimacy today more than it may have been in the past. Keep America weird…but realize that the American people probably don’t have much patience for weirdness in their key policymaking institutions, and act accordingly. In some ways, Peter’s proposals about normalizing the appointment of the regional Fed presidents (which I’ve shied away from to this point) fit well into this mold.
Well, I could ramble on, but perhaps that charming fever hasn’t left entirely yet and so I’m better off cutting my losses. My sincere thanks to the Conglomerate for providing me an outlet for thinking out loud over the past few weeks, and especially to David for inviting me and engaging with my book. Hope that everyone enjoys the waning days of our crisis-free summer, as long as they last…