Business Law Prof Blog

Stanford Law Review Online: Summe on Misconceptions About Lehman Brothers’ Bankruptcy

Over at the Stanford Law Review Online, Kimberly Summe has posted "Misconceptions About Lehman Brothers’ Bankruptcy and the Role Derivatives Played."  Here is an excerpt, but the entire piece is well worth a read:

Misconception #1: Derivatives Caused Lehman Brothers’ Failure ….

At the time of its bankruptcy, Lehman Brothers had an estimated $35 trillion notional derivatives portfolio. The 2,209 page autopsy report prepared by Lehman Brothers’ bankruptcy examiner, Anton Valukas, never mentions derivatives as a cause of the bank’s failure. Rather, poor management choices and a sharp lack of liquidity drove the narrative of Lehman Brothers’ bankruptcy…..

Misconception #2: Regulators Lacked Information About Lehman Brothers’ Financial Condition

The Valukas report was explicit that regulatory agencies sat on mountains of data but took no action to regulate Lehman Brothers’ conduct…..

Misconception #3: Derivatives Caused the Destruction of $75 Billion in Value ….

The allegation that derivatives destroyed value is flatly at odds with the fact that derivatives were the biggest contributor to boosting recoveries for Lehman’s creditors....

Misconception #4: Insufficient Collateralization

Policymakers focused on collateralization as a derivatives risk mitigation technique. Collateralization of derivatives, however, has existed for twenty years….

Misconception #5: The Bankruptcy Code Is Not Optimal for Systemically Important Bankruptcies ….

[U]nder the current settlement framework, Lehman Brothers’ bankruptcy will be resolved in just over three years—a remarkable timeframe given that Enron’s resolution took a decade.

Policymakers also focused on the wrong entities for failure. Banks, the most likely candidates for application of Dodd-Frank’s orderly resolution authority, have in fact been the least likely to experience failures due to derivatives losses, in part because of their efforts to hedge exposures. The largest derivatives failures to date involved non-bank entities such as Orange County, the hedge fund Long-Term Capital Management, and AIG Financial Products—entities with fewer risk management and legal resources than banks and which are less likely to hedge exposure. These types of entities are not covered by Dodd-Frank.

Conclusion

An alternative vision for policymakers in the aftermath of Lehman Brothers’ bankruptcy would have involved greater consideration of how liquidity can become constrained so quickly, as in the commercial paper and repo markets, and an effort to mandate the type and amount of collateral provided in these asset classes. In addition, a clarion call mentality among regulators with respect to critical issues such as the size and makeup of a bank’s liquidity pool and an insistence on adherence to banks’ self-established risk tolerances should be actionable. Instead, policymakers overlooked some of the principal causes of Lehman Brothers’ bankruptcy….

SJP

Occupy Climate Change

Democracy Now recently published transcribed portions of "Occupy Everywhere," a panel hosted by The Nation magazine, "On the New Politics and Possibilities of the Movement Against Corporate Power" (here).  Naomi Klein was quoted as drawing a connection between the movement and the climate change debate, saying the following:

[T]here has been an ecological consciousness woven into these occupations from the start…. So, what I find exciting is the idea that the solutions to the ecological crisis can be the solutions to the economic crisis, and that we stop seeing these as two problems to be pitted against each other by savvy politicians, but that we see them as a ... single crisis, born of a single root, which is unrestrained corporate greed that can never have enough, and that ... trashes people and that trashes the planet, and that would shatter the bedrock of the continent to get out .. the last drops of fuel and natural gas. It’s the same mentality that would shatter the bedrock of societies to maximize profits. And that’s what’s being protested.... [T]he reason why the right is denying climate change now in record numbers— … 80 percent….. [is] because they have looked at what science demands, they’ve looked at the level of emissions cuts that science demands, 80 percent or more by 2050, and they have said, "You can’t do that within our current economic model. This is a socialist plot." [T]heir entire ideology, which is laissez-faire government, attacks on the public sphere, privatization, cuts to social spending, all of that, none of it can survive actually reckoning with the climate science, because once your reckon with the climate science, you obviously have to do something. You have to intervene strongly in the economy.

For more on this you can read her article "Capitalism vs. the Climate."

SJP

Pizza is a vegetable. Really?

By now you've probably heard about Pizzagate--what some have described as: "Congress puts the food lobby above child nutrition." Here's Kermit's take (30-second ad up front):

 

SJP

Jordan on Business Roundtable v. SEC

My colleague Bill Jordan has written a review of the Business Roundtable v. SEC decision (striking down the SEC's proxy access rule) for his "News from the Circuits" column in the forthcoming 37 Administrative and Regulatory Law News 1.  Here's an excerpt:

The court criticized the agency’s rejection of studies favoring the management position in favor of “two relatively unpersuasive studies” purportedly showing the value of the inclusion of dissident directors on corporate boards.

The court’s dismissive treatment of the SEC’s response to these studies contrasts sharply with the longstanding principle of judicial, deference to agency assessment of complex technical and scientific studies.... Note that the court considered itself qualified to determine that the studies relied upon by the SEC were “relatively unpersuasive.” This is not the language of arbitrary and capricious review or even of hard look review.  This is the language of substantive judgment, even political judgment.

The contrast is particularly striking because this case essentially involved judgments about the value of democracy. In assessing electoral democracy, surely we assume that elections improve outcomes because they hold politicians accountable for their actions. It seems reasonable for the SEC to incorporate this fundamental principle of democratic institutions into the arena of shareholder democracy. At least a court should review such agency judgments – made by the politically accountable electoral branch of government rather than the unaccountable judiciary – with considerable deference. The D.C. Circuit’s review in this case was precisely the opposite. On one particular issue, the court characterized the agency’s explanation as “utterly mindless.”

It is difficult to determine the long-term significance of this decision. It suggests, among other things, that the D.C. Circuit (at least these three judges) consider themselves well qualified to second-guess agency decisions about issues of corporate structure and costs even if they should defer to agency decisions about scientific and technical issues.

SJP

The Underground Economy: Stealth of Nations

I just finished an interesting book on the shadow, or informal economy—the merchants and service providers who operate outside government regulation and licensing requirements. The book is Robert Neuwirth’s Stealth of Nations: The Global Rise of the Informal Economy.

Neuwirth is at his best when he’s describing the various markets throughout the world. His particular geographical areas of focus, not surprisingly, are Nigeria, China, and parts of South America. The book is less valuable when he ventures into theory and proposes policies to deal with the underground economy. For example, he sees the growth of these markets as inconsistent with neoclassical economic theory. In my view, these markets are exactly what neoclassical theory would predict as a way to avoid the cost of government regulation. I also think his attempts to prescribe government policies to strengthen these markets are often off-base. Government is unlikely to be able to do much to help the participants in markets whose very existence is an attempt to avoid government.

For all its flaws, the book is still worth reading, if only to appreciate how much the entrepreneurial spirit is still alive in today’s world. It also provides reminders of how people push back against government regulation and how regulation can have unintended consequences.

If you haven’t read Hernando deSoto’s masterpiece, The Other Path: The Invisible Revolution in the Third World, I would suggest you read it first.Then read Neuwirth’s book for an update.

-Steve Bradford

Super Committee Failure a Super Short?

It appears that the Super Committee is giving up and going home. Apparently the idea of compromise and actually being accountable for budget cuts is more appalling than the idea of asking Congress to bailout the Super Committee for their ineffectiveness.  As CNN/Money explains:

The "automatic" budget cuts that were supposed to deter super-committee members from punting won't actually kick in until 2013. And that gives Congress more than 13 months to modify the law.

There will be tremendous pressure to do so.

Athough the market implication of failure to reach a compromise are not clear (at least to some), the early feedback is that the market doesn't like it, as this morning's headline, Dow Sinks 300 Points, explains.

So I got to thinking, does anyone benefit from not reaching a deal?  Certainly anyone who thought a failure to reach a deal would send the market lower could short the market. I think a lot of people expected that such a failure would drive the market lower.  What about people who knew a deal would fail?  Like members of the Super Committee and their staffs?  

Professor Bainbridge has been sharing his and others' views on congressional insider trading recently, see, e.g., here and here, so maybe that's why it's on my mind.  I can't help but wonder, did anyone of those key people take a short position on the market last week before news of the likely failure started to leak out? And does it matter?  

If so, it's not at all clear it would be illegal to do. It is pretty clear to me, though,  at a minimum, it would be very scummy.  

--JPF

The question that won't go away: Are boards simply not up to the task?

It often strikes me as somewhat of an emperor-has-no-clothes moment when I explain to my students that, in this era of too-big-to-fail, we continue to entrust oversight of institutions that have the potential to cripple the entire global economic system to folks who are doing so on very much of a part-time basis, and with some minor distractions to boot (like running their own TBTF enterprise as CEO).  I was reminded of this when I read Steven Davidoff's post, A Board Complicit in MF Global’s Bets, and Its Demise.  After pointing out that the failure of oversight in this case was not due to lack of expertise or knowledge, Davidoff suggests that perhaps "boards are inherently unable to do the job we want of them: to oversee the company and counteract the influence of its chief executive."  As a possible solution, Davidoff suggests that "[i]f the board members were to be penalized for their failures through forfeiture of their own compensation, perhaps directors would [be more] focused on creating a stronger risk management culture."  I have my doubts that we could ever implement any such system that wouldn't be left as anything other than a shell after Delaware got done with it.  Perhaps the answer lies in part in doing more of what some have suggested we do in the area of Securities Regulation--that is, stop pretending we have more oversight than we actually do and let the capital market discounting begin.

SJP

New Report on the S&P 500's Corporate Governance of Political Expenditures

Back in August, ten law professors, as the "Committee on Disclosure of Corporate Political Spending," submitted a petition to the SEC asking “that the Commission develop rules to require public companies to disclose to shareholders the use of corporate resources for political activities.” 

The group includes Lucian Bebchuk, Bernard Black, John Coffee Jr., James Cox, Jeffrey Gordon, Ronald Gilson, Henry Hansmann, Robert Jackson Jr., Donald Langevoort, and Hillary Sale.  The petition explains:  “We differ in our views on the extent to which corporate political spending is beneficial for, or detrimental to, shareholder interests. We all share, however, the view that information about corporate spending on politics is important to shareholders—and that the Commission’s rules should require this information to be disclosed.”

I’ve been following with interest the comments to this petition. They’ve included statements from scholars like Ciara Torres-Spelliscy who has written extensively about corporate political spending, and this week the IRRC Institute has submitted a report on the S&P 500's corporate governance of political expenditures. In its submission cover letter, the IRRC Institute explains: “The report is the first to examine the governance policies of the full S&P 500; the first to report on spending of the full S&P 500; and the first to be part of a benchmarking time series, enabling trends to be examined robustly.”

Earlier this month, I posted about a recent report on the governance practices of the S&P 100, which the Center for Political Accountability and Wharton’s Zicklin Center for Business Ethics released.

I’m still digesting the new IRRC Institute report and may post more soon, but note for those interested in this area that it is well worth reading as it takes a broad and detailed approach, including information on topics such as governance about lobbying and whether companies provide public justifications for why they spend money on politics.

A few tidbits from the fascinating report:

On companies with “no spending” policies:  “The overall number of companies that assert they do not spend money in politics has grown to 57, up from 40 a year ago. But a comparison of spending records and policy prohibitions shows that only 23 companies with ‘no spending’ policies actually did not give any money to political committees, parties or candidates in 2010 (though they may still lobby). Only 17 of these firms avoided all forms of political spending, including lobbying. (Another 57 companies have no policies about spending but also do not seem to spend.)”

On transparency:  “Voluntary company disclosure of political spending remains limited and only 20 percent of S&P 500 companies report on how they spent shareowners’ money. Two‐thirds of the companies that appear to spend from their treasuries do not report to investors on this spending. The least transparent are Telecommunications and Financials firms; by contrast over 40 percent of Health Care companies explain where the money goes.”

On independent expenditures: “There has been a significant increase in the number of companies that discuss independent expenditures, which following Citizens United are allowed at the federal level for the first time in 100 years. Comparing companies in the index in both years (468 firms) shows that 19 more companies now say they will not fund campaign advertisements for or against candidates, generally will not do so, or are reviewing their policies—up from 58 last year. But only five companies now acknowledge in their policies that they make independent expenditures, even though careful scrutiny of voluntary spending reports adds a few firms to this tally.”

On the increasing adoption of indirect spending policies: “The proportion of companies that have adopted policies on indirect political spending through their trade associations has grown from 14 percent in 2010 to 24 percent. Half of the 100 biggest companies now disclose their policies on indirect spending through trade groups and other politically active non‐profit groups, but this commitment evaporates at smaller companies.”

On big companies spending big: “The top two revenue quintile companies were responsible for the vast majority of both federal lobbying and treasury contributions to national political committees and state political entities, with $915 million (93 percent) of the S&P 500’s total.”

On board oversight: “The 151 companies with board oversight of their spending disburse on average 30 percent more than their peers that do not have such oversight, when the latter comparison is controlled for revenue size. This may give some comfort to investors and others concerned about accountability and transparency, but not to those who think that corporate governance could be used as a lever to reduce spending.”

The report is also terrifically direct about information that is unknown, such as how much companies give indirectly through trade associations and other non-profit groups that spend in elections and on lobbying.

--Elizabeth Pollman

"[C]onstrained by Delaware Supreme Court precedent"?

Following up on both Elizabeth's post announcing that Chief Justice Myron T. Steele of the Delaware Supreme Court would be speaking at Stanford, and Josh's post on the Glom's Masters Forum on Chancellor William B. Chandler III's contributions to the Delaware Chancery Court, I note the following:

Over at the Glom, Afra Afsharipour discusses Chancellor Chandler's Airgas decision and notes that "like other commentators … I expected that Chancellor Chandler would uphold the pill. What I didn’t quite expect was Chancellor Chandler’s frank articulation of how decades of Delaware case law on the poison pill essentially gave him no choice but to reach the result that he did."

Meanwhile, a report from a recent panel discussion on cross-border issues in mergers and acquisitions notes that Chief Justice Steele interprets the case law differently:

Steele took issue with the view that the Chancery is constrained in its ability to remove a pill in the appropriate circumstances. He suggested that if the chancellor had found facts that were inconsistent with it being reasonable to keep the pill in place, an injunction against maintaining the pill could be issued under Delaware law. Where there is a battle of valuations, rather than the defence of a long-term strategy, a case can be made for removing the pill and letting the shareholders decide.

SJP

In Search of the Grand Unified Theory of Economic Policy

The Wall Street Journal reports (here) that:

(1) More than three-quarters of the country says the nation's economic structure is out of balance and favors a very small proportion of the rich over the rest of the country. They say America needs to reduce the power of major banks and corporations, as well as end tax breaks for the affluent and corporations. Sixty percent say they strongly agree with such sentiments.

(2) 53% of the country believes—and 33% believe strongly—that the national debt and the size of government must be cut significantly, that regulations on business should be pared back, and that taxes shouldn't be raised on anybody.

While the WSJ story is entitled "Poll Finds Voters Deeply Torn," there is nothing necessarily contradictory in these two sets of goals.  So, if anyone is looking for a winning platform for the upcoming election ....

SJP

Poker as Sport

The World Series of Poker Main Event Final Table is underway.

There is an arena ... there are fans ... and they are rowdy.

SJP

Immaterial Lies

A couple of weeks ago the Wall Street Journal ran an article entitled "Trust Me."  The article asserted that:

Infamous frauds and financial crises have wrecked the public's faith in business in recent years, leading many companies to try to repair the damage by emphasizing codes of ethics. But we do not have a crisis of ethics in business today. We have a crisis of trust.

Later on, the author suggested that:

Spirals of distrust often begin with miscommunication, leading to perceived betrayal, causing further impoverishment of communication, and ending in a state of chronic distrust. Clear and transparent communication encourages the same from others and leads to confidence in a relationship.

I have argued elsewhere that courts have in recent years excaberated this problem of distrust by routinely labeling misstatements "immaterial."  In other words, the judges in 10b-5 cases tell investors that even if we assume the CEO intentionally lied about the company's prospects in order to defraud investors there is no recourse because no "reasonable" investor would consider the statement important.  The article is entitled, "Immaterial Lies: Condoning Deceit in the Name of Securities Regulation."  Here is the abstract:

The financial crisis of 2008-2009 is once again raising the issue of investor trust and confidence in the market.... The pending flood of lawsuits following in the wake of this financial crisis provides an opportunity, however, for courts to restore some of this lost trust. This Article argues that one of the ways courts can do this is by curtailing their over-dependence on materiality determinations as the basis for dismissing what they deem to be frivolous lawsuits under Rule 10b-5. There are at least four good reasons for doing so. First, condoning managerial misstatements on the basis of immateriality arguably has a negative impact on investor confidence because whenever courts find a misstatement to be immaterial as a matter of law they are effectively concluding that there will be no relief for shareholders even if the statement was made with full knowledge of its falsity and with the requisite intent to defraud. Second, the materiality “safety valve” doctrines that have evolved to assist courts in dismissing frivolous suits are often in direct conflict with Supreme Court guidance as to both the proper definition and analysis of materiality in the context of Rule 10b-5. Third, the routine categorization of managerial misstatements as immaterial in order to dismiss frivolous suits creates a tension with the disclosure rules, which are premised on ideals of full and fair disclosure and often turn on materiality determinations. Finally, the dependence on materiality is unnecessary because other elements of Rule 10b-5, such as scienter, have been strengthened to the point where they allow courts to deal with the problem of frivolous suits without having to rule on the issue of materiality.

SJP

Americans for Financial Reform Conference: Evaluating The Volcker Rule

Next week, the Americans for Financial Reform are sponsoring an event on the Volcker Rule.  It looks like an interesting opportunity. I look forward to the outcome.  Here's the announcement: 

Wednesday, November 9^th,  9:30 to 1:00

Location – Hart Senate Office Building, Room 902

Presented By: Americans for Financial Reform

You are invited to join Americans for Financial Reform for a discussion of the recently released Volcker Rule proposal. This centerpiece rule of the Dodd-Frank Act is designed to separate risky proprietary speculation from core functions of the financial system, and will affect our largest banks in areas ranging from compensation to investment management. The discussion will feature outside experts as well as key Congressional architects of the rule.  Speakers will consider potential benefits of the Volcker Rule for the stability and effectiveness of the financial system and evaluate the strengths and weaknesses of the proposed rule.

Confirmed Speakers

Keynote address

Senator Carl Levin of Michigan

Senator Jeff Merkley of Oregon

Other participants

Anthony Dowd: Chief of Staff, Office of Paul A. Volcker; Former General Partner, Charter Oak Capital Partners

Nick Dunbar: Editor of “Bloomberg Risk”, author of “Inventing Money: the Story of Long-Term Capital Management” and “The Devil’s Derivatives: The Untold Story of the Slick Traders and Hapless Regulators Who Almost Blew Up Wall Street… and Are Ready to Do It Again”

Gerald Epstein: Professor of Economics, University of Massachusetts at Amherst; Co-Director, Political Economy Research Institute

William Hambrecht: Founder, Chairman, and CEO, W.R. Hambrecht & Co.

 Kimberley Krawiec: Katherine Robinson Everett Professor of Law, Duke University Law School; expert on “rogue traders”

 Matthew Richardson: Charles Simon Professor of Applied Financial Economics, New York University Stern School of Business; Editor of “Regulating Wall Street: Dodd-Frank and the New Architecture of Global Finance” 

 --JPF

North Dakota Energy Law Symposium: Nov. 3

The North Dakota Law Review is hosting an Energy Law Symposium this Thursday, November 3, 2011. The symposium will feature a variety of perspectives, including insight from speakers representing the practicing bar, education (legal and otherwise), and government.  The panelists will be discussing the economic, regulatory, environmental, and social issues facing the current energy boom, with a particular (though definitely not exclusive) emphasis on North Dakota and the western United States. Here's the agenda, including the list of distinguished speakers (plus me):

The North Dakota Energy Law Symposium is free and open to the public.  It has been approved for 4 hours of CLE credit in North Dakota and 3.75 hours of CLE credit in Minnesota.  

Schedule of Symposium Events

9:00 a.m. Welcome 
Kathryn Rand, Dean, UND School of Law

9:05 a.m. Introduction to the Energy Law Symposium

9:15 a.m. Hydraulic Fracturing in North Dakota: The Environment and the Economy: Hydraulic Fracturing as the Intersection of Sustainability

 - Professor Joshua Fershee
Moderator: Nate Martindale
Presentation followed by 15 minutes of Q & A

9:55 a.m. Practicing Energy Law in North Dakota 
 - Brian Bjella
 - Joshua Swanson
Moderator: Rob Carolin – Alumni Relations
Presentation followed by 20 minutes of Q & A

11:10 a.m. Break

11:25 a.m. New Energy Development
 - Marcilynn Burke
Moderator: Lindsay Harris
Presentation followed by 15 minutes of Q & A

12:15 p.m. Break

1:15 p.m. Energy Extraction on Federal and Native American Land 
 - Professor LeRoy Paddock
 - Professor Raymond Cross
Moderator: Joshua Fershee – Associate Dean
Presentation followed by 20 minutes of Q & A

2:35 p.m. Environmental Protections on Energy Extraction 
 - Heather Ash
 - Professor John Nagle
Moderator Dr. Steve Benson – Director of Petroleum Eng. Dept., UND
Presentation followed by 20 minutes of Q & A

--JPF

Live Blogging From the Central States Law Schools Association Annual Meeting

I'm blogging live from the Central States Law Schools Association Annual Meeting being held at the University of Toledo School of Law (we're currently on break for lunch).  You can find the schedule of panelists here.  So far I've attended the "Economics, Markets, & Wealth" panel, and the "Tax Law" panel.  Of the papers presented as part of the EMW panel, I was able to find Dustin Buehler's "Economic Evolution, Jurisdictional Revolution" on SSRN.  Here's the abstract:

In June 2011, the Supreme Court issued its first personal jurisdiction decision in two decades. In J. McIntyre Machinery, Ltd. v. Nicastro, the Court considered whether the placement of a product in the "stream of commerce" subjects a nonresident manufacturer to personal jurisdiction in states where the product is distributed. The Court issued a fractured opinion with no majority rule, with some justices expressing reluctance to "refashion basic jurisdictional rules" without additional information on "modern-day consequences." This Article explores the consequences of these rules by providing the first law-and-economics analysis of personal jurisdiction. A descriptive analysis initially demonstrates that jurisdictional rules significantly misalign litigation incentives. Unclear and restrictive personal jurisdiction rules increase the likelihood of procedural disputes, inflate litigation costs, and decrease the expected benefit of suit, making it less likely that plaintiffs will file lawsuits. This in turn skewers substantive law incentives - because jurisdictional rules make litigation less likely, many injurers escape liability and are inadequately deterred from engaging in wrongful conduct. Drawing on this descriptive analysis, the Article proceeds to a normative analysis of the stream of commerce theory. It argues that a broad version of the stream of commerce doctrine best aligns procedural and substantive law incentives, while protecting fundamental due process rights. Ultimately, this Article concludes that it is time for a procedural revolution: the Supreme Court should allow expansive personal jurisdiction over nonresident manufacturers in products liability cases.

SJP

 

Wall Street Speaks

A friend sent me the "We are Wall Street" email that's apparently been going viral.  Here's a taste:

Go ahead and continue to take us down, but you’re only going to hurt yourselves. What’s going to happen when we can’t find jobs on the Street anymore? Guess what: We’re going to take yours. We get up at 5am & work till 10pm or later. We’re used to not getting up to pee when we have a position. We don’t take an hour or more for a lunch break. We don’t demand a union. We don’t retire at 50 with a pension. We eat what we kill, and when the only thing left to eat is on your dinner plates, we’ll eat that.

You can read the full letter here.  My friend thought I'd hate it, but I think it's terrific.  The issue of whether capitalism is indeed the least worst system (or, perhaps more importantly, how to best leverage capitalism so as to lift the most ships and provide some floor of subsistence to distinguish us from barbarians, while at the same time incentivizing the "frontrunners" maximally) is a complicated one.  I am not inclined to dismiss the Occupy protesters because I believe they represent a meaningful discontentment with what many perceive to be a corrupt system rigged to benefit the few at the expense of the many.  At the same time, I'm not going to dismiss the ideas represented in this letter either because I believe there is a great deal of truth represented therein as well.

SJP

More Readings on Capitalism

Steve recently put up a helpful list of "Readings on Capitalism."  Since I am agnostic when it comes to the assertion that capitalism is the least worst system possible, and because I believe that even if we all agreed on that point we'd still have much to debate about as to the details, I asked Frank Pasquale and Kent Greenfield for a quick list of books identifying some of the shortcomings of capitalism.  Here it is:

• 23 Things They Don't Tell You About Capitalism (Pasquale: "Ha-Joon Chang's LSE and RSA podcasts are on iTunes; highly recommended")

• The Predator State: How Conservatives Abandoned the Free Market and Why Liberals Should Too

• The Illusion of Free Markets: Punishment and the Myth of Natural Order

• The Fifteen Biggest Lies about the Economy: And Everything Else the Right Doesn't Want You to Know about Taxes, Jobs, and Corporate America

• Wealth and Democracy: A Political History of the American Rich

• The Spectre at the Feast: Capitalist Crisis and the Politics of Recession

• New Capitalism

• The Confiscation of American Prosperity: From Right-Wing Extremism and Economic Ideology to the Next Great Depression

• Zombie Economics: How Dead Ideas Still Walk among Us

• Business as Usual: The Roots of the Global Financial Meltdown (Possible Futures)

• Wall Street at War: The Secret Struggle for the Global Economy (Pasquale: "particularly valuable as a testament to the ways in which finance capital has undermined productive enterprise")

SJP

Reporting Back From the Ohio Securities Conference

Yesterday, I had the privilege of participating in a panel discussion at the 2011 Ohio Securities Conference entitled, "Dodd-Frank: One Year Later."  A complete list of the panelists, along with a link to related material follows:

Barbara Black: How to Improve Retail Investor Protection After the Dodd-Frank Wall Street Reform and Consumer Protection Act

Eric Chaffee: The Dodd-Frank Wall Street Reform and Consumer Protection Act: A Failed Vision for Increasing Consumer Protection and Heightening Corporate Responsibility in International Financial Transactions

Stefan Padfield: The Dodd-Frank Corporation: More than a Nexus of Contracts

Geoffrey Rapp (moderator): Legislative Proposals to Address the Negative Consequences of the Dodd-Frank Whistleblower Provisions: Written Testimony Submitted to the U.S. House Committee on Financial Services

SJP

Coal is Here to Stay. Really.

In case there was any doubt, coal is not going anywhere as an energy source for the foreseeable future. Today it was reported that Peabody Energy, the American coal company, is inching closer to acquiring Australia's Macarthur Coal with a $4.9 billion takeover offer (the Peabody offer is backed by Macarthur's largest shareholder).

For all the discussion of banning coal-fired plants and endless restrictions to new coal plants, those who own the resources continue to have a market. And as restrictions rise in the United States, the market internationally for coal simply expands. I admit, I prefer other fuel sources in most instances, but the reality is that coal provides relatively cheap and abundant power.  "Clean coal," at least to date, is aspirational, not reality.  But cleaner coal is a reality, and we can be doing more with it.  

According to the Energy Information Administration, "coal-fired plants contributed 43.3 percent of the power generated in the United States. Natural gas-fired plants contributed 23.4 percent, and nuclear plants contributed 18.8 percent."  Nearly half of our power comes from coal, and in many areas, a cost-effective and efficient fuel switch is not readily available.  We have already learned that over reliance on natural gas can be a disaster, as that fuel's price volatility is legendary.  

At some point, we need to start getting rid of the oldest coal plants offline.  There shouldn't be much argument about that. (Of course, sometimes there is.) Part of that plan should be to replace the worst old plants with far better new ones. New coal-fired plants aren't clean, but they are without question cleaner.  

If we're going to burn coal, we should be burning it as cleanly and efficiently as is possible. And as of today, I've got $4.9 billion more reasons why I'm sure we're going to burn it.  

--JPF

Defining the Rights and Responsibilities of Corporations

The Supreme Court has agreed to hear the appeal of KIOBEL V. ROYAL DUTCH PETROLEUM, 621 F.3d 111 (2d Cir. 2010).  One of the questions presented is as follows:

Whether corporations are immune from tort liability for violations of the law of nations such as torture, extrajudicial executions or genocide, as the court of appeals decisions provides, or if corporations may be sued in the same manner as any other private party defendant under the ATS for such egregious violations, as the Eleventh Circuit has explicitly held.

Over at the Huffington Post, Mike Saks opines:

[I]t would ... be quite odd for the Court, which found in Citizens United that the Framers intended the First Amendment to apply to corporate persons, to reject the concept when it comes to corporate liability for crimes against humanity under a Founding-era statute.

SJP