Welcome to the Jurisdynamics Network Orbiter

Inspired by PlanetPlanet's feed reader and aggregator and by Six Apart's Project Comet initiative, the Jurisdynamics Network presents the Jurisdynamics Network Orbiter. The Orbiter aggregates the latest posts from all of the Jurisdynamics Network's weblogs. The posts are presented in reverse chronological order so that visitors can see the freshest discussions of law in the context of societal and technological change. The Orbiter even has its own RSS feed, which you are invited to download by clicking here:  .  We hope that you enjoy the Orbiter and will visit often.


October 14, 1:23 AM   /   MoneyLaw   /   Is SSRN and USN&WR All That Different?

Like many others I make use of SSRN. But then again I also read the USN&WR rankings. Now I think they may be equally meaningful or meaningless. Recently a friend and I coauthored an article and posted it. In a few days we were receiving the top ten for recently submitted articles. It's not that the number of downloads was high. It was that most of the top ten categories were quite narrow. So, we racked up this honor for "Randomized Social Experiments and SE: Primary Taxonomy (Topic)." Actually I do not know if this is one or two categories nor what our paper could possibly have to do with "experiments" however defined. Maybe the word "Malthusian" in the title explains it. After all, the last time I looked one of the top downloads was "Fuck."

And then there was the notice for the same article informing us that we climbed to the top ten in "PT: Tax Policy (Topic) and SE: Primary Taxonomy (Topic)." And another notice for "PPTSR: Other (Topic), PPTSR: Other (Topic) and PT: Tax Policy (Topic)." I am just quoting these notices but it appears that there are four different ones.

Like USN&WR this seem pretty meaningless to me. Yet like USN&WR my fear is that these top ten lists are taken seriously. Are they going to begin appearing in decanal glossies? Will SSRN finally get to the point of creating a category for each professor so we can all be in the top ten in something.

Increasingly SSRN reminds of the letters I get telling me that my son has been "elected" to the Who's Who of High School Students and all I have to do is pay $50 to have his name listed and receive a copy of the book. Oh, and I need to fill out a form about my son because they actually do not know anything about him.

Is SSRN "false applause" similar to USN&WR? Maybe. In the day of cost free downloading I think it is similar. It is as subject to manipulation? Sure it is. The right title will get you a glance and maybe even a download whether the article is read or tossed in recycling after gathering dust for a few weeks. Or just write to everyone cited or thanked to alert them to your new posting and BAM! you've got a bunch of download right there. And then you can tell your Dean or list it on your resume. You are so important!



October 13, 5:48 PM   /   Commercial Law   /   October 11 2008 George Bush G7 Speech

As many of you know, on Saturday, President Bush gave a speech on the financial crisis to the G7. Not surprisingly, this speech avoids any blame for the current financial crisis, instead focusing on the need for countries to present a unified front in terms of response to the crisis. Even the IMF's Managing Director Dominique Strauss-Kahn remarked "[p]reventing a recurrence of these failures will require an international effort, because borders do not confine financial institutions or keep out financial turmoil."



Just yesterday, David Zaring over at the Conglomerate gave a quick overview of some of the country efforts directed at the financial crisis and asked "When will the Globe Get Around to Globalizing This Crisis Anyways?" Monday's early signs have been that the market likes the international efforts on the crisis, even if they might be characterized as less than fully coordinated. On Monday, Germany rolled out a $671 billion bank bailout creating a "financial market stabilization fund." The German plan requires companies to be stable, though an exception exists for "exceptional" cases where the company's survival is important to the financial system.
The devil is always in the details, though. As we have seen in the United States, the efforts of the Department of Treasury and Federal Reserve have been less than static. Although the early morning results today are encouraging, we will have to wait to see how the market views the international efforts as more details of the individual plans become known. Moreover, will the various patches put on the financial system by individual countries and the IMF be enough to restore confidence in the markets?
— JSM



October 13, 5:13 AM   /   BioLaw: Law and the Life Sciences   /   A free hiking guide

Backpacker magazineYes, this is an advertisement for a one-year subscription to Backpacker magazine. But it comes with a nice, free offer: a 48-page .pdf file providing nice information on some of the country's best hiking opportunities.

Happy trails to BioLaw's readers.



October 13, 4:38 AM   /   MoneyLaw   /   Schattenfreude: Endlich ein juristischer Ausdruck

Schattenfreude
Pete TownshendMick Jagger
The gentle serpent

I owe a debt of gratitude to Hubert Humphrey, Pete Townshend, Mick Jagger, Allen Tate, and William Wordsworth. Schattenfreude, an idea that has obsessed Jurisdynamics in image and in word, has finally found an explicitly legal expression. I invite you to read about the legal treatment of Schattenfreude at The Cardinal Lawyer.



October 12, 8:01 PM   /   MoneyLaw   /   What IS a good part-time program?

Over on my own blog, I've talked a bit about the new part-time program rankings that USNWR is proposing and the new part of this year's questionnaire that asks voters to name up to 15 "good" part-time programs (see here). Setting aside the misnomer--most of the students in the part-time programs work about full-and-a-half-time, between their "day jobs" and studying for law schools--I have to wonder what constitutes a "good" part-time program.

Is it the availability of good teachers for the program? A good selection of classes? Mentoring for the part-time students? The ability to provide the students with some semblance of the extracurricular activities that the full-time students experience? How well the graduates perform? Whether enough of the graduates get plum jobs after graduation?

This question is timely for two reasons: because it's the right question for educational reasons and because other USNWR voters are filling out their ballots now. I'd love to hear your thoughts.



October 12, 7:41 PM   /   Agricultural Law   /   Urban Farmer Wins MacArthur "Genius Grant"

Need some good news in these difficult times? 


ABC News tells the amazing story of former professional basketball player Will Allen, CEO of Growing Power, an organization that built a farm in the middle of a Milwaukee residential neighborhood. Their goal: to help feed the community's residents affordably using "urban farming." Their 2 acre farm produces enough food to sustain 2000 people.

Here is the story, as reported by Courtney Chapman, Lisa Stark, and Lee Ferran of ABC News. Watch the video of how its done.
"Well, my goal has always been to feed people healthy, safe, affordable food and make sure that everybody has access to the same food, regardless of your economic situation," Allen told "Good Morning America."

Such vision has earned Allen a $500,000 "genius grant" from the John D. and Catherine T. MacArthur Foundation to continue and expand his efforts.

According to Sophie Brown of Growing Power, a $16 bag filled to the brim with Growing Power's fruits and vegetables, along with those of other local growers, could feed a family of four for a week.

"I wanted to set up a program that was fair farm prices that they're paying for that stuff and can afford it," Allen, the son of a sharecropper, said last week. "They can eat healthy."

The farm uses it's own version of renewable energy. Decaying compost piles in the corners of a greenhouse heat up the structure, turning up the temperature high enough to allow plants to survive during the harsh Wisconsin winter. The farm also features an innovative three-level growing system with a giant fish tank on the ground floor and two levels of plants above. Water is pumped from the giant fish tank to the top level, where the plants then filter out the waste, and return fresh water to the fish below. It's a fish farm and plant farm all in one.

"You can grow just about anything, anywhere you want," Allen said.

On this farm, nothing goes to waste. Old food is used as animal feed or dumped into the compost pile. And Allen has an army of worms working for him. Millions of the red wiggly worms turn the compost into rich fertilizer and soil. "They are eating all the dead stuff and creating fertilizer, it's a living system" said Allen.

While Allen is already more than willing to tell people how to set up similar farms in their own communities, according to his son Jason, the inner city is the focus of Allen's attention.

"He focuses a lot on urban and inner cities," Jason said. "All you see is fast-food places. To have something like this in an inner city is real important."

That space is generally hard to come by in America's inner cities does not phase Allen; he simply plans to build vertical farm skyscrapers.

"I see food growing on rooftops," he said, lost in his vision of the future. "I see food growing on asphalt with compost."



October 12, 7:34 PM   /   Commercial Law   /   Explaining the Financial Crisis to Students

I am teaching Negotiable Instruments this semester and have come to the credit systems section in Ron Mann's Payment Systems book. The first part of this section is a discussion of promissory notes, including risk strategies, LIBOR (discussed by Jason Kilborn recently in his post "Who's LIBOR?") and interest rate swaps. Despite my own questions about the mess, the students will surely expect some discussion and perhaps a few answers. How much is true? How much is speculation? What exactly is a credit crunch? Oh, and not to forget how this will affect their student loans? So, here is my attempt at an overview to a complex problem, without trying to cast blame on any actor in particular.

President Bush observed in his October 10th speech that the "fundamental problem" that began the financial crisis was the housing market decline, which caused banks holding mortgage assets to suffer serious losses. A simple start to things, but this is where things get complicated. The housing crisis itself would be a bad thing for the United States economy. But we have to add to this problem the credit default swaps (CDS), which Congress exempted from regulation in the Commodity Futures Modernization Act of 2000. Financial companies are always seeking to reduce the risk of default on credit instruments. For instance, this is the reason for mortgage life insurance and private mortgage insurance in home loans.

Imagine the owner of a corporate bond (i.e. Goldman Sachs) wants to manage risk without selling the underlying bond. The owner (buyer) purchases a CDS on the corporation by paying a fee to a seller (i.e. AIG) for the right to payoff of a loan in the event that the maker/corporation defaults. Apparently, there are some $62 trillion in CDS contracts outstanding worldwide. Warren Buffett famously described derivatives bought speculatively as "financial weapons of mass destruction." In Berkshire Hathaway's 2002 annual report Buffet commented:

"Unless derivatives contracts are collateralized or guaranteed, their ultimate value also depends on the creditworthiness of the counterparties to them. In the meantime, though, before a contract is settled, the counterparties record profits and losses--often huge in amount--in their current earnings statements without so much as a penny changing hands. The range of derivatives contracts is limited only by the imagination of man (or sometimes, so it seems, madmen)."
Well, it all seems to come down to whether the seller of the CDS has enough collateral to guarantee the CDS contracts. As we know now, the sellers of CDS did not have sufficient assets to back the contracts, leaving banks exposed when the market declines or the maker defaults. In the end, swaps are kind of like insurance, but not quite (or they would have been regulated). But imagine a large hurricane where property owners purchased insurance from insurance companies did not have enough assets to pay claims. The losses then would fall on those property owners who thought they purchased insurance.

Enter AIG, whose London Financial Products unit sold CDS contracts that declined in value. AIG's CDS contracts insure $441 billion worth of securities originally rated AAA, with$57.8 billion in securities backed by subprime loans. The decline in value led to the need for AIG to post additional collateral to its trading partners, which it could not do. Enter the Federal Reserve, who agreed to lend AIG $85 billion initially, followed by an additional $37.8 billion from the Federal Reserve. The Federal Reserve has received warrants for a large equity stake in AIG.

Back to the financial mess. To sum up:
  1. Banks that extend loans did not have enough assets to cover losses arising from default (including from the housing market).

  2. The sellers of the CDS contracts sold to the banks and others also did not have enough assets to cover losses. When the market changed, sellers like AIG could not post enough collateral on these contracts.
  3. After #1 and #2 occurred, the market declined precipitously. As all of this occurred, credit markets froze up as even banks became hesitant to lend even to other banks.

As John D. Rockefeller once said that "[t]hese are days when many are discouraged. . . . , depressions have come and gone. Prosperity has always returned and will again." Not that we are in a depression or will even enter one, but Rockefeller's optimism is good to remember.

— JSM



October 11, 1:53 PM   /   Agricultural Law   /   NY Times Magazine on Food Issues

This Sunday's New York Times Magazine will be devoted to international/U.S. food policy and the "true costs of cheap food: obesity in the U.S., malnutrition in developing countries and environmental degradation everywhere." Almost the entire issue is devoted to this topic, discussing problems and suggesting solutions. It is available online .



October 10, 6:18 PM   /   Commercial Law   /   President Bush Speech on Economy October 10, 2008

This morning President Bush again addressed the country in an effort to shore up confidence in our failing markets. President Bush outlines the steps that the government is taking to turning around the crisis. Bush identified the "fundamental problem" as being the housing market decline, which caused banks holding mortgage assets to suffer serious losses. Without understating the problems that the housing decline has created, I am cautious to place too much emphasis on a simplified version of our economic problems. Even if the root of the financial crisis is in the housing market, it is difficult to clearly cast blame in one direction (see Greed is Good).





— JSM



October 10, 2:12 PM   /   Ratio Juris   /   Baseball Metaphors and Judicial Opinions

A long time ago - so long ago, in fact, that the editing process was conducted entirely via Fed Ex and (gasp) telephone* - I published an article on the use of baseball metaphors in judicial opinions. It is one of 19 hits in the Westlaw JLR database for "Kirby Puckett," one of four for "Kent Hrbek," and the only law review article ever written that mentions Puckett, Hrbek, and Ron Gant. Though I missed out on all the fun that might have ensued had it been more readily available when Chief Justice Roberts was describing his role in umpireal terms, and even the more recent discussions here, I have just now posted it on SSRN for your procrastinating enjoyment.

* It's interesting to me that the telephone seems to have disappeared from the editing process. Not once since I started teaching have I spoken to a law review editor other than the one who made the publication offer. Maybe it's not that surprising, though. I remember some of those conversations from the editor side as being a little intimidating. That might have been partly a product of how my first conversation with an author on the phone unfolded. He (who was kind of big-namish) came across as a little grouchy, and not all that pleased with some of the edits proposed by my predecessor. Somehow or other - I guess I was trying to find a source or something as I fumbled for an explanation of whatever my predecessor had done - I pulled the phone off my desk. From his side perhaps the line just went dead. On my side there was a loud crash and a cascade of papers onto the floor. In retrospect, not that big of a deal. At the time, a little bit mortifying.

[Cross-posted from Prawfsblawg.]



October 10, 1:09 AM   /   Agricultural Law   /   Cattle Branding and Presidential Politics

This story is just made for the Agricultural Law blog. Cowboys and cattle that evoke images of Texas range land and independent ranchers; and maybe even early animal welfare concerns.

It turns out that the term "maverick," the signature image claimed by the Republican candidates McCain and Palin comes from Samuel Augustus Maverick, a Texas Rancher in the 1800s who refused to accept the practice of branding his cattle. His last name became associated with that of an independent-minded person, as as did unbranded cattle, also known as "Maverick's."

A nice little agricultural law connection to an election that has otherwise not been very much about food or agriculture.

But now for the news and the fun video - turns out that the Maverick family don't think much of John McCain, and the constant call out of their name is quite annoying.



October 9, 8:15 PM   /   Commercial Law   /   Top Ten Ways to Make the Financial Crisis More Fun

The market dropped yet again today. At 4:00 p.m. today we were down to 8579. Ouch. The credit markets don't seem to be budging, despite the Federal Reserve's efforts.

Letterman's Top Ten Ways to Make the Financial Crisis More Fun might make you laugh for a moment, though.

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— JSM



October 9, 7:16 PM   /   Commercial Law   /   Greed is good . . . well maybe not always

Greed. I am reminded during this financial crisis of the movie Wall Street and Gordon Gecko's famous scene where he observes that "greed is good."


.

Well, I don't think Michael Douglas was talking about our current financial crisis. And, in that scene, Gordon Gecko also makes a number of other important observations about companies and about the United States economy as a whole. He also accuses company officials of creating a establishment that rewards the "survival of the unfittest" and contrasts that with his philosophy that you must "do it right or get eliminated."

All of this raises the issues of who really is to blame here. That is, who is unfit and should be eliminated. Christine Hurt over at the Conglomerate explained that this is really a hard question to answer, not one that lends itself readily to soundbites and that there may not even be any "bad guys" after all. Or, the villain of my War of Wealth variety simply does not exist. I found this video:



This guy seems to blame all of this mess on the Republicans, particularly President Bush and Senator John McCain.

I, like Christine Hurt, do not think it is that easy to throw a large net over this one and just put folks in jail. Of course, that was until I found out that the AIG executives apparently spent $440,000 to stay at the St. Regis Resort in California after the government lent it money to bail out the company. Although those in attendance did not apparently include the particular executives from the AIG divisions that are in trouble, it seems like a lot of money for any executives to spend during an economic crisis. Reckless, but I am not sure illegal. Perhaps someone will get fired over the resort extravaganza, but jail? Doesn't seem likely. Well, apparently there are indications that some AIG executives might have hid the full extent of the financial problems from its auditors as the losses mounted. Now, we are onto something that might lead to jail time.

— JSM



October 9, 6:19 PM   /   Commercial Law   /   Who's LIBOR?

Photo by AMagill

One small silver lining of this crisis is that lots of terms with which I struggle with commercial law students are now splashed all over the front pages of financial and general news outlets. Perhaps the most important example is LIBOR.

The London Interbank Offered Rate is the interest rate at which a series of 16 banks are willing to lend to each other--overnight or for various longer intervals, like 3 months, and in a variety of currencies, most prominently U.S. Dollars and Euros. Bloomberg today has one of the clearest and most insightful discussions of LIBOR, its history, and the various ways it is being used to gauge the seize-up in the credit markets. Gavin Finch and Ben Sills offer a particularly lucid explanation of why the TED spread is a stark indication of how much banks distrust each other (or at least their ability to repay loans) and how that spread has really increased recently (spiking to levels far above what we saw in the 1987 crash and after the collapse of LTCM in 1998). The scariest passage:

Central bank efforts to tame Libor have had little impact because instead of lending the extra cash, banks are holding it on deposit with the ECB at a loss. [empahasis added] On Oct. 6, banks borrowed 13.6 billion euros from the [European Central Bank] at ... 5.25 percent. At the same time, they deposited 42.6 billion euros overnight at 3.25 percent.

This is just crazy! Can anyone say "irrational pessimism" (or, I guess, "negative/reverse arbitrage")? I hope these banks soon begin listening to Jean-Claude Trichet's exhortation for everyone to "keep their composure" and start acting like market players again.

Anyway, for those of us in the education industry, LIBOR is likely more important to our students than we might have realized. Many private student loans are pegged to 3-month U.S. Dollar LIBOR, and if these loans readjust before that index returns to "normal" levels, our students might face a crushing increase in current or expected student loan interest payments (much like poor Maureen McNally, mentioned in the Bloomberg story, whose LIBOR-pegged mortgage payments have jumped 50%, not to mention Danilo Coronacion, who oversees a $60 million debt with interest pegged to LIBOR).

At least overnight LIBOR rates (both $ and €) fell last night, so let's hope this trend continues and spreads to the longer maturities (especially the all-important 3-month rates).



October 9, 2:00 AM   /   Commercial Law   /   Ben Bernanke Oct. 7 Remarks

Ben Bernanke addressed the National Association of Business Economics about current economic conditions. Not surprisingly, Bernanke commented that the "financial systems in the United States and in much of the rest of the world are under extraordinary stress, particularly the credit and money markets." We can hope that Bernanke is correct that the bold actions of the government will have the effect of restoring confidence in the markets.


— JSM



October 9, 0:38 AM   /   Commercial Law   /   Contracts in Crises: Excuse Doctrine and Retrospective Government Acts

The most comprehensive analysis of the effect of government acts on performance of pre-existing contracts is found in the writings of Professor Richard Speidel. He referred to the problem as “retrospective” government acts, rather than “retroactive” to describe the legal consequences of acts that: “(1) impair certainty and stability by unsettling reasonable expectations and investments; (2) undermine the legitimacy of a justice system through seemingly arbitrary results; and (3) unexpectedly shift a public burden to a specific group who did not cause the underlying problem.” Professor Speidel argued that it is easier to obtain excuse for retrospective government acts where the act makes the contract either unenforceable or would result in direct governmental sanctions on the party performing because presumptions that the law will not change operate to satisfy the foreseeability element of excuse.

To make his point, Professor Speidel used the example of homeowners that have five year fixed price contracts for gas supply at $3 per BTU. After hurricanes disrupt the gas supply in the area, the market price of gas is $6 per BTU. The government, in an effort to bailout the suppliers, deletes the fixed price term out of the consumer contracts in the area. Professor Speidel argued that the occurrence of the hurricane in all likelihood did not make performance excusable due to the fixed price nature of the contracts. The supplier is excused nevertheless due to the government act. Thus, the consumer must pay the higher market price for the gas supply.

Explaining this outcome, Professor Speidel turns to U.C.C. § 2-615 and notes that the foreseeability factor is satisfied in the government act cases under the direct language of the Code, leaving only the impracticability component of the test, unless issues of risk allocation are present. Comment 10, though, explains that “governmental interference cannot excuse unless it truly ‘supervenes’ in such a manner as to be beyond the seller’s assumption of risk.” The Comments to the Restatement further explain:

With the trend toward greater governmental regulation, however, parties are increasingly aware of such risks, and a party may undertake a duty that is not discharged by such supervening governmental actions, as where governmental approval is required for his performance and he assumes the risk that approval will be denied. Such an agreement is usually interpreted as one to pay damages if performance is prevented rather than one to render a performance in violation of law.

Speidel's concern with the use of ordinary contract principles to allocate the risk of retrospective government acts helped shape my recent paper on Impracticability Under the U.C.C. for Wartime Contracts. Although Justice Souter noted in United States v. Winstar Corporation case the humdrum nature of basic procurement contracts, wartime sales contracts in Iraq have turned out to be less than routine due to the hazards created by insurgents. I have argued that the strict application of traditional doctrine must proceed with caution regarding wartime contracts as they arguably exhibit the same differential in bargaining power noted by Professor Speidel. As such, the traditional rules are applicable to wartime contracts as they are to regulatory ones, but one must exercise care in the allocation of risks. Not surprisingly, Professor Speidel’s proposition is consistent with the comments to the Code, directing reference to equitable principles where excuse or no excuse does not lead to a satisfactory result. U.C.C. § 2‑615 cmt. 6 (2001). Although Professor Speidel's work did not answer, nor was it intended by him to answer, the specific issues raised by extreme personal hazards faced by contractors during wartime, his words guided my thought process. Although I did not personally know Richard Speidel, his work has influenced my own. I would guess that there are many who share my perspective on the impact of Dick Speidel's work.

— JSM



October 9, 0:28 AM   /   Commercial Law   /   The War of Wealth

The War of Wealth was Charles T. Dazey's broadway melodrama about a banker whose junior partner's speculation has threatened the very existence of the bank. The hero is released after an explosion from a bank vault where the villain has locked him and the express wagon arrives just in time to stop a run on the bank. All ends happily for the bank and the characters.

The War of Wealth was inspired by the Panic of 1893, which led to the "Long Depression." from 1873-1896. The panic was caused by a number of business failures and shaky financing which set off a series of bank failures. Sound familiar? As the state of the economy worsened, people withdrew their money from banks, causing runs. A credit crunch ensued. More than 15,000 companies and 500 banks failed during the crisis. Unemployment was high. Perhaps like Dazey's War of Wealth, a hero eventually arrives in the form of President McKinley and the Klondike gold rush. The economy plugs on for ten years of fast growth.

As Jason Kilborn reported, Congress approved the recent financial bailout. Yet, stocks were down to about 9605 at 2:30 p.m. today. Thinking about the numbers. The U.S. government has agreed to spend up to $700 billion. Washington Mutual Bank and Wachovia had about $1 trillion in assets together. Of course, we don't know how much of these assets are "troubled." We also don't know how many assets belonging to other banks are troubled and exactly which banks are on the FDIC's watch list. Bauer Financial Inc. gives banks "star" ratings based on information filed with the FDIC, with today's ratings being based on the June 30, 2008 filings. Wachovia Bank received a 3 Star rating for "adequate." Much has changed since mid-summer.

Last week, commenting on the proposed merger of Wachovia and Citigroup Inc., FDIC Chairman Sheila Blair commented:

"[o]n the whole, the commercial banking system in the United States remains well capitalized. This morning's decision was made under extraordinary circumstances with significant consultation among the regulators and Treasury."
Federal Reserve Chair Ben Bernanke was more cautious in his comments about the bailout, saying:
"I applaud the action taken by the Congress. It demonstrates the government's commitment to do what it takes to support and strengthen our economy. The legislation is a critical step toward stabilizing our financial markets and ensuring an uninterrupted flow of credit to households and businesses."
The Fed announced today that it will now pay interest on bank's required and excess reserve balances in an effort to encourage term lending. We'll have to wait and see what else develops as the government tries to stabilize markets.

I have my doubts about whether the bailout package will change things quickly toward greater stability. Like in 1893, there is a lot here to say about confidence in the markets. If today's market is any indicator, we (and banks) may be in for a rough ride. Andrew Gray, the Director of the Office of Public Affairs at the FDIC recently reminded us to "remember, no depositor has ever lost a penny of insured deposits, and never will." Consumers may lose elsewhere, but let's hope that Gray is correct on this small bit of good news. Not quite the hero of the War of Wealth variety, but it might have to do.

— JSM



October 7, 8:27 PM   /   Commercial Law   /   Renewed Interest in "Commercial Paper"!

Photo by friendofdurutti

Finally, the sexy topic of commercial paper has made it onto the front page of the Wall Street Journal! No more hemming and hawing when our students ask for examples of commercial paper--here it is.

Ordinary people no longer use promissory notes as a payment/value device, endorsing notes from payee to payee (as used to be the case in the U.S. and elsewhere). Indeed, I doubt that most ordinary people ever put an endorsement on a check other than the restrictive "for deposit only." The whole notion of commercial paper and negotiation thus seems so artificial to our students, and I've had a hard time convincing myself that teaching the odd intricacies of this system is worth the effort (setting aside the bar examiners' idiotic continuation of testing on this anachronistic material).

Now, the main modern use of the term "commercial paper" has been thrust onto the public stage. Rather than taking short-term loans at the Prime Rate (5.0% or more currently) from a bank, large companies borrow from investors, like money market funds, by issuing promissory notes in exchange for loans, usually payable in 9 months or less, at rates much closer to the Fed's 2.0% target lending rate (thought rates have been elevated, in the 3.0% range, for nearly a month). While the investing market was awash in liquidity, this was a cheaper way to fund operations, leverage results, and have every last penny of a company's capital working at all times. When Reserve Primary Fund " broke the buck" on September 16 by admitting that losses on investments in Lehman Brothers (probably largely in its commerical paper) caused the value of its assets to fall below $1 for every $1 invested in the money market fund, public confidence in the stability and safety of money market funds was rattled, and other money market funds faced something close to a run on the bank as investors yanked money out. The commercial paper market dried up, as the primary investors in the market hoarded cash instead of investing in short-term loans to business, no matter how stable the borrower, because loans of longer than overnight would jeopardize the funds' ability to make funds available to investors who sought withdrawals--besides, who knew which company would be the next to make an ugly announcement about its financial stability and default on its short-term commercial paper loans. Again, in rides the Fed on its white horse, offering to buy commercial paper directly from companies and supply liquidity to this crucial corner of the market. What unprecedented move will we see next from the U.S. Treasury?!

Back to the classroom, though, I wonder if this "commercial paper" (1) actually satisfies the conditions for negotiability in Article 3, (2) actually changes hands more than once, from maker to payee, and (3) whether anyone in the system really cares, as these short-term loans are likely never subject to any payment dispute for which the maker-liability and holder-in-due-course rules would be relevant (they're enforceable payment contracts one way or another, one would think). Anyone have any direct knowledge on any of these points? My bet is that this paper (like the notes associated with home mortgage loans) is generally festooned with caveats and other requirements that violate the "extraneous undertaking" restriction in Article 3, removing the entire affair from the realm of negotiable instruments law. This makes me wonder whether we're really on a fool's errand in continuing to harp on these rules in Payment Systems, Commercial Paper, or whatever else the course might be called elsewhere.

Anyway, the fact that something called commercial paper has grabbed the headlines today makes me feel pretty cool in any event. Thanks, Ben and Hank!



October 6, 8:40 PM   /   Commercial Law   /   Dick Speidel Mob-blog: Robert A. Hillman post

Dick Speidel was no ordinary law professor. He was one of the giants in the field of contract and commercial law for over four decades and a respected, important leader in legal education and law reform. Tributes to this effect have already poured in to the contracts listerve, this blog, and elsewhere and there is no need to repeat the obvious. What set Dick apart, in addition to his professional accomplishments, was his humility, sense of humor, and perhaps most important his generosity. As for the latter, Dick was eager to nurture beginners whether they were members of his faculty or another. I never had the good fortune to be on the same faculty with Dick, but he was always willing to read my drafts, offer suggestions, and generally to offer encouragement. In fact, Dick often sent supportive messages just when I needed them the most. For example, when a not-so-favorable review of one of my books appeared, out of the blue Dick sent a message of support. Dick helped out in other ways. When our planning committee for the Montreal AALS
contracts conference sought a leader to give a keynote address, we didn't hesitate to ask Dick. And he didn't disappoint. His address tracing many of the modern issues of contract law was thoughtful, poignant, and educational.

In short, Dick was a mentor, friend and supporter. And what is most impressive, our large family of contract and commercial law scholars can all say the same thing about Dick.



October 6, 3:53 AM   /   Jurisdynamics   /   Biden versus Palin: The SNL parody

You've seen the real thing. Now watch the parody:



October 5, 7:02 PM   /   Agricultural Law   /   Organic Farmer Wins $1 million Verdict for Pesticide Drift

The Environmental News Service reports that last week a Santa Cruz County, California jury awarded $1 million to Jacob's Farms, organic farming operation whose edible herbs were contaminated by pesticides applied to vegetables on nearby farms. At issue were the pesticides chlorpyrifos, diazinon and dimethoate (organophosphates) applied to the adjoining property. The pesticide drift occurred after evaporation of the liquid application, likely as a result of wind and fog.

According to the news report, the court ruled that the pesticide applications that were made by Western Farm Services and that drifted onto the organic herb fields constituted a trespass and a nuisance depriving the organic farmer the right to use and enjoy the land. The jury also found negligence on the part of Western Farm Services in its application of the pesticides. Western Farm Services said it is likely to appeal the verdict.



October 5, 5:28 AM   /   Jurisdynamics   /   The Biden-Palin debate

Herewith video of the 2008 vice-presidential debate:



October 4, 4:35 PM   /   Agricultural Law   /   Aren't We Forgetting Something (Again)?

A recent article informs us that the government program that "test the levels of pesticides in fruits, vegetables and field crops" will cease. The article encompasses a number of dire impacts on the long term studies of pesticides withing related agencies. This spans over to the Environmental Protection Agency's ability yo establish requisite safe levels of pesticides in food for consumption purposes. Further concern for the environment signals additional alarm in the article.

The decision to cease testing does in fact trigger apprehension on multiple levels. Yet an additional purpose governs this tirade. Specifically, the article fails to include the potential impact on the nation's domestic and foreign agricultural laborers and the potential injuries that could result from the failure to test pesticides. This omission raises red flags for those employed cultivating and harvesting fruits, vegetables and field corps with further emphasis for the children working in agriculture.

New Deal agricultural based exemptions permit child labor in agriculture and thus children pick fruits and vegetables for human consumption. State laws highly protection of child laborers also recognize agricultural exemptions that expedite children working in fields. Where and if available, the very few protections children receive are highly deficient and difficult to reconcile with protective mechanisms afforded other industries. This dilemma follows moreover the severe lack of enforcement that escapes the reaches of law's potential in protecting children in rural fields.

In sum, the omission of the human component of feeding the nation underscores their historical exclusion as valuable participants in the food chain and forces of production. Shrouded in historical amnesia, the plight of children working in fields is once again shielded from public scrutiny. Sadly and ultimately the new pesticide decision portends further harmful consequences and peril for the nation's youngest employees.

Posted on behalf of Guadalupe Luna



October 3, 5:23 PM   /   Commercial Law   /   Hooray!!! Congress To The Rescue At Last!

Photo by DownTown Pictures

Thank goodness, the rescue/bailout bill has passed!!!

Now let's keep our eyes on the overnight and short-term money markets (especially the availability of longer-term "commercial paper") for some signs of relaxation, though this likely will not happen immediately (though see here for some early indications of a possible thaw). And let us not forget the 159,000 people who lost their jobs in September. The financial crisis may be on the wane, but the growing economic crisis remains. Let's hope relief from the former boosts relief to the latter.



October 3, 11:04 AM   /   MoneyLaw   /   Fall guys

October is the cruelest month, especially if you spend foolishly

Hail October, once again, and in 2008 as in 2007, the Mets' pain is MoneyLaw's gain. For the first time in 15 years, Major League Baseball will conduct a postseason blissfully devoid of New York teams. For the first time in 102 years, both Chicago teams are represented. And somewhere between those free-spending states of mind, Florida is home to the sport's most efficient teams.

In the balance of this post, I promise, there lurks a MoneyLaw payoff . . . .Long, long ago, in a post called Marginal MoneyLaw: What law schools can learn from bad baseball teams, I extolled the famed sabermetrician Doug Pappas's Marginal Payroll/Marginal Wins formula as a model for understanding shrewd and spendthrift approaches to academic spending. The extremely abbreviated version of the story is this: Armed with nothing more than each Major League team's salary, the MLB Players Association's minimum salary (currently $390,000 per year), baseball's final regular season standings, and some empirically justifiable assumptions about minimal competence in baseball, you can compute how much in marginal payroll each team paid for each marginal win over the .300 winning percentage that a team of 25 minimum-wage ballplayers (plus three comparable players on the disabled list) would have delivered.

Comparing the marginal payroll/marginal win ratio with a team's final record yields four categories:
  1. Low payroll, winning team: an efficient team that made the most of limited resources.

  2. High payroll, winning team: a wealthy team that bought its way to success.

  3. Low payroll, losing team: a team that didn't spend enough win, or otherwise failed to leverage its modest spending into competitiveness.

  4. High payroll, losing team: lousy, free-spending management. Hardcore baseball fans will enjoy this list of the most bloated and underperforming teams of the past two decades.
The analogy to academic management should be obvious.

I have uploaded a set of spreadsheets calculating marginal payroll per marginal win for all Major League Baseball teams in 2008. The following table expresses MP/MW for all teams in descending order of winning percentage:

TeamPayrollWinning %MP/MW
LAA$119,216,3330.617$2,106,933
CUB$118,595,8330.602$2,197,355
TB$43,820,5980.599$679,764
BOS$133,440,0370.586$2,640,518
PHI$98,269,8810.568$2,012,670
MIL$81,004,1670.556$1,692,854
NYY$209,081,5790.549$4,904,990
NYM$138,293,3780.549$3,152,806
CWS$121,152,6670.546$2,765,913
MIN$62,182,7670.540$1,319,161
HOU$88,930,4150.534$2,056,469
STL$100,624,4500.531$2,398,515
TOR$98,641,9570.531$2,345,507
FLA$21,836,5000.522$303,897
LAD$118,536,0380.519$3,040,001
ARI$66,202,7130.506$1,655,171
CLE$78,970,0670.500$2,100,311
TEX$68,239,5510.488$1,885,512
OAK$47,967,1260.466$1,378,968
KC$58,245,5000.463$1,792,633
DET$138,685,1970.457$5,030,126
CIN$74,277,6950.457$2,494,397
COL$68,655,5000.457$2,273,051
ATL$102,424,0180.444$3,910,428
SF$76,904,5000.444$2,819,850
BAL$67,196,2480.422$2,839,029
PIT$49,365,2830.414$2,089,418
SD$73,677,6170.389$4,358,168
SEA$117,993,9820.377$8,634,999
WAS$54,961,0000.366$4,090,574

I've posted the complete set of tables as a Google spreadsheet, organized in the following fashion:
  1. Sorted by payroll, in descending order
  2. Sorted by winning percentage, in descending order
  3. Sorted by marginal payroll per marginal win, in descending order
  4. Sorted by marginal payroll per marginal win, in ascending order
The 2008 Seattle Mariners, rated the fourth worst combination of high salary and poor performance since 1990, deserve special mention. The woeful (61-101) Mariners' $8,634,999 in marginal payroll per marginal win falls squarely between the combined MP/MW figures for the four playoff teams in each of the two major leagues:

National League: $8,942,880
Los Angeles Dodgers$3,040,001
Chicago Cubs$2,197,355
Philadelphia Phillies$2,012,670
Milwaukee Brewers$1,692,854


American League: $8,193,128
Chicago White Sox$2,765,913
Boston Red Sox$2,640,518
Los Angeles Angels$2,106,933
Tampa Bay Rays$679,764


The Mariners' profligacy sheds light on another aspect of the 2008 baseball season. For the first time since 1993, baseball's postseason involves no teams from New York. The Yankees ($4,904,990) and Mets ($3,152,806) combined to spend $8,057,796 in marginal payroll per marginal win, nearly as much as the Mariners. The two Chicago teams were hardly paragons of efficiency, but both are still playing baseball. And Florida's two teams, the AL-leading Tampa Bay Rays ($679,764) and the Florida Marlins ($303,897, posted a combined 181-142 record while keeping their combined MP/MW figure below $1 million. The Rays kept the Yankees in third place, which in baseball terms (if not horse racing) is out of the money, while the Marlins, for the second consecutive season, eliminated the Mets at Shea Stadium on the final weekend of the regular season.

All of which goes to show that some baseball teams can spend money profligately and still stink, while others can spend frugally and still shine. Perhaps law schools should take note.



October 3, 4:50 AM   /   BioLaw: Law and the Life Sciences   /   Candidates on the ESA: Obama

There are several recent comparisons of the candidates on environmental issues. For example, Michael Gerrard authored a recent ABA Natural Resources & Environment piece on the presidential candidates' stance on environmental issues. The online environmental news magazine Grist has a comparison of their farm & food policies. However, biodiversity & the ESA have received only passing attention, at best. So where do the candidates stand? I highlighted McCain's record last week. Now for Obama.

Compared with McCain, of course, Obama is a newcomer to the federal scene. Even though he served as a member of the Environment and Public Works Committee, few Obama stances relevant to biodiversity conservation or the ESA have been reported. While the League of Conservation Voters gives him a lifetime voting record of 96 out of 100, his response to the LCV question "Do you support maintaining the strong protections of the Endangered Species Act, and do you think the Act is fundamentally sound?" was a simple "yes."

On the major ESA issue that has arisen this general campaign season, Obama's campaign opposes the proposed changes to ESA consultation regulations that could lower the bar for how federal agencies consider whether their actions affect listed species. However, Obama was not among the democratic Senators who authored a letter to Interior Secretary Kempthorne when the proposal was announced. On the other major ESA issue of the year -- the polar bear listing -- Obama did not elaborate his position (as Gov. Palin did ), but appears generally supportive. In response to a question regarding preservation of "wildlife" in the face of climate change, Obama responded: "I support maintaining the strong protections of the Endangered Species Act and think the Act is fundamentally sound."

Most recently, Obama advanced a clean-up plan for the Great Lakes (which, of course, border Illinois and possible swing states) that includes efforts to address invasive species, such as Asian carp.

The Obama website offers virtually no insight into his views on the ESA. Not suprisingly, it focuses heavily on energy issues.

Sierra Club supports Obama on ESA grounds, arguing that he is a better choice for biodiversity than McCain and that Obama will reduce political impediments to ESA listings.

On the whole, Obama's record and comments suggest that the candidate generally supports biodiversity protection and, although it is not a significant issue in his campaign, Obama appears likely to be a proponent of making biodiversity law more effective.



October 2, 10:16 PM   /   Ratio Juris   /   Lawyers and Legal Scholarship

[Cross-posted from Prawfsblawg, where I am guesting this month.]

This [i.e., engaging in the conversation started in this post] wasn't where I'd planned to start, but since I've got some thoughts on the scholarship-practice divide I might as well add my two cents. I spent just over eight years in practice before entering academia, so I have some understanding for the practitioner perspective. My firm maintained subscriptions to many of the top law reviews, which I would browse as time permitted. My reactions ranged from "wow that's really interesting!" to "wow that's complete ivory tower BS!" to "you know, I think I can actually use that!" And use them I did. I distinctly recall, for example, discussing Alan Michaels' "Constitutional Innocence" article in the Harvard Law Review at oral argument before the Minnesota Court of Appeals. Nobody laughed.

So I think there's plenty of scholarship, even work done at relatively high levels of abstraction, that can be put to work in practice. Judge Posner, in his recent book How Judges Think, makes more-or-less the same point. At least twice he bemoans the fact that the lawyers who appear before him focus too much on case law. He writes that "the second-biggest mistake that appellate advocates make, after exaggerating how much the judges know about, or are willing to devote time to learning about, the circumstances behind the appeal, is to think they can win by rubbing the judges' noses in the precedents." (p.220) Instead, he suggests, advocates should focus on establishing "the purpose behind the relevant legal principle and then show how that purpose would be furthered by a decision in favor of the advocate's position." (id.) One needn't accept Posner's normative arguments about judging to accept that there is considerable descriptive truth to what he is saying. And one of the best places to find discussions of the purposes behind legal principles is, you guessed it, law reviews. That was my experience, anyway.

This is not to suggest that legal scholars could not do better. There is a middle ground between doctrinal concreteness and theoretical abstraction (and that draws on both) that we too often fail to occupy, and there is plenty of work that is flawed simply by virtue of its failure to realistically account for the real world. I suppose my position is ultimately that of a (as I believe Al Gore described himself two decades or so ago) "raging moderate." For everything that people do, plenty of it will be bad. (And whether it's bad of course depends in part on what one seeks to use it for.) But it hardly seems appropriate to jump from the conclusion that some legal scholarship is bad to some general, pejorative conclusion about the legal professoriate. It is, I think, likewise misguided to conclude that fault for whatever divide there might be between the world of legal practice and the world of legal scholarship lies entirely on one side. There might be responsibility on both sides, and some (perhaps most) of it might be the consequence of systemic factors well beyond any individual's control. It's a conversation worth having, and like most conversations one in which epithets are not likely to be helpful.



October 2, 7:02 PM   /   Commercial Law   /   The Dow, Credit Markets, and the Real Source of Danger

Photo by Josh Sommers

It feels good when smart people confirm that you're looking in the right place for answers. A propos of my post yesterday, a CNN story this afternoon explains the fall in the Dow today in terms of fears about more woes about tightening credit. The source is revealed!

The following observations are the most salient, and I can't improve upon CNN's clear explanation, so I'll quote it here (with a hat tip to Alexandra Twin, CNNmoney senior writer):

Several measures of bank nervousness hit record levels Wednesday, with banks still wary despite the prospect of the bailout gaining passage.

"What all these measures are telling us is that banks aren't willing to lend to anyone," said [Ron] Kiddoo [chief investment officer at Cozad Asset Management]. "It shows you that the credit crunch is spreading to Main Street."

The 3-month Libor--the rate banks charge each other to borrow for three months--rose to 4.21% from 4.15% Wednesday, a more than 9-month high, according to Bloomberg.

The difference between the 3-month Libor and the Overnight Index Swaps rallied to an all-time high of 2.6%. The Libor-OIS spread measures how much cash is available for lending between banks and is used by banks to determine rates. The bigger the spread, the less cash is available.

The TED spread, which is the difference between 3-month Libor and what the Treasury pays for a 3-month loan, briefly hit an all-time high of 3.61%, before pulling back a bit.

When banks are relatively confident, they charge each other rates that aren't much higher than the U.S. government. When the spread widens, that indicates increased jitters.

Once again, I certainly hope (a) the House Republicans put ideology aside, get on board with their Senate colleagues, and pass the rescue bill, and (b) Treasury's actions pursuant to the new authority quickly dispel the "jitters" that the credit markets are suffering.

By the way, Ted Seto's brilliantly concise explanation of the roots of and solutions for this crisis are a must read (hat tip to Paul Caron). Thank goodness for really smart people like Ted who generously guide the rest of us to an understanding of these complex issues!



October 2, 1:53 PM   /   MoneyLaw   /   Law and Collective Responsibility

Tonight the PSU Law and Philosphy Society will meet to take up the question of collective responsibility for the current financial crisis. I regret I cannot attend the meeting set for 6:00 PM at Webster's Cafe on Allen Street. My role in collective responsibility for kids, dinner and laundry interfere with my freedom to sip coffee and talk about philosophical implications of just about anything.

If I could be there, I'd add to Plato's reflections, those of columnist George Will on the financial crisis appearing yesterday in the Washington Post and elsewhere. Will observes that "[w]e are waist deep in evasions because one cannot talk sense about the cultural roots of the financial crisis without transgressing this cardinal principle of politics: Never shall be heard a discouraging word about the public."

The public, he notes, typically admonishes government to run its budget the way households supposedly do, matching expenses with income. This time, though, the public decided "it would be jolly fun to budget the way the government does, hitching outlays to appetites." This time, it is painfully clear that all of us not-so-secretly delight in deficit spending, both for our household budgets and for our collective big one.

The usual populist riposte to government action, to contrast the virtue of the people with the vice of some unpopular minority, falls flat. The rhetoric that would in the past elevate the wisdom and thrift of Main Street above the greed and excesses of Wall Street belies the new truth that the folks on Main Street have been just as greedy and excessive. They bought real estate on speculation with borrowed money for more than they could afford. They knew exactly what they were doing. Now their only pretense at preserving virtue is the last defense of scoundrels, the devil made us do it.

This time, we are all in it together, the collective and the individual. The proposed legislation snaking through the House of Representatives today marks what may be a new era in our understanding of justice, freedom and the scope of government relative to individuals.

Best wishes Law and Philosophy Society. May the wisdom of the ages be with you.



October 2, 0:03 AM   /   Commercial Law   /   Dick Speidel Mob-blog: Peter Linzer post

The AALS Meeting is in San Diego, where Dick lived in his last years. I believe he lived on or near Coronado Island, and I know he was fond of the famous "Hotel Del," the Hotel del Coronado, which was used in Some Like It Hot, and many other movies as the epitome of a classy hotel. I propose that we all meet at the Del at sunset and have drinks on the terrace and swap happy stories about Dick. It's possible that the AALS will have the sense to have the annual reception at the Del, and if it does, we could maybe combine the two events, but if not, it would be fun to go out to the Del at sixish to pay tribute to Dick in a happy way that I think he would have liked.

- Pete Linzer



October 1, 11:58 PM   /   Commercial Law   /   Dick Speidel Mob-blog: Steve Ware post

When I was relatively new to law teaching, I found Dick to be very generous and helpful to a wide variety of young scholars. And then in the last few years, I had the opportunity to co-author a book with Dick (and two other authors). During the entire book-writing process, I learned from his wisdom and enjoyed his good nature. I will miss him as a teacher, a scholar and a person.

- Steve



October 1, 10:18 PM   /   MoneyLaw   /   Tenure: Use it (on behalf of those who don't have it) or lose it

By way of Erin O'Connor's Critical Mass comes Andrew Ross's very interesting twist on tenure in the most recent issue of Academe, the magazine of the American Association of University Professors:

For those who still see tenure primarily as a form of job security, the larger economic context should be plain. On the landscape of work, there is less and less terra firma. No one, not even in the traditional professions, can any longer expect a fixed pattern of employment in the course of his or her lifetime. The rise in the percentage of contingent workers, both in low-end service sectors and in high-wage occupations, has been steady and shows no sign of leveling off. . . .

[T]enure is a tough sell to a general public for whom job security is more and more a fading memory. The case is even more complicated in the academic public sphere, where, for the contingent majority of permatemps, the privileges that accompany tenure are little more than a mirage in the desert. . . .

The primary reason for the existence of tenure . . . is to guarantee the right to academic freedom, not the right to lifetime employment. In principle, either tenure or academic freedom could subsist on its own, though in practice, job security is usually a precondition of the right to speak one’s mind freely. . . .

The upshot of Ross's essay? Those who value tenure would be well advised to use it to vindicate the welfare of two groups:
  1. Those without it in a profession that, more and more, is treating tenure as the domain of a sinecured, privileged few.

  2. Even more compellingly, workers in trades and professions that know neither job security nor expressive freedom.



October 1, 10:01 PM   /   Commercial Law   /   How Will We Know If a Bailout Has Succeeded?

Photo by coda

I've been looking in the wrong places for indications of improvements in our current financial mess. The Dow is not a good indicator because it only indirectly reflects the real problem: uncertainty as to the value of mortgages and MBS held by banks and other investors, and the effect of that uncertainty on lending markets. What we should be looking for is a sustained improvement at the source--lending markets themselves. When liqudity begins to flow again, beginning with bank-to-bank lending, then prime corporate lending, then small business and consumer lending, hopefully on more realistic and careful terms than before, we'll have a good indicator that we've succeeded (it seems to me).

These markets get much less press than the simple Dow Jones Industrial Average and are generally more difficult to understand, particularly with all the high-flying jargon that bond and money market traders use to express their ultra-cool and sophisticated understanding of finance. John Jansen's bond market blog is a great example of an extremely insightful and helpful source for this info that uses language so opaque as to barely qualify as communication (at least for non-cognoscenti like me). Thanks to a mention from Jonah Gelbach on Prawfsblawg, which led to a comment by Felix Salmon on Portfolio.com, I found Jansen's cut-to-the-quick blog, which despite its difficult language offers the info we really need to gauge a recovery/success.

Contrary to the comforting news on the Dow from Wall Street yesterday, lending markets are still seized up, and things don't appear to be getting much better. We should care that equity traders believe the bailout will succeed, but only because this indirectly suggests that they believe that lending will loosen up, financing for business will return, and the economy will get back on track rather than grinding to a painful halt with repercussions all the way down to Main Street.

Better to go to the source, it seems to me. What do banks (lenders) think? The news on that front yesterday was nothing short of terrifying. The London Interbank Offered Rate (LIBOR) for overnight dollar loans climbed on Tuesday to a record 6.88%. This is the rate that banks charge each other to lend money (overnight)--if a bank has to pay nearly 7% to get a loan, imagine what a corporation, let alone an individual would have to pay to cajole a loan out of these banks! Luckily, the huge spike on Tuesday (the last day of the third quarter) was largely a result of artificial funding constraints caused by the final day of the quarter, and the rate fell over 3% (!) the next day to 3.79%. This is stomach-churning volatility! Money markets that normally hover within half a point of the Federal Funds rate (2.0%) opened at more than triple that figure, between 6.5% and 7% on Tuesday. The lending markets are not as sanguine about the proposed bailout or economic fundamentals as Wall Street traders apparently are.

When the volatility and scary inflated rates in these markets settle down, we'll be able to breathe more easily. The Dow's ups and downs are not a great gauge, it seems, when the real problem is a lack of liquidity (caused in large part by a lack of certainty with respect to mortgage and MBS value). Find the source of the liquid, and see if the faucet has turned on. Only when banks get comfortable lending to each other again can we have any hope of a sustained recovery. What John Q Public needs to understand in evaluating the "bailout" is that its purpose (I believe and hope) is to offer banks certainty with respect to the value of mortgages and MBS, and therefore comfort to turn on the lending faucet. This is a liquidity recovery program--"bailout" is an inaccurate label and, it turns out, very poor choice of wording for political purposes!

I don't know if the Paulson plan will produce this result, but I now feel more comfortable about where to look to find out if it was successful.



October 1, 3:03 PM   /   Ratio Juris   /   San Francisco "Play or Pay" Law Upheld


Yesterday, the U.S. Court of Appeals for the Ninth Circuit upheld a San Francisco ordinance requiring for-profit employers with 20 or more employees to contribute a specified portion of employees' wages for health insurance or pay a fee to the City's "Healthy San Francisco" program. The ordinance, which took effect on January 9, 2008, was challenged by the Golden Gate Restaurant Association on the basis of ERISA preemption.

The trial court granted the restauranteurs' requested injunction, concluding that the law has a "connection with" or "reference to" employee benefits plans, thus meeting the broad "relate[s] to" preemption language in the ERISA statute. The Ninth Circuit had previously stayed the trial court's injunction and yesterday held similarly on the merits. Some restaurants have imposed menu surcharges, reflecting the added cost.

The decision creates a circuit split with the Fourth Circuit's 2007 decision in the "Wal-Mart case," Retail Industry Leaders Ass'n v. Fielder, holding that Maryland's pay or play law, applicable to employers with 10,000 or more Maryland employees spend at least 8% of payroll on employee health benefits or remit the spending shortfall to the State, was preempted because it directly regulated how employers (or at least one major employer) structured their employee health plans.



October 1, 0:24 AM   /   MoneyLaw   /   The Financial Crisis: What Went Wrong?

I have posted my current understanding of what went wrong on my tax blog, http://understandingtax.typepad.com/understanding_tax/ If I've missed something important, please let me know. This is very much a work-in-progress.

It is not too early to be thinking about implications for law schools. Among other things, most readers of this blog are paid by schools that get their operating funds from loans taken out by students. If credit markets really do dry up, times may get lean indeed, in an immediate and personal way. Federally guaranteed loans are likely to continue to be available. Supplemental loans, however, may become harder to get and/or more expensive. Students who need supplemental loans to attend school may be forced to defer their educations until the crisis blows over. Schools whose students are local and can live at home are less likely to be hard hit.

State schools are already feeling the crunch, but should anticipate more severe cutbacks in the next few years. State tax revenues are likely to fall much further before they begin to improve. Schools with large endowments will face an unpleasant dilemma: whether to eat into principal or live on tuition. Remember that prior to the Great Depression, Harvard's and Yale's endowments were equal. Yale sold. Harvard held. Yale never recovered parity.



September 30, 11:35 PM   /   Commercial Law   /   Credit Card Holders Bill of Rights


In the midst of all the bailout activity, the House passed the Credit Cardholders' Bill of Rights Act of 2008 with virtually unanimous support from Democrats and 84 Republican votes. Although passage of the bill in the Senate was always iffy, and is now extremely unlikely, the new Congress is likely to revisit these issues.

The "Bill of Rights" title might lead one to think that the bill incorporated a short list of broad principles. In fact, it addresses a number of specific issues in a particularized and technical way. What follows is a summary of the main provisions:

1. Card issuers would be prohibited from increasing the interest rate on existing balances, unless (a) the rate is tied to a publicly available index that is not under the issuer's control; (b) the increase is the result of (i) the expiration or loss of a promotion rate for a reason that was disclosed in an account agreement; or (ii) the cardholder's failure to make the minimum payment more than 30 days past the due date.

2. Issuers would be required to permit cardholders with existing balances at the time of a rate increase to amortize the existing balance over at least a 5-year period and the percentage of the existing balance that was included in the required minimum payment cannot be more than doubled.

3. Rate increases would require 45 days notice, must be complete and conspicuous, and explain the extent to which they apply to an existing balance.

4. Double cycle billing would be prohibited.

5. Where a cardholder fully pays a balance and only interest accrues during the billing period, the bill would prohibit (a) any fee in connection with the interest-only balance and (b) the issuer from treating a failure to make timely payment as a default. The cardholder would remain responsible for paying the interest.

6. Issuers would be prohibited from furnishing information to a consumer reporting agency until the card is used or activated, except that the issuer may furnish information about any application for a credit card account.

7. Issuers would be required to treat any payment received, or transferred by wire over a web-based or telephone system, by 5PM on the due date as timely. A receipt showing that the payment was mailed not less than 7 days before the due date would also constitute presumptive payment by the due date, unless the issue shows fraud or dishonesty on the part of the cardholder with respect to the mailing date.

8. Where an account has multiple interest rates, the bill would require that the issuer allocate payment among the outstanding balances in the same proportion as each such balance bears to the total outstanding balance. Issuers would be permitted to allocate a higher percentage to higher interest rate balances, but they would be prohibited from engaging in the now common practice of allocating the entire payment to the lowest rate balance.

9. If an account includes a grace period, cardholders taking advantage of promotional offers could not be denied the benefit of the grace period.

10. Issuers would be required to offer cardholders the option to elect not to permit the bank to authorize an over-the-limit charge and thereby avoid fees for going over the limit. Issuers would be permitted to authorize charges going over the limit by a small amount, but they could not charge a fee.

11. Over-the-limit fees could be charged only once during a billing cycle.

12. Additional information would be collected on rates and fees.

13. Issuers would be prohibited from financing up front fees in excess of 25% of the credit authorized on the account.

14. Credit cards could not be issued to anyone under 18 unless emancipated under state law. A signed application indicating that the applicant is 18 would protect the issuer.

The provisions in the bill resemble those proposed by the FED last May, which have generated a record 56,000 comments. Some opponents of the bill, including the White House, contend that regulators are better equipped to deal with these sorts of issues. Proponents contended that controls on the credit card industry require the force of legislation.
The industry, not surprisingly, came out strongly against the bill. A statement from the American Bankers Association argued that the provisions in the bill would limit the banks ability to manage risk and therefore raise prices and restrict the availability of credit to consumers and businesses.

The bill would not address the issue of merchant credit card acceptance fees that are currently being challenged in a nationwide class action. In August, the House Judiciary Committee reported a bill dealing with merchant fees, and the new Congress is likely to take up that issue.



September 30, 8:28 PM   /   Agricultural Law   /   Piggie Wonder and Proposition 2 - Animal Confinement

As reflected in previous posts, the treatment of animals in industrialized production draws a great deal of criticism. As many state animal cruelty statutes exempt farm animals from the protection afforded domestic pets, and as federal animal welfare laws also often exclude farm animals, new laws directed specifically at farm animals are gaining ground.

In California, an initiative known as "Proposition 2" is on the ballot this November. Proposition 2 applies to pregnant sows (except during their last week of pregnancy), calves raised for veal, and egg-laying hens. It prohibits their tethering or confinement to a space that does not allow them to lie down, stand up, fully extend their limbs; and turn around freely. Clearly, it is designed to ban some of the most egregious inventions of the factory farm - gestation crates, veal crates, and battery cages.

Pictures of frightened and distressed animals confined to very small spaces are the most obvious campaign tool for passage of such a measure, and these images are abundantly available.

The folks at Free Range Studios in conjunction with the Humane Society came up with a more upbeat approach with a music video entitled Piggie Wonder's Greatest Hits. It is reported to be the "2008 Farm Music Video of the Year," and it carries its message to vote Yes on Prop 2 with wit and humor.



September 30, 1:34 PM   /   Agricultural Law   /   Setting an ANSI Standard for Sustainable Agriculture

This press release came to me from Tom Redick, via the ABA's listserve for the Agricultural Management Committee. The broader project's page is available at this link.

Apparently, USDA is not happy with the effort and has sought to end it. Leonardo's response can be found here.



September 30, 11:49 AM   /   MoneyLaw   /   Student evaluations, revisited

Student evaluationsIt has been some time since MoneyLaw explored the issue of student evaluations. The Chronicle of Higher Education's On Hiring blog has just published a very brief two-part series. The discussion there, though focused on Rate My Professors, a tool with wider application in undergraduate settings than in law school, has generate some interesting comments. This one takes the prize for (justified?) cynicism:

[Students] want to do as little work as possible, get the highest grades possible, and be entertained the entire time.
And this comment may score the highest rating for insightfulness:
[I]f professors have themselves good evaluations, they attach positive meaning to them, and if they have bad ones, they think that only bad teachers get good evaluations.
Thinking, however briefly, about this issue has led me to contemplate two modest reforms of student evaluations.

First, as an antidote for the widely held and probably well supported belief that student evaluations correlate strongly with the perceived ease of a course, perhaps we can add a single question to our evaluations: "What grade do you expect to receive in this course?" This is a question for all seasons and all reasons; it does not require that the school in question suggest, let alone enforce, some sort of grading curve.

Second, to the extent this is feasible, I would poll students at some interval, perhaps five years beyond graduation, about courses and instructors they knew while they were enrolled. Some teachers who were popular, precisely because they were thought to be easy, may appear in retrospect to have imparted less value. Or their pedagogy was as enduring as it was entertaining. Or their toughness turned out to have benefited the students, and the most honest graduates are willing to confess that they should have given more positive evaluations. Whatever the case, we can ask.

In the interest of full disclosure, I propose all this as a classroom teacher who (1) did try to entertain students (albeit without success), (2) was rightfully perceived as demanding (even though I most often issued grades under a mandatory curve and therefore could not have been more or less lenient than less demanding colleagues), and (3) sincerely believe that my value as a teacher was not fully appreciated till my students had a chance to work on real problems and to serve real clients. After all, my view of student evaluations is influenced by my historically informed expectation of how kindly I myself will be graded.



September 29, 3:35 PM   /   Jurisdynamics   /   Literary Warrant [36]

Cindy Sherman, Untitled Film Still #13, 1978

Cindy Sherman, Untitled Film Still #13, 1978

Read the rest of this post . . .