March 08, 2016
icon The Battle Over International Insurance Standards
Posted by David Zaring

Over at DealBook, I've got a column on international insurance regulation and its discontents.  A taste:

The globalization of the rules that govern insurance companies has been extremely quick — too quick for the tastes of many American insurers. They are fighting back by asking for process, process and more process.

I think that the protections sought would be unnecessary, and even counterproductive. But they are classics. The insurers are asking for more notice and comment and more trial-type procedures. Administrative process, and how much of it someone should get, lacks a bit of glamour. But it is something that the government and the financial industry will always fight about.

Go give it a look!

Permalink | Administrative Law, Finance, Financial Institutions | Comments (View) | Bookmark

March 04, 2016
icon Chris Brummer Will Be Great On The CFTC
Posted by David Zaring

Noted financial institutions professor and friend of the Glom Chris Brummer has been nominated to the CFTC, something that just keeps happening to people in and around this blog.  He'd be an excellent commissioner, and we all hope he gets confirmed quickly.

Permalink | Administrative Law, Financial Institutions | Comments (View) | Bookmark

March 01, 2016
icon Ben Bernanke Just Guested On The Big Bang Theory
Posted by David Zaring

Apparently, he loves the show, and is keeping his check as a memento forever.  Central bankers, they're just like us!  HT: Matt Levine.

Permalink | Administrative Law, Finance, Financial Crisis, Financial Institutions | Comments (View) | Bookmark

February 29, 2016
icon Family Film Blogging (True Life Sports Edition): Race and Eddie the Eagle
Posted by Christine Hurt

In the past week or so, we have seen two "base-on-a-true-story" movies that are remarkably similar.  In both movies, an athlete overcomes childhood health problems to become an athlete; enjoys the support of a cheering mother and the bare tolerance of a father with other concerns; endures prejudice and elitism in working toward the Olympics; is coached by an alcoholic who lost his Olympic shot years earlier; is urged not to participate in the Olympics, even after qualifying;encounters poor treatment by the Olympic coaches at the Olympics; goes to the Olympics and performs his personal best.

The two movies are Race, the story of Jesse Owens, and Eddie the Eagle, the story of Michael "Eddie" Edwards.

Our family enjoyed each of these movies fairly equally.  Race, of course, features an amazingly impressive winning Olympian.  Jesse Owens, with modern shoes, starting blocks, and track, could still give the fastest man in the world a run for his money.  Eddie the Eagle was an average athlete who went to the Olympics on a semi-loophole:  no other British athlete competed in the ski jump so he was an (almost) automatic qualifier.  At the Olympics, Jesse Owens set records and bested everyone.  Eddie came in last with jumps half the distance of other jumpers.  In Race, the Olympics is testing ground, but the blood, sweat and tears for Eddie comes in the journey to be qualified for the ski jump event.

No doubt about it, Jesse Owens suffered horrible prejudice and injustice.  Even as a star athlete at Ohio State and at the 1936 Olympics, he was treated poorly because of his race, though Jewish-Americans fared even worse at the Olympics.  The movie chronicles this injustice, juxtaposed with Owen's absolute athletic superiority.  Though the movie depicts the racism Owens faced here at home, the even less nuanced bigotry of the Nazi regime toward black athletes at the Olympics is highlighted in the second half of the movie (as well as the horrible acts of the Nazis toward Jewish citizens in Berlin in 1935 and 1936).  Though a bit long and draggy, the movie is definitely worth watching, particularly with kids.  Eddie Edwards seems to have been mistreated because of his socioeconomic class and perhaps because of his oddball personality.  The movie shows him being summarily cut from the Olympic trials in downhill skiing, which Eddie attributes to his not having attended the right schools because he was the fastest.  A quick browse of the internet only reveals that he was the last person cut from the downhill team.  Of course, being good enough or almost good enough to go to the Olympics in downhill skiing seems a little incompatible with how amateurish Eddie is portrayed as he tries to become a ski jumper, but whatever.  Eddie's struggle to get to the Olympics is helped when he meets a former ski jumper, now alcoholic slope groomer, who eventually is won over by Eddie's persistence and fearlessness.  In the end, Eddie gets to the 1988 Olympics, where he becomes a media darling for his antics.

Both Jesse Owens and Eddie Edwards are not perfect in these movies.  When Owens goes to OSU, he leaves behind a girlfriend and a daughter, but fame seems to distract him from his promises to his girlfriend.  He eventually reforms his personal life.  Eddie's flaws are harder to pinpoint.  He is single-minded about wanting to go to the Olympics, but he seems content with making the team via loophole and not merit.  As his coach notes, he should want to strive to be a contender in the 1992 games, not a participant in the 1988 games.  He also tries to redeem himself mid-Olympics by entering an event he has never practiced, and it's hard to see how this is redemption and not just another stunt, albeit an impressive one.

Another note:  Eddie the Eagle is rated PG-13.  The reason it is not PG is one scene that my eight year-old did not understand at all.  In this scene, Hugh Jackman (the coach) gives a When Harry Met Sally-esque performance of ski jumping-as-sex-act.  When we left, Will kept saying, "I don't know why it's rated PG-13 and not PG."  Well, I did.

Permalink | Film | Comments (View) | Bookmark

icon The Hostile Poison Pill
Posted by Christine Hurt

'Tis the season for article submissions, and I am nothing but a joiner.  Here is my latest piece, hot off of SSRN, "The Hostile Poison Pill":

Whether one ascribes to the agency theory of shareholder primacy or the contractarian theory of director primacy, boards of directors have great discretion in determining whether, when, and how to sell the corporation. Defensive tactics, like poison pills, can be tools in wielding that discretion in the service of creating shareholder value. However, a poison pill either to oppress a minority shareholder, as in eBay v. Newmark, or to minimize the impact of activist shareholders, as in Versata Enterprises, Inc. v. Selectica, Inc., seems to exceed the “maximum dosage” of the pill. The NOL poison pill, while facially plausible as a tool to protect tax assets from impairment caused by a Section 382 “ownership change,” may be a stepping stone to a low-trigger anti-shareholder pill. Instead of warding off uninvited potential acquirers, the pill could ward off shareholder voice. Though the original poison pills were blessed by the Delaware courts to ward off hostile bidders, now boards can use a hostile poison pill to ward off noisy shareholders. With the threat of the 1980s-era hostile bidder behind us, a new threat to board authority has emerged: the activist shareholder. These types of investors, often activist hedge funds, agitate not for control of a corporation, but for access to the board to argue for changes in strategy. Defensive tools used against hostile bidders at first seem inapplicable to these types of nuisances; staggered boards and poison pills with typical 15-20% triggers seem irrelevant. However, a pair of cases decided in Delaware may give managers an idea of how to cope with these aggressive blockholders. One case, Air Products and Chemicals, Inc. v. Airgas, Inc., allowed a company’s board to keep a poison pill in place for over a year even though the bidder did not seem to pose much of a cognizable threat to the corporation. By itself, Airgas does not seem to give much relief to a board dealing with a noisy 5% or 10% shareholder. However, the Delaware Supreme Court the year earlier had blessed a poison pill that would be triggered if a shareholder increased its ownership to 4.99% of the corporation, the lowest ownership threshold to be brought before the court. In Versata Enterprises, Inc. v. Selectica, Inc., the Delaware court upheld the poison pill even though the board did not focus its argument on the threat of a takeover. In this case, the “danger to corporate policy and effectiveness” existed because of the activist shareholder’s creeping purchases would constitute an “ownership change” under existing federal tax law and would lead to the loss of certain tax assets, net operating loss carryovers (NOLs). Because the NOLs were a very large, if unusable, asset to Selectica that would be severely limited under Section 382 of the Internal Revenue Code if the ownership change occurred, the court held that the low-trigger rights plan was reasonable and proportionate against a legitimate threat. Together, these cases seem to suggest a new weapon to be used against activist shareholders: a poison pill with a very low trigger. Unfortunately, the Delaware courts took at face value Selectica’s argument that the creeping acquisition could involuntarily cause the target company to lose a large tax asset. The Unocal test is supposed to require the board to articulate its rationale for implementing a defensive tactic, foreclosing the opportunity for pretextual arguments. However, this analytical technique may not work in the NOL context where the presence of NOLs may give a board of directors cover for keeping blockholders away. This Article attempts to shed some light on the operation of Section 382 to disclose some of the faulty assumptions surrounding both the necessity and efficacy of the NOL poison pill. In addition, this Article uses a dataset of 155 companies that adopted NOL poison pills between 1998 and 2014 to examine what types of firms are using this defensive tactic. A board might argue in good faith or not that an NOL poison pill is necessary to defend itself against a strange and diverse cast of characters: the Hostile Acquirer, the Accidental Bungler and the Bad Faith Saboteur. However, an NOL poison pill necessarily has little or no deterrent effect and no physical effect against any of these actors. In fact, the only shareholder that the NOL poison pill effectively deters is the activist shareholder, suggesting that the use of the poison pill in these cases may be “hostile.”

Permalink | Corporate Governance, M&A | Comments (View) | Bookmark

February 26, 2016
icon Testimony on the Impact of International Regulatory Standards on the Competitiveness of U.S. Insurers
Posted by David Zaring

I testified yesterday before the House Financial Services Committee on the increasingly internationalized subject of insurance capital requirements, about which Congress and the more modestly sized firms in the insurance industry, have some concerns.  If that's the sort of thing that interests you, you can download the testimony here.

Permalink | Administrative Law, Globalization/Trade | Comments (View) | Bookmark

February 25, 2016
icon Are Corporate Profits Unimportant for American Prosperity?
Posted by David Zaring

Justin Fox thinks that the answer may be yes:

Some of the biggest names in U.S. business are particularly dependent on overseas markets. Apple, for example, got 59.8 percent of its revenue and 62.8 percent of its operating income from outside the Americas in its 2015 fiscal year. In the most recent fiscal year for which numbers are available, Exxon Mobil got 67.3 percent of revenue from outside the U.S., Alphabet 57.3 percent, Microsoft 54.1 percent, Facebook and General Electric 52.5 percent.

Overall, corporate earnings have become less dependent on the health of the U.S. economy. The big question is whether this also means that the U.S. economy has become less dependent on them.

It's an interesting thesis, if true.  Many American regulators have expanded their efforts to coordinate with their foreign counterparts because of the idea that globalization means that things that happen abroad can have real effects at home.  But if Fox is right, the fact of globalization could reduce the influence of foreign shocks on the domestic economy.  I think the jury's out on this, but file it under food for thought.

Permalink | Administrative Law | Comments (View) | Bookmark

February 22, 2016
icon New Legal Podcast: SLU Law Summations
Posted by Matt Bodie

Despite the huge growth in podcasting, there has not been a big boom in ongoing law professor pods -- at least, nothing along the lines of the blawg boom of the last decade.  There's U Chicago and UC Irvine, and the Internet centers at Harvard and Stanford, but I have not found a lot of other law schools that are consistently 'casting.  Not too many law profs regularly podcasting either, beyond the inimitable Turner & Miller at Oral Argument, as well as Terry & Pasquale at TWIHL.  And I'm nostalgic for Law Talk -- ahead of its time.  (If you know of others -- please leave them in the comments!)

My own school has just started a podcasting series called SLU Law Summations.  You can find it here, and on iTunes here.  Marcia McCormick is first up with her discussion of women in the workplace (and our upcoming symposium), while I have one on the employment ramifications of Internet shaming.  Corie Dugas is our amazingly professional interlocutor.  They are short -- 15-20 minutes.  Hope you check it out and subscribe if you like the law talk.

Permalink | Podcasting | Comments (View) | Bookmark

February 15, 2016
icon National Business Law Scholars Conference (NBLSC) CFP
Posted by Usha Rodrigues

National Business Law Scholars Conference (NBLSC)

Thursday & Friday, June 23-24, 2016

Call for Papers

The National Business Law Scholars Conference (NBLSC) will be held on Thursday and Friday, June 23-24, 2016, at The University of Chicago Law School. 

This is the seventh annual meeting of the NBLSC, a conference that annually draws legal scholars from across the United States and around the world.  We welcome all scholarly submissions relating to business law. Junior scholars and those considering entering the legal academy are especially encouraged to participate. 

To submit a presentation, email Professor Eric C. Chaffee at with an abstract or paper by February 19, 2016.  Please title the email “NBLSC Submission – {Your Name}.”  If you would like to attend, but not present, email Professor Chaffee with an email entitled “NBLSC Attendance.”  Please specify in your email whether you are willing to serve as a moderator.  We will respond to submissions with notifications of acceptance shortly after the deadline. We anticipate the conference schedule will be circulated in May. 

Keynote Speakers:

Professor Steven L. Schwarcz, Stanley A. Star Professor of Law & Business, Duke Law School

Chief Judge Diane P. Wood, The United States Court of Appeals for the Seventh Circuit

Conference Organizers:

Tony Casey (The University of Chicago Law School)
Eric C. Chaffee (The University of Toledo College of Law)
Steven Davidoff Solomon (University of California, Berkeley School of Law)
Joan Heminway (The University of Tennessee College of Law)
Kristin N. Johnson (Seton Hall University School of Law)
Elizabeth Pollman (Loyola Law School, Los Angeles)
Margaret V. Sachs (University of Georgia School of Law)
Jeff Schwartz (The University of Utah, S.J. Quinney College of Law)

Permalink | Calls for Papers | Comments (View) | Bookmark

February 12, 2016
icon Firms and Fiduciaries
Posted by Gordon Smith

Scholarship on fiduciary law is enjoying a new burst of energy in the U.S., and I am grateful to be associated with Deborah DeMott, Tamar Frankel, Andrew Gold, Paul Miller, Julian Velasco, and others who are organizing an annual Fiduciary Law Workshop to promote work in the field. 

The first task of fiduciary law is to distinguish fiduciary and nonfiduciary relationships, and several scholars have proposed theories to accomplish this step. My own Critical Resource Theory ("CRT") has enjoyed some success in bringing order to a notoriously complex and messy field. In my latest paper, Firms and Fiduciaries, I respond to some criticisms of CRT and explore some additional implications of the theory. Here is the abstract for that new paper:

Economists who study the theory of the firm strive to draw a line between firms and markets. This line corresponds to the line lawyers draw between fiduciary and nonfiduciary relationships. The Critical Resource Theory (“CRT”) of fiduciary relationships is motivated by the property-rights theory of the firm. CRT holds that the distinguishing feature of fiduciary relationships is that “a fiduciary exercises discretion with respect to a critical resource belonging to the beneficiary, whereas most contracting parties exercise discretion only with respect to their own performance under the contract.”

In this chapter, I refine the description of “resources” under CRT using the property-rights theory of the firm and the resource-based view of the firm and extend the analysis of CRT to two important implications flowing from the basic structural insight: (1) while some features of fiduciary relationships are traceable to the logic of contract and some features are traceable to the logic of property, fiduciary relationships are unique hybrid institutions; and (2) the distinctive duty of loyalty that is imposed on fiduciary relationships is designed to protect the beneficiary’s property-like interest in critical resources.

You can get the whole paper here. As always, feedback is most welcome. 

Permalink | Fiduciary Law | Comments (View) | Bookmark

February 11, 2016
icon Financial Regulation By Deal, Again
Posted by David Zaring

How should we regulate the derivatives markets?  Dodd-Frank gave the CFTC (and SEC, for securities derivatives) the power to act.  But how should they act?  Again, Dodd-Frank offered guidance, but the terms of regulation, in particular of the clearinghouses that are supposed to centralize derivatives trading has been set not by statute, or by CFTC rule, but by a just-concluded agreement with European regulators on how to oversee the market.  That's increasingly how capital markets regulation works, given the mobility of capital and need for standardization.  But it is certainly idiosyncratic, both as a method of domestic regulation and international governance, because it constitutes rule by agreement, not by law, which is something I've written about in the past.

Permalink | Administrative Law, Financial Crisis, Financial Institutions | Comments (View) | Bookmark

February 09, 2016
icon Timothy Geithner's Semi-Charmed Life
Posted by Matt Bodie

Former NY Fed Chair, Secretary of Treasury, and tax scofflaw Timothy Geithner is in the news again.  The now-president of Warburg Pincus has set up a line of credit from JP Morgan to invest in one of his firm's private equity funds.  The move is fairly standard for both Morgan and private equity members looking to scale up their investment.  In fact, it may be evidence that Geithner is relatively worse off, financially, than many of his private equity compadres -- he's been called "one of the least wealthy Treasury chiefs in recent history."  But it comes in the wake of allegations that Senator Ted Cruz failed to properly disclose a loan from Goldman Sachs -- another instance of those with connections getting loans that most could never dream of.  And it's a reminder of the chumminess between the feds and the Street that the whole Bernie Sanders revolution finds repugnant.

Timothy Geithner is something of a Rorschach inkblot for modern economic politics.  You may see him as the son of microfinance advocate with an international upbringing who worked a series of modestly paid government jobs in service to a progressive economic agenda, ultimately saving the economy from complete collapse and worldwide depression.  Or you may see him as the son of a wealthy Mayflower descendant who skated through the financial crisis, landed the top job at Treasury despite opposition across the political spectrum, and now sits as president of an established private equity firm.  And this line of credit is in line with that duality.  As Matt Yglesias describes it:

There's no evidence to believe Geithner did any special favors for Warburg Pincus in any of his government jobs, and little reason to believe that JPMorgan had anything other than a basic business interest in advancing this line of credit. From JPMorgan's perspective, it's a no-brainer move to make, and if one bank hadn't been willing to do it, another bank would have. There's no quid pro quo here, and by conventional standards there's no scandal.

But even if there's nothing technically wrong with this setup, it is exactly why Sanders's message is resonating. By conventional standards it's normal for the Democratic Party to appoint someone like Geithner: a Treasury secretary who is also the kind of person who could comfortably be a partner at a private equity firm and get a line of credit from a major global bank to paper over the fact that he's not as rich as those colleagues. It's not a scandal; it's just how the game is played.

And for many Sanders supporters, that is precisely what's wrong.

The Sanders perspective may not seem to matter much here -- after all, President Obama went out of his way to appoint Geithner, and that's a pretty good validation of progressive bona fides.  But there is evidence that Sanders may not simply be a dismissable Socialist crank.  (We'll find out more tonight.)  If that's the case, Geithner may find himself as a pariah in the very party that ensconced him in power.  Regardless, he's a symbolic personification of the Janus-faced fiscal and economic policies that the current Democratic Party represents.

Permalink | Current Affairs, Financial Crisis, Politics | Comments (View) | Bookmark

icon CFP: ABA Section of Business Law's Committee on LLCs, Partnerships and Unincorporated Entities
Posted by Christine Hurt

At the request of Tom Rutledge, chair of the American Bar Association Section of Business Law's Committee on LLCs, Partnerships and Unincorporated Entities, I share this call for proposals.  I presented The Limited Liability Partnership in Bankruptcy at this gathering in 2014, and I can guarantee it is the most engaged and informed audience I've been in and in front of in while.

While the dates are still being resolved, this October, 2016, the Committee of LLCs, Partnerships and Unincorporated Entities will again be sponsoring a two-day LLC Institute in Arlington, Virginia. This program brings together more than 100 high-level practitioners and academics to review a variety of issues involving the law of unincorporated business organizations. In recent years presentations have been made by Joan Heminway, Carter Bishop, Dan Kleinberger, Colin Marks, Michelle Harner and Benjamin Means. I think each will vouch for the quality of the program.

We are actively soliciting proposals for panels. If you are working on something, or if there is something you would like to discuss before an audience that I can guarantee will be “hot”, please let me know.


Tom Rutledge

Permalink | Administrative | Comments (View) | Bookmark

February 08, 2016
icon Steve Eisman Opposes Breaking Up The Banks
Posted by David Zaring

Media observers will be a little curious about the timing of an op-ed that isn't really asking for much, even though it sort of serves as a rebuke to one of the themes of the Bernie Sanders campaign.  Still, Eisman, the Big Short protagonist, on why breaking up banks is a bad idea:

It’s no longer accurate to say that the large banks pose a systemic danger to the American economy. Some argue that they should be broken up solely because they are too politically powerful. Perhaps so, although that power hasn’t managed to prevent regulators from dismantling bank leverage and risk. Furthermore, no advocate of a breakup has come forward with a plan on how to do it. Large banks are global, complex, integrated institutions. Breaking them apart would be incredibly difficult, long and disruptive, and the banks might have to freeze loan growth during the process, slowing our economy even further.

He thinks that banks were too risky because they were overleveraged, but now that they are not levered up, they are safe.  You will note that safety isn't the only reason to break up the banks.  Apart from the politics, there's the antitrust problem, and maybe large financial institutions discourage experimentation. Moreover, maybe even low leverage banks are prone to bank runs. I'm not convinced by this, but it's always nice to see another unicausal theory of the financial crisis. 

Permalink | Finance, Financial Crisis, Financial Institutions | Comments (View) | Bookmark

February 05, 2016
icon The Financial Crisis Penalties Will Never End
Posted by David Zaring

Today the Fed issued a $131 million penalty against HSBC for playing fast and loose with some of the evidence designed to support its mortgage foreclosure documentation, which it amped up in the wake of the financial crisis.  It got the bank to agree to a consent order to stop doing that in 2011, and took its sweet time in assessing a fine.  But don't worry, it wasn't just HSBC:

The terms of the monetary assessment against HSBC are similar to those that were part of the penalties issued by the Board in February 2012 and July 2014 against six other mortgage servicing organizations that reached similar agreements with the U.S. Department of Justice and the state attorneys general.

Matt Levine observed only yesterday that "The supply of pre-crisis mortgage misconduct seems limitless, the statutes of limitations are flexible, and the mortgage-lawsuit industry may be too large and lucrative ever to really end."  It turns out that we are still in business on post-crisis foreclosure dodginess, too.

I wrote an article that was meant to serve as a pretty comprehensive overview of the way that the crisis has played out in the courts.  And I still like the article.  But it turns out that I wrote it in media res.

Permalink | Administrative Law, Financial Crisis, Financial Institutions | Comments (View) | Bookmark

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