Monday, May 16, 2016

Federal Reserve is too ‘White and Male’ say Democrats

Federal Reserve Chair Janet Yellen
Democratic lawmakers recently forwarded a letter to Federal Reserve chair Janet Yellen indicating that the level of diversity currently represented at the Fed is unacceptable.  The letter stated:  “When the voices of women, African-Americans, Latinos, Asian Pacific Americans, and representatives of consumers and labor are excluded from key discussions, their interests are too often neglected. . . .  By fostering genuine full employment, the Federal Reserve can help combat discrimination and dramatically reduce the disproportionate unemployment faced by minority populations.”  The letter, signed by 11 U.S. Senators and more than 100 members of Congress, called upon chairperson Yellen to aggressively seek to increase minority and female representation at the Federal Reserve bank.  To wit: "[W]e remain deeply concerned that the Federal Reserve has not yet fulfilled its statutory and moral obligation to ensure that its leadership reflects the composition of our diverse nation in terms of gender, race and ethnicity, economic background, and occupation, and we call on you to take steps to promptly begin to remedy this issue."

The letter noted that the Federal Reserve bank leadership is "overwhelmingly and disproportionately white and male."  The Financial Times noted that "[e]leven of the 12 regional Federal Reserve Bank presidents are white and 10 of the 12 are men. All of the 10 current voting members of the Federal Open Market Committee, which sets monetary policy, are white, while four of them are women. Members of the Fed’s Board of Governors, who rank among the top rate-setters, are selected by the president and confirmed by the Senate, but the Board of Governors has a key role in selecting the Fed’s regional bank presidents."

Of course, this story begs the question, does diversity in the boardroom and diversity at the heights of fiscal policymaking make a difference?  Would the Fed set different policies if board members were women or persons of color?  Certainly 11 Senators and 116 Congresspersons believe so.


hat tip:  T.J. Williams, Indiana Tech Law School

Tuesday, May 3, 2016

Predatory lending in the context of home ownership continues in 2016 under another name



   Almost five years ago I wrote an essay about predatory lending practices that targeted African Americans and other communities of color.  Mortgage originators relaxed their standards to offer subprime mortgages, and in some instances, engaged in fraud so that they could make more loans at high rates of interest and therefore make more money.  Many consumers of color who qualified for prime or low-interest mortgages were offered only subprime, high-interest loans.  People of color who did not qualify for low-interest mortgages were offered subprime loans even though they had no or low incomes and no assets.  Lenders told these consumers that they would be able to pay off their mortgages as housing prices climbed.  But the housing bubble burst and housing prices plummeted.  Predictably, many borrowers could not repay these predatory loans.  The mortgages, however, had been pooled together to create securities that were sold to investors.  Banks and lenders were able to transfer foreseeable risks that borrowers would default on the underlying mortgages to investors who purchased the securities.  These are risks that should have been anticipated by lenders and the experts who advised them.  These risks were understandably unforeseen by borrowers with no economic expertise.

     Billions of dollars in wealth were drained from African American and Latino families when banks foreclosed on the homes of consumers who were victims of this predatory lending.  Communities were infested with unsightly, abandoned homes. Investors who purchased mortgage-backed securities lost billions.  Predatory lending harmed local, national, and global economies and helped to precipitate the economic downturn of 2008.

     In that article I described how banks and other financial institutions targeted people of color, and African Americans in particular, for high-interest predatory mortgages.  For example, a former Wells Fargo credit officer revealed in a sworn statement that the bank targeted African American borrowers for high-interest loans they could not afford because of the pervasive perception at the bank that African American customers were not savvy enough to figure out that the loans offered them were predatory.  Another loan officer admitted that African Americans who qualified for prime loans were targeted for subprime loans.  Yet another Wells Fargo loan officer revealed that African Americans were called “mud people” and the predatory loans offered them were labeled “ghetto loans.”  Loan officers targeted black churches also.  And, when loan officers referred borrowers who qualified for low-interest loans to the subprime division, they earned bonuses and higher fees. 

     In the aftermath of the predatory mortgage lending that targeted African Americans and Latinos, and even after the passage of the Dodd-Frank Act enacted, in part, to address this misconduct, the predatory practices used in the mortgage context werereplicated by the auto industry.  Auto dealers often connect auto buyers to lenders.  The dealers are allowed to engage in discretionary pricing when setting interest rates and there is evidence that dealers charge consumers of color more for their auto loans than they charge similarly situated white consumers.  As was true in the mortgage context, these predatory loans are assigned to other institutions.  When it was created, The Consumer Financial Protection Bureau covered auto lenders but only if they do not assign the loan.  The creation of the CFPB under Dodd-Frank left unprotected those consumers whose auto loans were assigned.

     The stunning audacity of this type of economic discrimination in the auto industry becomes even more outrageous when we consider the Bush administration’s decision to bail out Chrysler and General Motors along with the banks and other financial institutions near the end of the twenty-first century’s first decade.  The justifications for bailing out car companies were identical to the pro-bailout arguments made for the banks.  The argument was that like the banks, Chrysler and GM were too big to fail.  If they failed, massive layoffs at the two companies and the firms that supply them with goods and services would exacerbate the economy’s demise.


     Even more disturbing is the fact that predatory conduct in the context of home ownership continues in 2016 under another name.  On April 18, 2016, the New York Times reported on a relatively new practice that targets low-income homebuyers who are now unable to get mortgages because they lost homes in the recent downturn, and because banks now adhere to lending standards.  The deals allow home sellers to provide consumers with high-interest, long-term loans that are known as contracts for deed.  If the consumer can repay the loan in installments on time, he or she will own the home.  But two things make it unlikely for borrowers to be able to pay on time.  First, the interest rates are exorbitantly high.  Once again we see the terribly familiar practice of imposing interest rates that make repayment difficult if not impossible.  Second, many of the homes are in a state of disrepair and consumers need to spend money to make the home inhabitable.  When a would-be homebuyer defaults on the contract for deed, the lender may convert the contract to a month-to-month tenancy.  Even worse, the laws that protect homeowners who default on mortgages from eviction do not apply in this context.

Monday, May 2, 2016

United Airlines CEO Gets $36.8 Million Severance Package After Resignation Triggered By Federal Probe

I find myself posting yet again about another bizarre CEO golden parachute package.  This time, Jeff Smisek, the former CEO of United Airlines, is set to receive $36.8 million in severance pay and other benefits following a federal corruption probe into United's relationship with the Port Authority of New York and New Jersey.  Smisek resigned as United's CEO, President, and Chairman of the Board in September 2015. 

Smisek's pay package includes a $4.9 million severance component, $1.7 million as part of United's annual incentive program, and $29.4 million in equity-based awards.  Additionally, Smisek is set to receive the following perks from United:

  • Smisek will receive lifetime flight privileges and parking benefits at United's hub airports in Houston and Chicago;
  • Smisek will continue to get life insurance coverage and he and his dependents will continue to receive health insurance coverage until he qualifies for Medicare; and
  • Smisek will get to keep his company car which he received while serving as CEO.


Ultimately, United's board could force a clawback of up to $10,1 million of Smisek's severance payment.  Upon Smisek's resignation from United, Oscar Munoz took over as CEO.  Should corporations still continue to reward questionable executive behavior with such lavish severance package awards?     

Saturday, April 30, 2016

Venmo Under Investigation by FTC

Venmo, the popular mobile payment app owned by PayPal, revealed in an SEC filing that the Federal Trade Commission (FTC) is investigating Venmo surrounding possible deceptive or unfair trade practices.  Venmo revealed that it had received a Civil Investigation Demand in March from the FTC requesting documentation and answers to interrogatories surrounding Venmo's services. 

Venmo indicated that it is cooperating with the FTC, but informed investors that the investigation could potentially lead to enforcement action, operational changes, or substantial costs.  Venmo is a free app allowing it's users to transfer money online to other Venmo users.  Paypal acquired Venmo in 2013.  In 2015, Venmo processed $7.5 billion in payments/transfers

Friday, April 29, 2016

CLASS CRITS IX: CALL FOR PAPERS


Loyola University Chicago School of Law will host the 2016 Class Crits Conference on October 21 and 22, 2016, and I invite all to attend and submit papers in response to the following Call for Papers:


ClassCrits IX: Call for Papers and Participation

We invite panel proposals, roundtable discussion proposals, and paper presentations that speak to this year’s theme, as well as to general ClassCrits themes.  Proposal due: May 16, 2016. (Download a PDF of this page)
As the U.S. presidential election approaches, our 2016 conference will explore the role of corporate power in a political and economic system challenged by inequality and distrust as well as by new energy for transformative reform.
In January 2010, the U.S. Supreme Court, in Citizens United v. FEC, redesigned the functioning of our constitutional democracy. By giving corporations a fundamental right to bankroll elections, the Court effectively shifted power to a new economic ‘royalty’ that sits atop the most massive capital aggregations in history.  Further, other government officials, influenced by elite lobbying and theory, have diminished longstanding rules and systems of corporate accountability (including criminal liability for financial crimes and basic norms of corporate disclosure) on the premise that some corporations and institutional forces are too big or important to fail or control. The result is that, along with other billionaires, these corporate and financial elites now may hold more influence in our political system than ever before.
The heightened power of monied interests has loomed over the 2016 election, provoking a groundswell of populist anger and resistance.  Even as elites have selected, shaped, and mediated candidates and campaigns, traditionally marginalized groups have also flexed new electoral muscle.  For example, #Blacklivesmatter and Fight for 15 have turned new energy toward visions of power based on values other than quantifiable individualized material gain. Yet this emerging and democratic populism has also confronted new restrictions on voting and newly limited protections for voting rights that strike at the heart of the public’s ability to enact meaningful democratic reform.
If the election has brought new mainstream attention to problems of inequality and insecurity, it has also exposed deep popular skepticism toward existing political and economic systems and whether they will provide adequate answers to these problems.  Out of this sense of human powerlessness, some populist calls seek security and control not only through invigorated social and political engagement, but also through messages of exclusion, fear and hate, as well as violence.  Against this backdrop, many social movements increasingly target corporate power and corporate citizenship rights, particularly the Citizens United ruling, as a source of numerous social, political, economic and environmental ills.
How might a sharper understanding of corporate power shed light on the current context of inequality and distrust?  How have legal changes in corporate rights and regulation reshaped political and social as well as economic activity?  Does the contemporary corporation simply empower individual human interests, as the Supreme Court suggested in the recent Hobby Lobby decision, or do the legal rights of corporations operate to narrow, distribute, and distort human rights and interests and citizenship?  What kind of person is the contemporary corporation and what does this mean for society, government, and law?   What is missing from the prevailing legal theory of the corporation as a nexus of contracts reflecting individualized economic transactions?  How does the contemporary legal understanding of the corporation help enforce and excuse inequality and instability? What structures of race, gender, and class have been advanced or obscured by the corporatocracy?   And finally, what law reforms might best reshape the corporation?  What alternative forms of business organization might offer better opportunities for more inclusive and responsible economic coordination? And, how might insights from other disciplines, including studies on religion and mindfulness, inform and inspire alternative visions and practices of law, democracy and political economy that promote human and (planetary) thriving?
We seek to explore these and other questions by focusing on a range of legal subject areas. Possibilities include:
  • Antitrust and Competition Law
  • Comparative Corporate Law
  • Corporate Constitutional Rights
  • Corporate Governance
  • Corporate Personhood
  • Corporate Power and Labor
  • Corporate Power, Class, and Poverty
  • Corporate Social Responsibility
  • Corporate Taxation
  • Corporations and Campaign Finance
  • Corporations and Civil Justice Systems (civil procedure, class actions, judicial elections, tort reform)
  • Corporations and Diversity
  • Corporations and the Family
  • Corporations and Human Rights
  • Corporations and Immigration
  • Corporations and International Trade Law
  • Corporations and the University
  • Corporations, Pensions, and Social Security
  • Corporatization of Professions such as Health, Education and Law
  • Corporations and Small Business
  • Criminalization of Corporate Wrongdoing
  • Economic Development and Corporate Subsidies
  • Financial Institutions and Financial Regulation
  • Gender, Sex, Sexuality and the Corporation
  • Global Regulation of Corporations
  • Law, Corporations and Political Economy
  • Law, Litigation and the Corporation
  • Legal History of the Corporation
  • Race and the Corporation
  • Religion and the Corporation
  • Social Movements and the Corporation
ClassCrits IX also seeks to engage activists who help organize communities to action. The conference solicits the participation of activists who believe their work should be informed by a deep understanding of the limitations of current legal and institutional structures, as academics and activists alike strive to energize and mobilize our many communities for a more equal and just society.
Finally, we extend a special invitation to junior scholars (i.e., graduate students and non-tenured faculty members) to submit proposals for works in progress. At least one senior scholar, as well as other ClassCrits scholars, will provide feedback and detailed commentary upon each work in progress in a small, supportive working session at this year’s workshop.
Proposal Submission Procedure and Deadline
Please submit your proposal by email to classcrits@gmail.com by May 16, 2016. Proposals should include the author’s name, institutional affiliation and contact information, the title of the paper to be presented, and an abstract of the paper to be presented of no more than 750 words.  The Conference also welcomes panel proposals.  Junior scholar submissions for works in progress should be clearly marked as “JUNIOR SCHOLAR WORK IN PROGRESS PROPOSAL.”
The venue for the gathering is Loyola University Chicago School of Law, Chicago IL, October 21-22, 2016. The workshop will begin with continental breakfast on Friday, October 21, and continue through the afternoon of Saturday, October 22. Arrangements are being made for conference hotels. Please check our website, http://www.classcrits.org, for further updates. The registration fee is $150.00 for all conference attendees who are full-time faculty members.
Registration is free for students and activists. Participants who do not fit into these categories, and/or who for individual reasons cannot afford the registration fee, should contact us at classcrits@gmail.com. Workshop attendees are responsible for their own travel and lodging expenses.
Conference Organizing Committee

Monday, April 25, 2016

Mass Incarceration and the Clintons

Bill and Hillary Clinton made news last year when both admitted regret in the roles they played in the 1990s in exacerbating the mass incarceration hysteria that gripped the nation in the 1980s and 1990s.  The Corporate Justice Blog highlighted as much at this time last year.  At that time, both President Clinton and the First Lady added fuel to the fire as reported by the New York Times:  “'Gangs and drugs have taken over our streets,' President Bill Clinton said in 1994 as he signed a far-reaching anti-crime bill to bipartisan acclaim.  Defending the law at the time, a frightened era of crack cocaine wars and record murder rates, Hillary Clinton, as first lady, warned about an emerging generation of 'super-predators' — a notion she later repudiated."

Now, the NY Times is reporting that the 1994 crime bill that is often blamed for massively increasing incarceration rates in the United States, signed into law by Bill Clinton, was simply a measure that piled-on to the draconian legislative provisions that criminalized drug abuse beginning in the Nixon and Reagan administrations.  Adding to this morass is data that shows that violent crime was already dropping, and rapidly, at the time the crime bill was signed in 1994 and despite notable drops in violent crime, law enforcement continued to lock up American citizens at record rates.  Why?  Consider the chart below:


As reported by the New York Times:  “'The trend of increased incarceration had already started two decades before 1994,' said Jeremy Travis, the president of the John Jay College of Justice in New York. . . .
'To lay mass incarceration and the damages to black communities on the doorstep of the 1994 crime act is historically inaccurate,' Mr. Travis said, although elements of the law added to the problem in a modest way.
What the historical record does show is that many federal and state changes in criminal justice policy led to a fourfold rise in the incarceration rate from the early 1970s until it declined modestly in the last few years.
The rise in incarceration was driven by state laws like the 1973 Rockefeller drug laws in New York. And it was stoked by a major 1986 federal drug act, which expanded mandatory sentences and set the now-notorious 100-to-one ratio in the quantities of powdered versus crack cocaine that could trigger severe penalties."

Wednesday, April 20, 2016

Women Underrepresented at Wall Street Firms

Supreme Court Justices O'Connor, Sotomayor, Ginsburg and Kagan
Public Domain
According to Bloomberg, women in general are underrepresented at Wall Street law firms and female partners are badly underrepresented at these firms.  The ABA Journal reports that:  "Law360’s third annual 'Glass Ceiling Report' surveyed 300 law firms with U.S. offices; the numbers reflect 2015. Its data showed that there are 8,549 attorneys practicing at Wall Street Law firms. Of that total, 17.1 percent are male partners, and only 3.9 percent are female partners. This puts women at 18.6 percent of Wall Street firms’ partnership ranks."

Law360 further reports that "Wall Street firms are notorious for keeping their partner ranks trim, but climbing to that top rung remains even more challenging for women, with less than 4 percent of female attorneys at those firms defying the odds to make the cut, a Law360 study found."

Sunday, March 27, 2016

Honest Co. in Trouble?

photo courtesy of pinguino k -
wikimedia commons
Jessica Alba's Honest Co. has run into difficulties in the recent past.  Founded in 2011 to provide pure and natural products, beginning with diapers, wipes, detergent and other household products, Honest Co. has been accused recently of promoting products that are not "pure" or "natural" and that contain ingredients that the company advertises as avoiding because it is harmful to health.  To make matters worse, the company had begun exploring going public and would want positive PR vibes if it were going to offer shares to the investing public.

According to Institutional Investor, the natural sunscreen promoted by Honest Co. has been leaving children sunburned and one of its detergent products is alleged to contain synthetic material that the company specifically claims is not part of its ingredient list.  This type of controversy is particularly harmful for a company investigating a potential IPO.  As remarked by a student in my Business Organizations course:  "[In this case], the purchasers of the stock will have the registration statement to look to, which contains all material information about the business, so it is essential that it doesn't contain fraudulent, material misrepresentations or omissions about the natural and safe products and ingredients.  Investors could potentially get into Alba's (and others who sign the statement) pocket book if there was not reasonable investigation and due diligence in making sure the contents of the registration statement are accurate."  Indeed.


Monday, February 29, 2016

Uber and Airbus Partner Up

The Wall Street Journal reported last month that Uber and Airbus would partner to form a joint venture providing on-the-spot helicopter transportation through the Uber system. This new partnership debuted during the recent Sundance Film Festival in Park City, Utah and brings together a slumping Airbus helicopter industry with the wildly successful Uber automobile transport system. Neither Airbus nor Uber would predict what the cost might be for immediate helicopter transportation, but one can imagine that the cost will be significant.

According to CNBC: “As part of a new Silicon Valley-based initiative, Airbus has established a partnership with Uber was part of an experiment that would allow Uber users to hail copters, as well as other forms of transportation. The recently-formed Airbus Ventures will operate with $150 million commitment to 'identify and invest in the most visionary entrepreneurs in the global aerospace ecosystem,' Airbus said in a release. The new link with Uber will allow Airbus to provide on-demand transportation service using its H125 and H130 helicopters. According to Airbus, the partnership will help carve out ‘a new business model for helicopter operators to access a broader customer base.’”

Saturday, February 27, 2016

Super Bowl 50 Commentary

Much has been written since Super Bowl 50 about the commercials that were broadcast during the United States largest television event of the year which broadcast on February 7, 2016. This season, corporations that wanted to advertise during the Super Bowl paid upwards of $5 million for 30 seconds of airtime to show a commercial during the game. Commentary has focused on whether companies receive true value for the right to place their product or service in front of more than 110 million viewers in the United States and millions more across the world. Some have concluded that it is simply not worth the cost to advertise during the Super Bowl because of the extremely high price tag when one considers the cost to produce the commercial, including paying the actors and creative minds behind the advertisement, the air time payment (with many companies airing 60 second, 90 second or multiple 30 second commercials), and the risk that an attempt to be provocative might fall flat or generate negative attention (think the PuppyMonkeyBaby commercial aired by Mountain Dew for its Kick Start product).

Some post-Super Bowl reports have found that corporate share price spikes when a company announces that it will advertise during the Super Bowl. Other reports are critical of corporations that pay upwards of $25 to 35 million to advertise during the Super Bowl when many consumers are unable to recognize a product as attached to a specific memorable commercial. In keeping with all of the Super Bowl commentary, one student in my Business Organizations course had this to say about watching Super Bowl commercials for purposes of evaluating whether the decision to air extravagant ads represented sound business judgment:

"For Business Organizations, we were assigned to view Super Bowl advertising from the perspective of a shareholder. Our challenge, answer the question, “Was this ad worth a minimum of $5 million dollars?” This framework made me ask, “What are the effects of marketing during the Super Bowl?” News that a company plans to advertise during the big game has been linked to a rise in stock value, but the ads may not influence consumers to purchase the product. From a shareholder perspective this would cause me to say, No, the ad does not justify the expense.

Then I began to think about the other effects of Super Bowl marketing. I am not a shareholder in any companies. My stock is all invested in the three kids I had the pleasure of watching the game with. They are 10, 9 and 7 and they were watching because they love football, not because they had an assignment for school. Watching the ads with my executive team was very frightening. Many of the products placed front and center on our TV included junk food, alcohol and medications, all part of huge public health crises in our country. While I watched the commercials with my family, I wondered, who is ultimately responsible when the products advertised are unhealthy and potentially dangerous? The cost of this advertising and the impact of these products on society may be incalculable.

Ultimately, it is not the businesses or shareholders that gain the most benefit from the Super Bowl ads. The NFL should play a role in guaranteeing that the products and advertisements we put up with to watch the game are not harmful. Advertising can be effective and ethical. Businesses that deliberately market harmful products should be held responsible. As a viewer of the NFL’s Super Bowl 50, I was concerned that my children and other people’s children were being harmed. Many children have already been harmed. In the search for deep pockets and a remedy for this harm, the NFL may be a good place to start."

-- Indiana Tech Law School 2L student

Friday, February 19, 2016

CEO Takes Home $18 Million After Cutting 25,000 Jobs

2015 was a rough year for oil and gasoline companies.  Overproduction has gasoline prices at historic lows and the bottom line has suffered across the world for many energy corporations, unless apparently you are the CEO of one of those companies.  Dutch oil giant Schlumberger, the first of the oil companies to report 2015 earnings and CEO compensation, paid its CEO Paal Kibsgaard $18.3 million in 2015, while it simultaneously cut 25,000 jobs and saw its revenues plummet 41%.

According to CNN/Money:  "CEO Paal Kibsgaard received total compensation worth $18.3 million in 2015, the company reported, down only slightly from $18.5 million the year before. The rest of Schlumberger didn't fare so well. The company cut 25,000 jobs during the year, or 20% of its workforce.  Revenue was down 27%, and profit plunged 41%. Schlumberger shares tumbled 18%. The weak results and layoffs are the result of the plunge in the price of oil."

Why?  If revenue, profit and share price tumble, why does CEO pay remain at extraordinary levels?

Sunday, January 31, 2016

Will Those Who Led the Financial System Into Crisis Ever Face Charges?

The American Bar Association (ABA) Journal has just published an article that asks the question whether any of the individuals that crashed the housing market and engaged in fraudulent behavior leading up to the financial market crisis, will ever face charges?  This is particularly timely as the statute of limitations for securities fraud in many of those cases will run in 2016.  Corporate Justice Blog contributor Dean Steven Ramirez asks this question pointedly in his upcoming book with the NYU Press entitled "Corrupted Justice" where he along with his co-author Mary Kreiner Ramirez describe the behavior of corporate executives at Countrywide, Lehman Brothers, Bear Stearns, and AIG, amongst others, and conclude that fraud was one of the primary causes of the Great Recession of 2008.

According to the ABA Journal, quoting law professor William Black, big banks handed out lousy loans while selling to outsiders that the loans were quality products suitable for packaging into investment offerings.  From the article: 

"[Professor] Black has been a constant critic of the Justice Department’s failure to prosecute lenders with the same verve they’ve gone after borrowers, and his testimony reflected that concern. The lenders didn’t care about misstatements on loan documents, Black testified and the defense argued, because they intended to make the loans no matter what. They wanted to push through as many mortgages as possible and collect their fees and bonuses, and then claim the loans met rigorous underwriting standards, selling them in large lots to other financial institutions and investors."

The article continues: "In the years since the crash, federal prosecutors have used splashy press conferences to announce top banks’ multibillion-dollar settlements (typically paid by shareholders) in cases arising from the subprime mortgage mess. But criminal prosecutions have been reserved almost exclusively for the borrowers. . . . 'Not to excuse wrongdoing by some borrowers, but clearly these were the business plans of large financial institutions, undertaken by human beings within them and, I presume, at the direction of senior executives in furthering the business plan,' says Phil Angelides, a former California state treasurer who chaired the federal Financial Crisis Inquiry Commission’s probe of the causes of the meltdown of 2007-2010.  The Financial Crisis Inquiry Report, released in 2011, was particularly pointed in its criticism of Wall Street, which it found had taken advantage of unprepared regulatory agencies that had been methodically defanged through deregulation over several years. The report noted a term coined on Wall Street that captured the carefree wheeling and dealing in the run-up to the meltdown: “IBGYBG”—”I’ll be gone, you’ll be gone.” The term, the report states, “referred to deals that brought in big fees up front while risking much larger losses in the future.”

Whether any corporate leaders that engaged in loan writing while being influenced by IBGYBG thinking will be prosecuted may be one of the important questions of 2016.

Monday, January 18, 2016

Dodd-Frank Test Looms


Financial markets across the world plunged during the first two weeks of 2016. Global equity markets, for exmple, suffered the worst first two week loss in 20 years. The problem is continued signs of severe macroeconomic weakness which this blog highlighted starting in late 2014, and throughout 2015. Thus, RBS recently advised investors to sell everything to avoid a deflationary vortex.


China in particular has slowed down, dragging most other emerging markets down with it. Chinese stocks are down nearly 20% just in 2016. Emerging markets shares have shed 35% since their recent peak in 2014. Oil prices literally collapsed over the last year (see chart) along with commodities generally, suggesting chronically weak demand. Non-energy commodities crashed by 33% just since mid-2014. Thus, there will be massive financial losses arising from emerging markets, China, energy, and commodities, much of it debt.

In fact, as recently as last week, the megabanks started recognizing losses in their energy loan portfolios. While the losses remain contained right now, one wonders what lies buried in the derivatives books of the megabanks. One indication of the possible losses in derivatives related to energy and other non-performing debt is the fact that the megabanks lobbied successfully to continue selling FDIC-backed derivatives within their banking subsidiaries, as discussed in real time about a year ago on this blog. This indicates there are likely more losses buried in the derivatives markets that logically should end up hitting the capital of the megabanks. Further weakness will inevitably lead to further loss recognition at the megabanks.

The Fed's recent efforts to hike interest rates only exacerbates this global macroeconomic weakness. One commentator termed the Fed's rate hike a policy "blunder." The case for a deflationary vortex, first highlighted in late 2014 on this blog, now seems compelling. The Fed seems as oblivious as it was in mid-2007 to the potential for another financial crisis.

All of this led George Soros to recently raise the specter of a financial crisis like 2008. Soros, of course is a financial genius, with a long record of powerful financial insights and trading successes. Betting against Soros is not a path to success. Soros stated: "When I look at the financial markets there is a serious challenge which reminds me of the crisis we had in 2008.” Former US Treasury Secretary Lawrence Summers recently stated: "the global risk to domestic economic performance in the United States, Europe and many emerging markets is as great as any time I can remember. It is time for policymakers to hope for the best and plan for the worst."

Which brings me to the point of this post: Can policymakers count on the Dodd-Frank Act to save us from the horrors of 2008-2009? 


In my next post, I will explain why the answer to that question is a resounding NO!

Friday, January 1, 2016

Happy New Year

photo courtesy of Mark Lane/Wikimedia Commons




We wish all of our readers, followers, contributors, and commentators a happy and healthy 2016.  As always, it is our hope that 2016 will lead to saner and fairer economic polices across the nation and across the world so that crushing economic inequality becomes a distant memory.  Here is to a wonderful 2016.

Tuesday, October 13, 2015

Native Lives Matter, Too

Today in the New York Times, Lydia Millet crafted an Op-Ed that shines a harsh light on police killing of American Indians in the United States.  At a time when #BlackLivesMatter is driving media attention and conversation, Millet writes in "Native Lives Matter, Too" that American Indians are virtually invisible when it comes to loss of life at the hands of law enforcement when per capita, American Indians suffer a higher percentage of killing at the hands of law enforcement than any other race. The Op-Ed states:

"American Indians are more likely than any other racial group to be killed by the police, according to the Center on Juvenile and Criminal Justice, which studied police killings from 1999 to 2011 (the rate was determined as a percentage of total population). But apart from media outlets like Indian Country Today, almost no attention is paid to this pattern of violence against already devastated peoples. When it comes to American Indians, mainstream America suffers from willful blindness."

She further writes:  "Economic and health statistics, as well as police-violence statistics, shed light on the pressures on American Indian communities and individuals: Indian youths have the highest suicide rate of any United States ethnic group. Adolescent women have suicide rates four times the rate of white women in the same age group. Indians suffer from an infant mortality rate 60 percent higher than that of Caucasians, a 50 percent higher AIDS rate, and a rate of accidental death (including car crashes) more than twice that of the general population.  At the root of much of this is economic inequality: Indians are the poorest people in the United States, with a poverty rate in 2013 that was about twice the national average at 29.2 percent — meaning almost one in three Indians lives in poverty."

Sunday, October 4, 2015

NEW LAW REVIEW ARTICLE: Toward a Critical Corporate Law Pedagogy and Scholarship


Image result for wash u law reviewCheryl Wade, dre cummings and I have just posted a new law review article on SSRN that challenges mainstream corporate law scholars and teachers to think more deeply about the role of the modern public corporation in America and beyond. More specifically, we show that corporate law and regulation permits the corporation to operate as a key mechanism of: 1) racial and economic inequality, 2) the devolution of our political system towards a corporatocracy, 3) the continuation of mass incarceration, 4) the Great Financial Crisis of 2008-2009, and 5) even the creeping privatization of education. The article just came out in the Washington University Law Review
Here is the abstract:
In recent years, the publicly held corporation has assumed a central position in both the economic and political spheres of American life. Economically, the public corporation has long acted as the key institution within American capitalism. Politically, the public corporation now can use its economic might to sway electoral outcomes as never before. Indeed, individuals who control public firms wield more economic might and political power today than ever before. These truths profoundly shape American society. The power, control, and role of the public corporation under law and regulation, therefore, hold more importance than at any other time period.  
Even though corporate law and regulation define all aspects of this central economic and political institution within the American system, the development of corporate law is impeded by a deficient pedagogy — and thus, to a certain degree, scholarship — that scarcely mentions the power and influence corporations hold. Critical voices, in particular, are excluded from virtually all corporate law textbooks. Many corporate law texts taught in law school classrooms treat the social role of the public corporation as a black box of corporate law pedagogy and, by extension, mainstream legal scholarship. Indeed, a relentless stream of legal scholarship challenging the law and regulation of the public firm from the perspective of its broader social and economic implications receives little to no mention in the key textbooks adopted and taught from in law schools today. This Article challenges the dominant corporate law master narrative perpetuated in all of the major business law textbooks. This master narrative prevents students of the law and legal scholars from fully understanding and analyzing the changing nature and evolution of law and power in the United States. 
This article forms the basic template of our forthcoming textbook, Business Organizations: A Critical Perspective. The article is available in full for free download, here.