April 07, 2016
icon The MetLife Designation Opinion - To Designate, FSOC Must Do A Cost-Benefit Analysis
Posted by David Zaring

MetLife successfully appealed its designation as a SIFI to the district court in Washington, which took an awfully searching review of the factors used by the FSOC to make the determination.  The court, in the end, concluded that the council's designation was arbitrary and capricious, which means it was illegal.  The most interesting part of the opinion is the part requiring the FSOC to do a cost benefit analysis before designating.

FSOC has refused to do a quantified cost benefit analysis, which is a departure for the executive branch.  The White House requires agencies to conduct one before they promulgate expensive rules.  That a financial regulator, where excel spreadsheets and quantified stress tests are part of the job, would refuse to do one in making a determination about the riskiness of a financial institution is a pretty interesting rebuke to those who believe that cost benefit analyses are essential components of effective regulation.  But perhaps the FSOC has been listening to John Coates.

Here's what the court had to do to require a cost benefit analysis - most, um, interestingly it relied on the word "appropriate" while ignoring the word "deems" in Congress's guidance about how to do SIFI designations.  Most administrative lawyers would conclude that it was up to the Council to decide whether to take costs into account in designations if the statute provides that the FSOC “shall” consider a number of factors and also “in making a designation, any other risk-related factors that the Council deems appropriate.”

But the court thought differently:

FSOC, too, has made the decision to regulate—by designating MetLife. That decision intentionally refused to consider the cost of regulation, a consideration that is essential to reasoned rulemaking. Cf. [Michigan v. Environmental Protection Agency, 135 S. Ct. 2699 (2015)] at 2707 (“Consideration of cost reflects the understanding that reasonable regulation ordinarily requires paying attention to the advantages and the disadvantages of agency decisions.”) (emphasis in original). In light of Michigan and of Dodd-Frank’s command to consider all “appropriate” risk-related factors, 12 U.S.C. § 5323(a)(2)(K), FSOC’s position is at odds with the law and its designation of MetLife must be rescinded.

I'm pretty unpersuaded by that reasoning.  Cost benefit analysis may be a good idea, or it may not be, but I don't see how the courts should go around requiring it on the basis of a catch-all clause awarded discretion to the agency to add factors to an already long list of factors to be considered in SIFI designations.

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April 04, 2016
icon Peter Conti-Brown: The Next Symposium
Posted by David Zaring

I trust you all enjoyed our symposium on The Power And Independence of the Federal Reserve.  There's another one starting on the (excellent) Notice and Comment blog, so do head over there for more takes on Peter Conti-Brown's book, and on assessing the place of the Fed and how it works.

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icon Colorado Law Transactional Threepeat
Posted by Erik Gerding

Congratulations to my three Colorado Law students Stephanie Drumm, Josh Kohler, and Parker Steel who were named co-national champions (along with a UCLA team) at the annual Transactional LawMeet competition this weekend in New York.  The Colorado Law team also won the best draft award.

This competition -- a sort of moot court for transactional law -- was the brainchild of Drexel law professor (and friend of the Glom) Karl Okamoto.  It has been running for over five years and has now grown to the point where the competition has seven regional competitions that feed into the national finals.  Colorado Law students have shared the national title for the last three years.  Go Buffs!

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April 01, 2016
icon Family Film Blogging: Batman v. Superman: Dawn of Justice
Posted by Christine Hurt

So, our family did not go see any of the Easter-related movies this past weekend (Risen, The Young Messiah).  No, wait, we did.  We saw Batman v. Superman.

First, my disclaimers.  I love Marvel.  I'm not a D.C. person.  I am not very familiar with the D.C. universe.  In addition, I have not seen the Dark Knight trilogy.  I was not a big fan of Man of Steel.  "My" versions of Batman and Superman are Michael Keaton and Christopher Reeve, respectively.  So, I wasn't really excited about seeing this installment, but I was outvoted by my children and Captain America:  Civil War isn't out yet.

Second, it was not as bad as I feared.  It's no Captain America, but it was interesting.  (Rotten Tomatoes has it at 29% from critics; 71% from viewers.  I disagree with the critics.)  Ben Affleck, as much as I wanted to hate him, was pretty good as an older, resigned, wise Batman.  The problem with the movie is not Batman; it's Superman.  This man of steel is not like the Superman of yore.  He does not fight for Truth, Justice and the American Way.  He does not love America, or humans.  He loves Lois Lane.  He is depicted here (and in Man of Steel) as a stranger in a strange land basically biding his time until he wakes up back on planet Krypton.  Perhaps there was too much stuff to put in the movie so we couldn't waste time watching him save random people or have any sort of personality at all.  But the result is that he seems more like someone in hiding than a superhero.  Batman has more dialogue and more air time; we know what makes him tick.  While Superman reacts to situations around him, Batman is a proactive superhero.  Or antihero.  Or whatever.

Whether or not Superman or Batman are heroes is the main question of the movie.  What would we do if there were humans among us with powers that threatened democratic debate and civil society should those humans prove not to be benevolent dictators?  Should we fear Superman?  Is the planet better off without a Superman?  (This, of course, is a question played out in the X-Men series as well as The Avengers.  And how do we feel about vigilantes?  Assassins?  These fears are stirred up in a crucible located in what I'll call the "twin cities" of Gotham and Metropolis, which are apparently right next to each other.  In a creative scene, Bruce Wayne is present at the final fight scene between Superman and General Zod that ends Man of Steel.  The destructive battle, in the middle of Metropolis, topples a skyscraper bearing the name of Bruce Wayne's company and kills many employees.  Bruce tries to save as many on the ground as he can, but the devastation is overwhelming.  In that moment, Bruce Wayne becomes Superman's biggest critic. (Batman does not seem to contemplate what would have happened to his employees under General Zod, but his heartbreak is palpable and his misplaced rage seems logical.)  Two years later, Batman is still monitoring Superman, and Clark Kent (almost lamely) wants the Daily Planet to investigate Batman, who he sees as an out-of-control vigilante, branding his captured bad guys so they are marked in prison.

Left to their own devices, Batman and Superman may have left each other alone, but Lex Luthor sees an opening.  Lex Luthor is our young, upstart genius bad guy (and having Jesse Eisenberg, known for portraying Mark Zuckerberg, play the evil genius seems a little on the nose).  Luthor's motivations are amorphous.  Unlike the 1970s Luthor, he is not attempting to amass wealth or even power.  He could be playing the two against each other so that one will take the other one out, leaving more room for criminal minds like his, but then he creates an even worse, uncontrollable monster to fight them both.  Luthor seems to be rooting for chaos and destruction for its own sake, and doesn't seem to have a plan to save himself from that destruction.

In the end, there are a lot of interesting themes here.  Because it was Easter, I saw Superman as a Christ-figure both loved and hated, and Holly Hunter as Pontius Pilate tasked with passing judgment on him.  Batman is Saul, a hater who sets out to destroy him but who has an ephiphany along the way and becomes a convert and organizer.  Who is Luthor?  The Devil, who still blames his father.  Who is Wonder Woman?  Who knows?  She was only on screen for 10 minutes.

My boys liked the movie, but it was dark.  I thought my 8 year-old was on the line for violence and intensity, though there were much younger kids there.  There were no jokes, no witticisms, no comic relief at all.  Clark and Lois aren't flirty or cute -- they are doomed and resigned.  I prefer my action movies with a dash of fun.  This movie is obviously the "Dawn" of a new string of DC movies:  Wonder Woman, The Flash (which doesn't seem to be linked at all to the Netflix series our family has been watching), Aquaman.  I hope they have a little bit of humor.

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March 30, 2016
icon Call for Papers: Business and Human Rights Scholars Conference
Posted by Erik Gerding

Business and Human Rights Scholars Conference

University of Washington School of Law, Seattle, Washington

September 16-17, 2016

The University of Washington School of Law, the NYU Stern Center for Business and Human Rights, the Rutgers Business School, the Rutgers Center for Corporate Law and Governance, and the Business and Human Rights Journal announce the second Business and Human Rights Scholars Conference, to be held September 16-17, 2016 at the University of Washington School of Law in Seattle.  Conference participants will present and discuss scholarship at the intersection of business and human rights issues. 

Upon request, participants’ papers may be considered for publication in the Business and Human Rights Journal (BHRJ), published by Cambridge University Press. The Conference is interdisciplinary; scholars from all global regions and all disciplines are invited to apply, including law, business, business ethics, human rights, and global affairs.  

To apply, please submit an abstract of no more than 250 words to BHRConference@kinoy.rutgers.edu with the subject line Business & Human Rights Conference Proposal.  Papers must be unpublished at the time of presentation. Please include your name, affiliation, contact information, and curriculum vitae. 

The deadline for submission is May 15, 2016.  Scholars whose submissions are selected for the Conference will be notified no later than June 15, 2016. We encourage early submissions, as selections will be made on a rolling basis.

About the BHRJ

The BHRJ provides an authoritative platform for scholarly debate on all issues concerning the intersection of business and human rights in an open, critical and interdisciplinary manner. It seeks to advance the academic discussion on business and human rights as well as promote concern for human rights in business practice.

BHRJ strives for the broadest possible scope, authorship and readership. Its scope encompasses interface of any type of business enterprise with human rights, environmental rights, labour rights and the collective rights of vulnerable groups. The Editors welcome theoretical, empirical and policy/reform-oriented perspectives and encourage submissions from academics and practitioners in all global regions and all relevant disciplines.

A dialogue beyond academia is fostered as peer-reviewed articles are published alongside shorter ‘Developments in the Field’ items that include policy, legal and regulatory developments, as well as case studies and insight pieces.

 

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March 29, 2016
icon D. Gordon Smith Named New Dean of J. Reuben Clark Law School, Brigham Young University
Posted by Christine Hurt

Gordon

 

 

Congratulations are in order for our own Gordon Smith, who was recently named the new dean of BYU Law School beginning May 1!  Anyone who has spent much time talking to Gordon knows that he is a visionary, someone who is always asking how to make this institution, this organization, this conference, even this blog, better.  I am very excited to see how he applies his boundless energy and creativity to the deanship here at BYU.  Obviously, being a law school dean these days has its challenges and opportunities, and I trust wholeheartedly Gordon's judgment and care in this regard.  I doubt any of us will get much sleep for the next five years, but I can guarantee that this institution will be all the better for it.

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March 23, 2016
icon Song of Myself: Walker on SEC ALJs
Posted by David Zaring

I've got an article on the constitutionality of the SEC's administrative proceedings (bottom line: they are clearly constitutional), and Chris Walker has a take on the issue, and the paper, over at Notice and Comment.  

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March 22, 2016
icon Book Club: Peter Conti-Brown’s Response - Is Democracy Good For The Fed?
Posted by David Zaring

My thanks to my inimitable friend and colleague David Zaring for hosting this book club and for inviting me to respond. It’s a real pleasure to be back among the Glomerati—my first venture into academic blogging was on these digital pages back in 2011, including a real-time record of my finding the primary source for the “punch bowl” metaphor that figures so prominently in my book. I still love those stories about Stanford’s Erika Wayne, equal parts document sleuth and librarian.

I wanted to write a few responses to the excellent posts from David, Matt, and Usha and in the process write a bit more about what I see as the central intellectual puzzle of Federal Reserve independence, governance, and accountability, which is this: how can such a technical field benefit from democratic processes without corrupting the entire enterprise? As I wrote, I realized I was going to end up droning on and on, so I’ll keep this a bit more limited than the quality of these responses warrant.

This framing gets at the pith of Matt’s first post. He asks, “is it okay to ‘Bork’ a Federal Reserve appointee?” This question can be broken into two—should there be a more searching assessment of Fed appointees subject to the Appointments Clause, and what is the standard at which the senatorial consent should be withheld?

On the first, I think the answer is a resounding yes, with one clarification. The more searching assessment I would hope to see would not necessarily be at the Senate level alone—we’ve had plenty of closed-door politicking on Fed appointments that have led to some extraordinary appointments and also some very regrettable decisions. On the unfortunate side, I’m thinking of Senator Shelby’s decision to block Peter Diamond from a Fed governorship because Diamond was “unqualified,” just as he received the Nobel prize in economics. I’m thinking, too, of the regrettable—and hopefully temporary—decision to “pair” Fed appointments on a partisan basis, such that Jeremy Stein (a Democrat) could only get through the Senate with Jerome Powell (a Republican), despite no partisan balancing requirement in the Federal Reserve Act. We don’t need more Senators trying to play fast and loose with Fed appointments; we need more public attention on these appointments.

An example of this that I find exactly in line with my vision of a successful public engagement on the Fed was in the summer of 2013 when the Obama Administration leaked that the president was considering Janet Yellen and Larry Summers for the Fed Chairmanship, and leaned Summers. The reaction was swift and very public: from every corner of the democracy came searching assessments of these two proto-candidates’ personalities, histories, ideologies, expertise, and more.

At the time, some lamented this attention to the Fed from outside the temple of full-time Fed watchers as corrosive and lamentable. I think they are exactly wrong. There was plenty of frivolity, gossip, and consideration of extraneous factors in the public vetting we saw in Yellen vs. Summers. But the level of public attention was also impressively substantive. My favorite example in this phenomenon was the non-ironically titled “Seventeen academic papers of Janet Yellen’s that you need to read.” (Full disclosure: I used to work indirectly for Summers at Harvard and continue to have enormous respect for him.)

To Matt’s first question, then, I would like to see more of this kind of public attention to these appointments. The authority of the Fed governors is extraordinary. It’s important that the public have a role in selecting them so that their values are as known as they can be.

To the second question—when should Senators reject a candidate?—I’ll confess something that may make my liberal friends cringe. I’m not convinced that Robert Bork himself should have been Borked. I would prefer a model of Senatorial advice and consent that looked much more like a brake on cronyism than on a sustained attack on a candidate’s (or the sponsoring Administration’s) politics. The Senators’ role, then, is to prevent presidents from rewarding their talentless but politically or financially connected friends with jobs that require policy expertise. It’s not to attempt a redo of our most essential of institutions, the quadrennial presidential election.

To take Supreme Court history (not to say the Supreme Court present) as an example, there was simply no question that Bork was qualified to sit on the court, even if his values and judicial philosophy (and beard?) were out of sync with the Democratic and perhaps American majority. But minus the beard, what about Bork was different from Antonin Scalia, who sailed through the nomination process? Not much that could be known at the time. And it’s not clear to me that the kind of judging we see in the jurist who took Bork’s place—Anthony Kennedy—is better for our democratic institutions, even as I have endorsed and celebrated some of the outcomes in cases that make Kennedy so famous.  

If I were a Senator in 1987, then, I would’ve voted for Bork and then sought to campaign hard in 1988 to say that while qualified, we needed justices of a different philosophy much more likely to be sponsored by a Democratic president than a Republican one. At the same time, I would’ve felt more comfortable voting against Abe Fortas (given the air of scandal and undue proximity to President Johnson) and felt very comfortable voting against Nixon’s nomination of Harrold Carswell (about whom—in his defenseSenator Roman Hruska said “Even if he is mediocre, there are a lot of mediocre judges and people and lawyers, and they are entitled to a little representation, aren't they?”). Qualifications, not politics.

It’s the same analysis for the Fed. There are a few Governors who I think should not have been nominated given their abundant lack of anything except a connection to the President. And as mentioned, there are others who were dinged because of their perceived politics despite sterling credentials. I would want to see more public attention on the expertise and less of the politics, recognizing with Churchillian sobriety that the democratic process will lead to all kinds of regrettable excesses. It’s just better than anything else we might design to take its place.

On Matt’s other post, his hypothesis that “Fed appointees cannot have the expertise necessary to do their job without also being wed to some of the economic and banking orthodoxies that led to the 2008 financial crisis,” I say that we should have that debate. Not just in the Senate Banking Committee hearing room, but in the blogosphere, editorial pages, academic conferences, and around the water cooler. Let’s inquire about what a potential Fed Governor believes about the world and the Fed’s place in it before we hand over a vote that can influence the development of the global economy. The stakes are just too high to leave it to backroom deals. And this is the overarching point: politics is already happening in and around the Fed. To pretend otherwise is fantasy. The question is whether those politics will be little-d democratic or whether they will be something else.  

David highlights the essential importance of looking beyond traditional methodological or institutional paths in trying to get a sense of how agencies work in practice. Like anyone, I’m likely to overemphasize my own methodological approach over others. For example, I am decidedly skeptical that indices of central bank independence coded on the basis of central bank charters tell us much of anything. I think the question of “independence”—to the extent it’s a coherent question at all—is better explored through the methods of narrative history rather than quantitative econometrics. But that’s the point: we need to have multiple approaches in case my view is filled with blind spots and otherwise limited—narrative history isn’t great for doing a 100-nation study, for example.

Finally, I’m delighted Usha brought in her excellent perspective on “fetishization” of independence, an article that has shaped my thinking over the years. I think she’s exactly correct. I’d even go a step further and say that the term itself is devoid of much or any analytical content. Part of my aim in this book is to prompt readerly skepticism anytime anyone—whether in defense of the Fed or in attack—invokes “independence” as the support for their proposition. As I argue at length, and as Usha makes clear in the corporate governance context, Fed independence on the ground is not what those who rely on it have supposed it to be. 

Again, my thanks for taking the book seriously and providing a wonderful forum for discussing it.

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March 19, 2016
icon Book Club: The Independence Fetish
Posted by Usha Rodrigues

In The Power and Independence of the Federal Reserve, Peter Conti-Brown has written an accessible book about the Fed.  Did you catch that?  I'll say it again: Peter Conti-Brown has written an accessible book about the Fed.  More than that, the WSJ calls it "riveting."  And it is--especially for those of us corporate types who have always had the feeling that we should understand the workings of the Fed a lot better than we actually do.  So, go read the whole thing.  For now, I'm going to focus on that resonant word in the title, independence.

We Americans are used to thinking about independence as an unalloyed good.  Heck, we even have an independence day.  But independence one of those concepts defined by what it is not--like good faith, it's an excluder (see Robert Summers' work).  The key question is, independence from what?  In corporate law, we're concerned about independence from conflict of interest.  In the Fetishization of Independence I contrasted the static view of director independence taken at the federal level (in statute and the exchange rules) with the more dynamic, situational definition of Delaware.  While I stressed the difference between these two notions of independence, both jurisdictions are ultimately concerned about a lack of conflict.  

Not so the Fed.  Conti-Brown begins his book by articulating what he calls the Ulysses/punchbowl view of Fed independence: that the Fed must be independent, like Ulysses, tied to the mast to resist the siren song of public demand for easy credit.  Or like "the chaperone who has ordered the punch bowl removed just when the party was really warming up."  The Fed needs to independent of political pressures so that tipsy citizens don't pressure it to introduce easy money policies that lead to high inflation. Thus, independence in Fed terms means "independence from political control"--not from a conflict of interest.  Still, we have definition by absence rather than positive attribute in both cases.

As with corporate law, the inherent irreducibility of independence leads to problems.  The basic problem is the same: how can one reliably verify the absence of something?  There are two problems with this notion of Fed independence that Conti-Brown identifies in his book that I'll highlight here.  The Ulysses/punchbowl conception of independence assumes that sirens and partygoers always act a certain way.  The problem was, the sirens weren't singing on cue in the wake of the 2008 financial crisis, and not all the partygoers were lurching towards the punchbowl of easy money.  Indeed, as Conti-Brown colorfully puts it, "After the crisis, the Fed was in the position of trying to get a bunch of wallflowers to take tequila shots."  The Fed faced political backlash for its quantitative easing policy from Rick Perry among other politicians.  And during the crisis the Fed, far from standing aloof from politics, coordinated closely with Treasury on a response. This coordination, Conti-Brown argues, is perfectly appropriate.  But it illustrates the paucity of the Ulysses/punch bowl metaphor and justification for the Fed's independence. 

The second problem is that independence from political pressure isn't an unmitigated good--it also means insulation from accountability, as Dave and Matt have already mentioned.  I've been thinking a lot about when and why Congress delegates authority (on which more later).  Conti-Brown makes a strong case that the process by which the presidents of the regional Feds are selected is unconstitutional, because of the executive's lack of power to appoint or remove them.  The incredible discretion that the Fed wielded in applying Section 13(3) of the Federal Reserve Act during the 2008 crisis is another example of the Fed's freedom to operate--it could use vague statutory language and lawyerly justifications to lend to Bear Stearns and AIG but not to Lehman Brothers.  A mere 2 years later, with Dodd-Frank, Congress  delegated still more discretion to the Fed--ultimately, to its economists and lawyers, who make "judgements about the permissible scope of banking cities and the requirements of law that are not exclusively, perhaps not even mainly, technocratic.  They reflect the values of the people making them." (By the way, Conti-Brown is very, very good at bringing to life the people of the Fed--Greenspan, Volcker and Bernanke, yes, but whistleblowing examiner Carmen Segarra as well. And who knew O. Henry worked as a bank examiner?).  But I digress.  The main point is, independence from political control and may be wise policy (but see the problem one above).  And it might be expedient to delegate tough questions to the discretion of the central bankers and their lawyers and economists.  But it's not a democratic form of government. 

Ultimately I'm left with independence in the Fed context as being as empty a concept as it is in the corporate world.  Maybe we agree that we want independent corporate directors and independent bankers because it's easy.  Certainly it lets us ignore the meatier question of what we should affirmatively expect of the individuals in these roles.   

 

 

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icon Book Club: Staff Against Governors At The Fed
Posted by David Zaring

How much of what the Fed does is controlled by its political leaders?  Peter's book makes a case for "less than you would think," and I am generally persuaded by such stories.  He's got some great color here.  The general counsel of the Fed, for example, has held that job for about two decades, and you'd never see that anywhere else in Washington.  Ted Truman, the head of the Division of International Finance, was the person who did the Fed's international relations, occasionally in consultation with the Chair.  Truman "thought he was the guardian of the gate," observed on Fed governor, with a tone of what sounds like frustration.  Peter documents how influential these "barons" of the agency are in setting policy.  And that doesn't even get into the ways that economists can moderate the range of acceptable choices to be made in places where it does look like the political leaders of the Fed play an important role - monetary policy.

It all rather reminded me of this.

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March 18, 2016
icon Book Club: Balancing Technocracy with Democracy
Posted by Matt Bodie

A thesis: Fed appointees cannot have the expertise necessary to do their job without also being wed to some of the economic and banking orthodoxies that led to the 2008 financial crisis.  This is just a thesis, and perhaps a demoralizing one at that.  But I wonder if the "sweet spot" of wise and industry-independent Fed folks that Conti-Brown seems to be aiming at actually exists.

Just to elaborate: one of the great strengths of The Power and Independence of the Federal Reserve is its portrait of the culture within which the Federal Reserve operates.  It is a culture dominated by bankers and economics Ph.Ds.  To a significant extent, this makes sense -- much of what the Fed does is incredible sophisticated and requires a great depth of expertise.  Indeed, as Conti-Brown persuasively argues, the Fed needs a lot of discretion because it needs to be nimble and creative in applying its various powers.  And this discretion requires an understanding of how to use it.  At the same time, Conti-Brown persuasively describes the influence of private bankers, international central bankers, and economists in shaping the Fed's use of its power.  And these communities have strong ideologies as to many of the critical policy issues that face the Fed.  So a reformer may not have anyone with the know-how to run the Fed that actually has the background and understanding of the Fed to keep the economy humming.  In other words, technical expertise may be inexorably intertwined with certain ideological commitments.

My thesis here may be seen by reformers as an undue elevation of technical "expertise" that ends up with a unending cycle of insiders shuffling through the system to maintain the status quo.  Bankers and economists want to convince everyone that only they can run the economy so that they can keep things the way they are.  But it is undoubtedly true that the Fed could really fly off the rails if it was run by an amateur or an ideologue who doesn't respect what it does well.  I'm a believer in the idea that the 2008 Crisis would have been a lot worse if the Fed and Treasury folks did not reach out to save our financial institutions, in ways that the average voter finds offensive or ludicrous on their face.

So ultimately, my thesis is more of a question: how do we avoid ideological capture at the Fed without sacrificing the knowledge and experience that are required to run it?  And to provide another angle on this question: who would Bernie Sanders appoint to chair the Fed?  Or who would Rand Paul appoint?  Both have shown deep suspicions for the Reserve.  On the Sanders side, Joseph Stiglitz comes to mind as a potential appointee.  But is he enough of a reformist for the reformers?  And how deep is the bench behind him?

Conti-Brown does seem to believe that there is potential middle ground between industry capture and populist naivete.  I'd be interested to hear more about this in specific terms -- where is that ground to be found?

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March 17, 2016
icon Book Club: How Does The Fed Actually Work, And How Can We Tell?
Posted by David Zaring

Peter's book on the Fed represents, among other things, a take on how you figure out what a particular government institution is up to.  You could try to do this quantitatively, especially if the part of the Fed you care about sets interest rates.  What market conditions predict what the Fed is going to do?  You can also do this by going big history, and critical as a matter of policy.  That's what Alan Meltzer has done in his two volume history of the Fed, which processes an enormous amount of archival information - minutes, policy papers, etc - to describe what the Fed has done.  These days, Meltzer often finds something to criticize.  You could also try to understand it purely as a weird culture, which it very much is.  Central bankers all talk to one another, only really do central banking throughout the course of their careers, have Ph.D.s in economics, and stay close to the discipline (but not too close! you write a couple of good articles, and then stick to policy with modest empirics.).  It's a super insular, almost quintessentially technocratic community.  Or you could simply look at its legal authority and examine its rules and orders.

I take Peter to be suggesting that none of these approaches could, if taken alone, provide you with a full picture of how the Fed works.  One of the themes that runs through the book is that consideration of the law alone would lead observers to think that members of the Board of Governors are insulated and empowered, when in practice, they cycle through the Fed quickly, and presidents get to appoint many of them.  The culture of the Fed, or at least Fed-watching, on the other hand, reifies the Fed chair, and the FOMC, without paying attention to the truly powerful Fed staff, who never leave, even as their leaders revolve away.  Finally, Peter rejects the idea that the Fed is a technocratic exercise in the abstruse, but a place where powerful value judgments are made, and so therefore worth some measure of accountability - Matt talks about that.  The Fed is much more than a vehicle for monetary policy, as we found out during the financial crisis, and encapsulates a disturbingly large number of bureaucratic actors - Peter is particularly critical of the continued existence of the regional federal reserve banks, and with good reason.

I admit that I prefer these sorts of mixed method accounts, on the assumption that more inputs probably creates a more accurate output.  It does complexify things, to be sure.  But the Fed is a complex beast, and pretending it is anything but is disengenously reductionist. 

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March 16, 2016
icon Book Club: Is it okay to "Bork" a Federal Reserve appointee?
Posted by Matt Bodie

I wanted to start off our book club on Peter Conti-Brown's engaging and thoughtful book, "The Power and Independence of the Federal Reserve," with a quick reference to the big news of the day.  One of Conti-Brown's key points is that we should care more about the people who run the Fed -- their backgrounds, educations, ideology, and policy goals.  In making his point, Conti-Brown draws a comparison between the appointment of the Fed chair and the process underway (or maybe not so much underway) with Judge Garland:

Just as senators spar with judicial appointees over the latter's views on, say, abortion or the death penalty, they should expect (and, hopefully, receive) insight into what the central bankers' views are on such ideas as the monetary policy rules, forward guidance, and the other theoretical and empirical components of influential topics in macroeconomics.  (p. 235)

Conti-Brown also argues that Fed appointments should be more politicized, as such attention provides "a tremendous amount of insight and accountability to how much personalities matter in shaping the power and policies of the Federal Reserve System."  (p. 240)  Personalities matter because the Fed's power is by design flexible and difficult to cabin with specific rules or regulations.  At the same time, some level of democratic oversight is necessary to prevent industry capture (or, at least, industry culture capture) or unexpected policy shifts from occurring.  Along these lines, Conti-Brown also argues that the President should have a broader power of appointment over a larger number of Fed staff members, particularly the general counsel.

I just wanted to press a little bit on Conti-Brown's point and ask: to what extent should the Senate exercise its own discretion in reviewing appointments to the Fed?  As Conti-Brown skillfully illustrates in his historical discussion, the Fed must walk a tightrope between a lack of accountability to the people, on the one side, and too much accountability on the other.  Many commentators have bemoaned the rising visibility of the Fed's role in the economy, in fear that populism and politics may lead the Fed astray.  Similar arguments have been raised about the Supreme Court appointment process: namely, that nominations have become too political, too ideological, and too heated.  Those Senate Democrats who rejected the nomination of Robert Bork are often blamed for this development.  "Borking" has become a verb that means to pillory a judicial nominee for her or his ideology in an over-hyped and inflammatory manner.

So my question is: to what extent should the Senate be allowed to "Bork" a nominee to the Fed?  What discretion should Senators have in voting down a president's nominee for Fed chair?  Conti-Brown wants more accountability, participation, and politicization.  But I'd be interested in hearing how big a scoop he is looking for.

I was amused when Kai Ryssdal opened "Marketplace" with "Garland, Yellen -- Yellen, Garland . . . We're going with Janet Yellen every single time!"  At least when it comes to Ryssdal and his program, the Fed gets more attention than a new Supreme Court nominee.  My guess is that Conti-Brown approves!

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icon Book Club For Peter Conti-Brown: The Power and Independence of the Federal Reserve
Posted by David Zaring

We're going to put together a few takes on Peter's excellent book on the Fed.  He's an invaluable colleague of mine and an already prolific scholar on financial regulation.  Stay tuned for some views from us on his book, here's the Wall Street Journal's take, to whet your appetite.

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March 14, 2016
icon Adios To Steve Bradford, From The Blogosphere
Posted by David Zaring

He will be missed.  The Business Law Prof blog is very strong, but he was one of the sources of that strength, though of course it will continue excellently, etc. Here's Bainbridge, too.

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