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Daily Show's Dodd-Frank One Year Update

http://www.thecorporatecounsel.net/Blog/2011/07/canadas-continuous-disclosure-review-program.html

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HT: Broc

Does the SEC need to do more cost-benefit analysis of Dodd-Frank rule making?

JW Verret has a nice write up of the question.

The debt limit fight is really a debate about whether the majority "can vote itself largess out of the public treasury"

Tom Smith argues (I think correctly) that the fight in DC over the debt limit cannot be modeled, as some have, as a chicken game. Tom concludes:

The debt limit is the limited government vs. European style social welfare state debate and is really something for the people to decide in 2012, which is almost here already conveniently enough.  That's really the constitutional moment (thanks Bruce!) to decide whether we keep the party going until we hit the iceberg, or change course towards the sunny waters of liberty.

I don't think we can be sanguine about the outcome of that debate. "A democracy cannot exist as a permanent form of government. It can only exist until the majority discovers it can vote itself largess out of the public treasury. After that, the majority always votes for the candidate promising the most benefits with the result the democracy collapses because of the loose fiscal policy ensuing, always to be followed by a dictatorship, then a monarchy." Looks to me like we're past the point at which the majority has figured it out.

Ted Frank on Congress' effort to reverse US v. Skilling

Concise and to the point:

We know overcriminalization and overaggressive DOJ prosecutions are a problem. So, of course, Congress is looking into making the "honest services" criminal statute vague and broad again post-Skilling. [BLT; House Judiciary; HR 2572]

For background on the honest services law, see this post.

Where now on proxy access?

Steven Davidoff analyzes the SEC's options:

The United States Court of Appeals for the District of Columbia Circuit has taken a chainsaw to the Securities and Exchange Commission’s proxy access rule, striking it down in a 21-page opinion. A panel of three judges from the appeals court based its ruling last week on what it perceived to be the S.E.C.’s failure to fully consider the costs and the benefits of this rule. With the S.E.C. wounded and proxy access seemingly on life support, if not dead, the question is what comes next?

The S.E.C. has three options:

1. Appeal the D.C. Circuit opinion to the full federal appeals court.

2. Rewrite the rule and address the deficiencies cited by the D.C. Circuit.

3. Do nothing and let the proxy rule die.

.... The S.E.C. has invested years in proxy access, so if it does not appeal I also suspect the commission will not let the rule die. Instead, I believe the S.E.C. will rewrite this rule with more analysis along the lines advocated by the D.C. Circuit Court. But any rule-making process will take another six months to a year as the S.E.C. again deals with the controversial nature of these rules. Proxy access will at best not be proposed again until 2012 and likely not be effective until 2013. And there will be another court challenge, meaning a likely delay even beyond that.

Which means the outcome of proxy access may depend on the outcome of the 2012 election. As Davidoff correctly points out, a GOP-dominated SEC is unlikely to move forward with proxy access.

Did the GSEs cause the subprime mortgage crisis?

The argument over the role Fannie Mae and Freddie Mac played in the subprime mortgage crisis continues to rage unabated. In a recent contribution to the literature, Patric H. Hendershott and Kevin Villani argue that:

The responsibility for the massive failures of the government-sponsored enterprises (GSEs) Fannie Mae and Freddie Mac, at the center of American housing finance and the private securitization system that supports housing finance, falls directly on regulators and indirectly on their political overseers. Private and GSE prudential regulators were given politically determined social lending goals that ultimately trumped prudential regulation, forcing the GSEs to fund subprime lending in competition with private label securitizers. The result was the extension of lower and lower quality loans, creating a race-to-the-bottom between the GSEs and private mortgage providers, all while regulators and politicians looked on approvingly. The financial crisis resulted when many of those loans turned sour in the latter part of the last decade.

We find no evidence that the United States housing market has unique characteristics requiring a hybrid GSE system, thus we conclude that the system and the political risks it is subject to are unnecessary. Any U.S. housing finance policy that does not safeguard prudential regulation from political influence by separating housing subsidy from finance and eliminating government- induced distortions will result in another systemic failure. To re-privatize the GSEs while maintaining their political goals, or to create new, specially chartered enterprises that pursue those goals, would exacerbate systemic risk.

It is vastly frustrating that so little has been done to fundamentally improve the regulation of the housing sector these many years later.

Biter Bit: George Soros closes hedge fund to outsiders

Liek a lot of wealthy liberals, George Soros is a big fan of government regulations that don't affect him. Unfortunately, despite being one of liberalism and the Democratic Party's major financial backers, the Democrat-sponsored Dodd-Frank law has bitten Soros in a big way. Fortunately for Soros, the law does have a loophole that lets him stay oin business for himself and avoid regulation, as the WSJ explains:

George Soros is turning his legendary hedge-fund firm into a $24.5 billion "family office," a move that allows it to avoid a new level of regulatory oversight facing many hedge funds. ... Soros Fund Management LLC, told clients it will no longer manage outside investors' money. It will return less than $1 billion to investors and manage the remaining approximately $24.5 billion—including funds owned by Mr. Soros, his family and their foundations—through a family office.

A letter to his investors dated Tuesday said the switch takes advantage of "an exception" in the Dodd-Frank financial legislation. Family offices, regardless of their size, won't face the same regulations being imposed on hedge funds and private-equity firms. ...

The pending hedge-fund regulation was born out of the financial crisis and aims partly to help regulators keep tabs on risks to markets that could be mounting based on hedge-fund trading. ... The new rules require many hedge funds to register with the Securities and Exchange Commission by March 2012. SEC-registered managers are expected to have compliance programs that meet certain standards and to participate in proposed systemic-risk reporting, which would require them to turn over more data about their strategies and trading exposures to the U.S. government on a confidential basis.

One particular concern of managers, besides the time and money spent on compliance, is that once the funds become registered they will be subject to more onerous reporting requirements, including public disclosures about their operations, personnel and the amount of assets they manage.

You'd think that as a good liberal, Soros would be happy to comply with new regulations. After all, his fellow lefties claim that "Soros believes that the public interest should always prevail over his own self-interest, a position that sets him far apart from contemporary neo-liberals who hold the common good (such as it exists in their way of thinking) can only be achieved through pursuit of self-interest and personal gain." If so, however. shouldn't the public interest in disclosure trump Soros' personal self-interest?

Indeed, isn't avoiding regulatory burdens and costs something only conservatives do?  Or is it a case of do as I say, not as I do?

Can't the House GOP count?

According to Think Progress:

House Speaker John Boehner (R-OH) said today that some members of his own caucus who are refusing to agree to a compromise debt ceiling deal are hoping to unleash “chaos” and thus force the White House and Senate Democrats to make bigger concessions than they’re already offering. As many as 40 House Republicans, especially Tea Party members and freshmen, have demanded nothing short of changing the Constitution to include a balanced budget amendment before they would vote to raise debt ceiling, even though that has zero chance before the U.S. faces potential default on Aug. 2.

Last time I checked, it took a 2/3 vote of both houses of Congress to send an amendment to the states. Just how bad would things have to get for the BBA to get 67 votes in the Senate? It boggles the mind.

Time for GOP to declare victory and move on

I'm basically in agreement with William Jacobson's take on the debt limit's politics:

Simply put, anything which increases Obama’s chances of reelection will more than offset any additional cuts to be gained beyond the Boehner plan.  That plan is far from perfect, and doesn’t go far enough, but think how far we have come in just a few months since Obama proposed a budget which was so outrageous in its spending and deficits that not a single member of the Senate from either party voted for it.

Our Obama problem far exceeds our spending problem.  The Boehner Plan keeps that Obama problem front and center for the next year, when Obama would rather be talking fluff and hope and change and playing class warfare.

Bill Kristol calls it a “time for choosing.”  Others say not good enough is not good enough, and if not now when.

All I ask of you and myself is that as Boehner reworks his plan in light of CBO scoring, keep in mind the end game.  We simply cannot afford 4 more years.

And with the WSJ's analysis of the problem:

Senator Jim DeMint put out a statement raking the Speaker for seeking "a better political debt deal, instead of a debt solution" (emphasis, needless to say, his). The usually sensible Club for Growth and Heritage Action, the political arm of the Heritage Foundation, are scoring a vote for the Boehner plan as negative on similar grounds.

But what none of these critics have is an alternative strategy for achieving anything nearly as fiscally or politically beneficial as Mr. Boehner's plan. The idea seems to be that if the House GOP refuses to raise the debt ceiling, a default crisis or gradual government shutdown will ensue, and the public will turn en masse against . . . Barack Obama. The Republican House that failed to raise the debt ceiling would somehow escape all blame. Then Democrats would have no choice but to pass a balanced-budget amendment and reform entitlements, and the tea-party Hobbits could return to Middle Earth having defeated Mordor.

This is the kind of crack political thinking that turned Sharron Angle and Christine O'Donnell into GOP Senate nominees.

The basic trouble, as I see it, is that Obama and the Democrats don't really want to contrain spending--Harry Reid's "plan," which no one's seen-- is supposedly full of tricks like counting the money saved from winding down the Iraq and Afghanistan wars, which is not a "cut" in any meaningful sense AND that the House GOP is full of ideologues who hold asinine beliefs like that they can really get a balanced budget to the states through this Congress. And don't dare call the House GOP conservatives. ideologues are the antithesis of conservatives, as Russell Kirk long ago pointed out;

Conservatism, I repeat, is not an ideology. It does not breed fanatics. It does not try to excite the enthusiasm of a secular religion. If you want men who will sacrifice their past and present and future to a set of abstract ideas, you must go to Communism, or Fascism, or Benthamism.

But if you want men who seek, reasonably and prudently, to reconcile the best in the wisdom of our ancestors with the change which is essential to a vigorous civil social existence, then you will do well to turn to conservative principles.

Fanatics. Enthusiasts. Populists. Imprudent men and women. These are not conservatives.

 

Out of print SF coming to eBook format

From the Guardian:

... from Arthur C Clarke to Philip K Dick, Marion Zimmer Bradley to Robert Silverberg, Gollancz is making thousands of classic out-of-print SFF titles available as ebooks. The SF Gateway launches this autumn with more than 1,000 titles by almost 100 authors, with plans to increase this to 3,000 titles by the end of 2012 and 5,000 by 2014. Wow. "Wherever possible, the SF Gateway will offer the complete backlist of the authors included," says Gollancz in its announcement.

A complete list of the authors already signed up – they're negotiating with many more – is here (warning: PDF). Tanith Lee is there, and deservedly so – I wrote here about how I couldn't believe she was out of print. Harry Harrison, James P Blaylock, Theodore Sturgeon, EE "Doc" Smith, my beloved Tim Powers – it's basically the great and the good of science fiction and fantasy, and they're all going to be available at the click of a button (pricing is yet to be revealed, but will be "in line with prevailing market trend, but competitive and value for money", apparently).

Wonderful development, I think.

Is this how a great republic dies?

Not with a bang as the barbarians storm the gates, but with "grumbling and whining" from the most feckless, foolish, craven, and idiotic generation of politicians on both sides of the aisle that the Republic has ever been saddled with?

The distinction between uncertainty and risk: A West Point perspective

Risk and uncertainty, of course, are bedrock principles/problems of business and business law. I just read an interesting paper on the distinction between the two, which fortunately is free at the moment at the Journal of Applied Corporate Finance but soon will be buried behind the Journal's paywall. Here's the abstract:

In this edited transcript of a presentation at the CARE/CEASA conference, a U.S. army officer who teaches economics and finance at West Point discusses the Army's approach to managing uncertainty and risk while reflecting on his own two tours of duty in Iraq. The U.S. military makes a clear distinction between risk and uncertainty. Whereas “risks” are threats to a mission or operation that can be identified, and at least to some degree controlled or mitigated, “uncertainty” applies to unknown or ambiguous hazards that resist any application of probability theory or quantitative methods. The risk mitigation process begins with assessments of the probability and severity of a given risk followed by the development of controls designed to limit that risk. Once the controls are implemented, the process becomes a continuous feedback loop in which the controls are evaluated and, if ineffective, either adjusted or eliminated. The Army has two main ways that it tries to mitigate uncertainty: the “information‐focused” solution and the “action‐focused” solution. The information‐focused solution aims to reduce uncertainty by getting better information, and processing and disseminating it more quickly than the enemy. It also aims to avoid the illusion of precision that can come from too detailed predictions and instead plans for a worst‐case scenario as well as a most‐likely scenario. The action‐focused solution acknowledges that, no matter how good your information, some uncertainty is unavoidable, and the aim of this part of the program is to develop, train, and maintain units that can fight and win in the face of uncertainty. Much of this capability is attributed to training and a mission command framework in which intensive strategic planning (involving “the who, what, when, where and why of an undertaking”) and communication of the plan to field commanders and subordinate leaders is combined with heavy emphasis on the exercise of initiative by those field commanders and leaders.

Do we really need the SEC?

Maybe not if a new paper by, inter alia, Brian Cheffins is correct. In it, he and his coauthors argue that:

This study of initial public offerings (IPOs) carried out on the Berlin and London stock exchanges between 1900 and 1913 casts doubt on the received “law and finance” wisdom that legally mandated investor protection is pivotal to the development of capital markets. IPOs that resulted in official quotations on the London Stock Exchange performed as well as Berlin IPOs despite the Berlin market being more extensively regulated than the laissez faire London market. Moreover, the IPO failure rate on these two stock markets was lower than it was with better regulated US IPOs later in the 20th century.

Citation: Chambers, David, Burhop, Carsten and Cheffins, Brian R., Is Regulation Essential to Stock Market Development? Going Public in London and Berlin, 1900-1913 (July 12, 2011). Available at SSRN: http://ssrn.com/abstract=1884190

Group decision making

Some years ago, I wrote an article entitled Why a Board? Group Decisionmaking in Corporate Governance. Vanderbilt Law Review, Vol. 55, pp. 1-55, 2002. Available at SSRN: http://ssrn.com/abstract=266683. In it, I argued that:

The default statutory model of corporate governance contemplates not a single hierarch but rather a multi-member body that acts collegially. Why? This article reviews evidence that group decisionmaking is often preferable to that of individuals, focusing on evidence that groups are particularly likely to be more effective decisionmakers in settings analogous to those in which boards operate. Most of this evidence comes not from neo-classical economics, but from the behavioral sciences. In particular, cognitive psychology has a long-standing tradition of studying individual versus group decisionmaking. This article contends that behavioral research, taken together with various strands of new institutional economics, sheds considerable light on the role of the board of directors. In addition, the analysis has implications for several sub-regimes within corporate law. Are those sub-regimes well-designed to encourage optimal board behavior? Two such sub-regimes are surveyed here: First, the seemingly formalistic rules governing board decisionmaking processes turn out to make considerable sense in light of the experimental data on group decisionmaking. Second, the adverse consequences of judicial review for effective team functioning turns out to be a partial explanation for the business judgment rule.

Ever since then, I've kept an eye out for interesting new research on group versus individual decision making. The latest to catch my eye is When Do Groups Perform Better than Individuals? A Company Takeover Experiment, which unlike many relevant studies has direct application to corporate governance:

It is still an open question when groups will perform better than individuals in intellectual tasks. We report that in a company takeover experiment, groups placed better bids than individuals and substantially reduced the winner’s curse. This improvement was mostly due to peer pressure over the minority opinion and to group learning. Learning took place from interacting and negotiating consensus with others, not simply from observing their bids. When there was disagreement within a group, what prevailed was not the best proposal but the one of the majority. Groups underperformed with respect to a “truth wins” benchmark although they outperformed individuals deciding in isolation.

Very interesting and very pertinent to those of us who try to figure out how to make boards more effective by improving group decision making processes.

Video of yours truly on the creeping federalization of corporate law