ProfessorBainbridge.com

The New Breed of Priest

From the LA Times (reg. req'd):

Father Marcos Gonzalez ..., an associate pastor at St. Andrew Church in Pasadena, is hardly a relic from a fading past. At 41, he offers one glimpse of the future as a member of a new breed of younger priests ordained during the 25-year papacy of Pope John Paul II and passionately committed to the pope's orthodox teachings.

As the health of John Paul ? now 84 and the third-longest serving pontiff in history ? continues to falter, men like Gonzalez stand ready to guard and propagate his legacy. They represent a global trend toward Christian orthodoxy, in contrast to a generation of more liberal priests ordained during the 1960s reforms of the Second Vatican Council. ...

In general, ... the "John Paul priests" are less supportive than older colleagues of optional celibacy, women priests, the democratic elections of bishops and greater lay leadership, according to numerous surveys. They show less tolerance for dissent against church teachings. And they are more apt to favor greater use of Latin prayers, special vestments, bells and other traditional touches to restore a sense of sacredness to the liturgy ....

Praise God for raising men like this to the priesthood. Given what one hears about the seminaries out here, of course, I'm surprised they made it through. Even in the seminaries, however, the Times article suggests things are changing for the better:

In 1981, he entered St. John's Seminary in Camarillo right after high school. The experience, he says, was filled with conflict. His class of about four dozen men, mostly conservative, challenged the more liberal faculty. The young seminarians asked for uniforms, more discipline and more group devotions such as the rosary. The students also asked for more of John Paul's teachings in class. "The faculty gave the perception that they were suspicious of this pope and that somehow he was turning back the clock," Gonzalez says. "We were perceived to be in line with the pope, so we were also viewed with suspicion."

Weary of the conflict and hoping to help support his parents financially, Gonzalez left the seminary for four years. In 1991, after a stint with a hospital trade association, he returned to the seminary and found the instruction far more balanced. He was ordained in 1994.

Was the Presbyterian Divestment Anti-Semitic

When the PC(USA)'s General Assembly voted to divest the denomination's funds from corporations doing business with Israel (see my post), many folks in the blogosphere jumped to condemn the action as anti-Semitic (including the big guy). At the time, it struck me that people were being too quick to play the anti- Semitism card. Playing that card whenever Israel comes into criticism is a problem for two reasons. First, it tends to silence legitimate criticism of Israel, which is no more perfect and no more immune from constructive criticism than any other polity. Second, over time, playing the anti-Semitism card every time somebody criticizes Israel tends devalue the moral authority of that card. (Remember the story of the boy who cried wolf?) In an Opinion Journal column, however, Jay Lefkowitz suggests:

A more nuanced standard, and one that properly recognizes that legitimate criticism of Israel is perfectly appropriate, was articulated last year by Natan Sharansky. A member of the Israeli cabinet who for years had been a prisoner of conscience in the Soviet gulag, Mr. Sharansky defined one current expression of anti- Semitism by three features: the application of double standards to Israel, the demonization of Israel and the delegitimization of Israel.

Fair enough. A nuanced standard indeed. Applying it, Lefkowitz goes on to make a persuasive case that the Presbyterian divestment was anti-Semitic:

The recent action by the Presbyterian Church sadly satisfies Mr. Sharansky's test. The church has singled out Israel, alone among all the nations of the world, for divestment. It has demonized Israel's treatment of the Palestinians, and it has delegitimized Israel's right to self- defense.

The church is not calling for divestment of its $7 billion portfolio from China, despite China's denial of the most basic political and religious rights and its particularly harsh treatment of followers of Falun Gong. It is not condemning Russia, even though Russia's policies in Chechnya are by any human-rights standard atrocious. It is not even calling for economic sanctions against Syria or Iran, whose human-rights records for their own people are egregious and whose Jewish citizens are denied the basic civil rights and liberties afforded to all Israelis, including its Arab citizens, some of whom even serve in the Knesset.

Lefkowitz also notes:

In contrast to the action taken by the Presbyterian Church this month, the Roman Catholic Church has recognized that one-sided criticism of Israel can at times be so grotesque that there is no name to describe it other than anti- Semitism. And in a document ironically signed the same week as the Presbyterian General Assembly, the Catholic Church equated anti-Zionism with anti-Semitism.

As regular readers know, I left the Presbyterian Church several years ago and converted to Catholicism. These events are just one more reason I'm glad I changed teams.

Latest Hollinger Decision

In his latest ruling in the ongoing litigation between Hollinger International and its controlling shareholder Lord Conrad Black, Delaware Vice Chancellor Strine concluded that:

The reality is that controlling stockholders have no inalienable right to usurp the authority of boards of directors that they elect.

Readers familiar with my scholarship will recognize a hint of direct or primacy in that quote. In addition, the opinion will be noteworthy for its careful and thoughtful analysis of when the sale of a corporate asset crosses the line to become a sale of "substantially all" of the corporation's assets. (This is important because only the latter sales require shareholder approval; sale of less than all or substantially all assets can be effected solely with director approval.

Who Creates Jobs?

John Kerry's Contract with America's Middle Class claims: "The middle class is the moral and economic backbone of this nation. ... " And, moreover, that it was the middle class that "built America." You know, I;ve worked a fair number of private sector jobs in my lifetime. And not one of those jobs was created by somebody in the middle class. Instead, they were created by small businessmen (yes, including a few trial lawyers!) who became wealthy through their hard work or giant corporations. And those job- creating folks who will bear the burden of John Kerry's tax-and-spend liberalism. His VP John Edwards promises as much: "We're going to roll back -- we're going to roll back the tax cuts for the wealthiest Americans. And we're going to close corporate loopholes." No wonder economists have doubts about Kerry:

The highlight of his economic plan, so far, has been his pledge to repeal the tax cuts given by Congress and President Bush to families making more than $200,000 per year.

Kerry plans to return the savings to middle-class and lower-income families, in the form of further tax cuts and credits, along with a plan to cut health costs.

Wall Street is unhappy about the prospect of this happening, fearing that wealthy people will have less money to invest.

In the short term, Wall Streeters say, it could give the economy a shot in the arm, since lower-income people tend to spend more of their income than upper- income people. But taking money out of the hands of upper-income people could hurt future growth, said Anthony Chan, chief economist at Banc One Investment Advisors. "That group is investing and saving. In the longer term, it would hurt."

And President Bush and some economists believe small-business owners would be hurt by such a measure, because many choose to pay personal-income tax rates.

"There's that group of small business owners, where a lot of the jobs are, for whom hiking taxes will hurt their business," said Robert Brusca, chief economist at Fact & Opinion Economics. "They already face higher heating costs, insurance costs -- at some point, they may decide there are too many costs to run a business and decide it's not worth it any more."

Granted, apparently some economists think the effects will be only marginal, but tell it to the folks at the margin who won't get a job because Kerry's tax increases reduced economic investment and growth.

Perhaps Merits Matter After All

A famous law review article by Janet Cooper Alexander found that that settlements in securities fraud litigation have little to do with the merits of the litigation. Janet Cooper Alexander, Do the Merits Matter? A Study of Settlements in Securities Class Actions, 43 Stan. L. Rev. 497 (1991). Did the enactment of the Private Securities Litigation Reform Act back in 1995 change that result? Boalt law professor Steve Choi has just published a paper with some very interesting empirical findings:

The paper provides evidence on the impact of the Private Securities Litigation Reform Act of 1995 (PSLRA) by examining a sample of initial public offerings from 1990 to 1999 facing a mix of Section 11 and Rule 10b-5 antifraud claims. Others have provided evidence that the PSLRA increased the significance of merit-related factors in determining the incidence and outcomes of securities fraud class actions. The increase in the importance of merit-related factors, however, is consistent with two possible hypotheses. First, the PSLRA may have reduced solely the incidence of nuisance litigation. Second, the PSLRA may have reduced the incidence of both nuisance litigation as well as a subset of the pre-PSLRA meritorious claims where the additional costs imposed by the PSLRA made such claims unprofitable from the perspective of plaintiffs' attorneys. This paper tests between these hypotheses and provides evidence that meritorious claims lacking obvious hard evidence indicia of fraud (an accounting restatement or SEC action) (a) are less likely to be filed post-PSLRA and (b) face a greater likelihood of receiving a dismissal or low-value settlement in the post-PSLRA period. In determining the welfare implications of blocking frivolous suits, policymakers should therefore consider the negative impact of the PSLRA in also discouraging a significant fraction of meritorious litigation.

I like this paper a lot, even though I would quibble with a few points (such as how you measure merit). As a policy matter, moreover, I would argue that it is very difficult to imagine a regulatory scheme that can (a) eliminate strike suits, while (b) leaving meritorious suits unaffected, (c) at a very early stage of the litigation before defendants to strike suits have been put to any significant expense, and (d) do so at a reasonable level of administrability. In other words, we may have to accept the loss of some meritorious suits in order to crack down on strike suits. The unresolved question is whether the social benefits of eliminating strike suits is outweighed by the social costs associated with meritorious litigation going unpursued.

Corporate Racial Identity: More Lunacy from the 9th Circuit

The federal Ninth Circuit Court of Appeals recently held that a corporation can acquire a "racial identity" and therefore have standing to sue in its own name and right under federal civil rights laws on grounds that it was unlawfully discriminated against. This is, of course, just nuts. The Ninth Circuit's approach reifies the corporation, In other words, the court treats the corporation as an entity ? or, more precisely, as a person ? separate from its various constituents. Yet, there is no such thing as a corporate person. The corporation is simply a legal fiction - albeit a very useful one - by which we describe a complex set of contracts having as their nexus a board of directors. (See my article The Board of Directors as Nexus of Contracts for a more detailed account of this argument.) It may be useful to invoke that fiction here, so as to promote administrative convenience by allowing the tntity rather than its individual constituents to sue, but it doesn't change the basic theory. (Compare CE Petit's take with Larry Ribstein's response and Petit's reply.)

CLS Debunked

Brian Leiter has a fascinating post on Critical Legal Studies, which concludes:

What CLS has done is to revive precisely [a] discredited strand of critical theory--the critique of ideas or "consciousness"--in the legal domain. It is not obvious that these critiques are any more plausible or relevant now than they were in 1840.

Ouch.

Hedge Funds; And Why Donaldson = Souter

Republican Presidents have often had cause to be disappointed with their choices for the Supreme Court, who end up being far more liberal than one would have hoped. We see the same thing these days at the SEC. where Bush-nominated and registered Republican Chairman William Donaldson increasingly sides with the Commission's two Democrats against the other two Republicans. The latest 3-2 vote came on the SEC's proposal to regulate hedge funds. Fortunately, good old Fed Chairman Alan Greenspan may have let some of the air out of that trial balloon:

Federal Reserve Chairman Alan Greenspan on Tuesday said a U.S. Securities and Exchange Commission proposal to crack down on hedge funds will not work as hoped and predicted a flood of new funds could lead to large losses. "My problem with the SEC's current initiative is that the initiative cannot accomplish what it seeks to accomplish," said Greenspan in testimony before the Senate Banking Committee. Making clear he disapproves of the proposal backed by SEC Chairman William Donaldson, Greenspan said forcing hedge funds to register with the SEC as proposed would likely do little to prevent fraud. As a result, he said, the SEC could come under pressure to tighten its regulatory grip even more on the $850 billion hedge fund industry, resulting in damage to an industry that he called a vital part of the U.S. financial system. "Hedge fund arbitrageurs are required to move flexibly and expeditiously if they are to succeed. If placed under increasing restrictions, many will leave the industry -- to the significant detriment of our economy," he said. ...

Reiterating earlier comments, Greenspan called hedge funds "major contributors to the flexibility of our financial system" that help the economy absorb shocks. He added that even if the SEC could detect hedge fund abuses through registration data, it would probably be too late. "By the time of detection, hedge funds would have long since moved on to different strategies," he told the committee.

We know Greenspan is right based on our experience with registration of corporate securities. The SEC almost never detects fraud through the registration process. Instead, the registration process creates a paper trail of disclosures against which subsequent events can be measured and upon which suit can be brought if fraud comes to light. As I explained in my treatise Corporation Law and Economics (makes a great gift!):

The large volume of registration statements filed with the SEC and its limited resources have meant that by the time the SEC gets around to prosecuting most violations, the offering is long since over. The SEC therefore usually relies on other civil and criminal sanctions to punish violators. Indeed, the SEC cannot even make a detailed examination of all of the registration statements that are filed with it. A two tier system of review has thus evolved. A full blown SEC review normally is undertaken only with respect to initial public offerings and with respect to filings by financially troubled companies. Other filings typically only receive cursory review.

If you're interested in pursuing this topic, I commend to you the dissenting statements by SEC Commissioners Glassman and Atkins.

SEC: No 9/11 Insider Trading

If you were a criminal mastermind about to devestate the American economy, wouldn't you do a little insider trading on the basis of that information? Short the entire stock market or something? According to the SEC, it didn't happen:

On Sept. 12, 2001, the Securities and Exchange Commission began an investigation to determine whether there was evidence that anyone who had advance knowledge of the terrorist attacks on September 11 sought to profit from that knowledge by trading in United States securities markets. In the course of that review, we did not develop any evidence suggesting that anyone who had advance knowledge of the September 11 attacks traded on the basis of that information.

Presumably Osama figured he'd be okay with just the CIA chasing him, but didn't want to mess with the SEC.

Those Divesting Presbyterians - Part II

Following up on my post on the PCUSA's decision to divest from Israel, over at Point of Law James Copeland writes (correctly, IMHO):

Professor Bainbridge cites to two studies, based on the South Africa boycotts, that show (a) that the divestment campaigns had no financial effect, and (b) that they on average hurt the "socially responsible" portfolios that divested.

Financial theory would suggest as much. Unlike a boycott in a traditional goods market, the sale of a stock or bond in a financial market in sufficient volume to affect its price makes it more attractive to a buyer who doesn't care about the divester's social cause. These buyers will bid the price back up to its equilibrium level, the risk-adjusted net present value of expected free cash flows from the instrument. So whereas a goods boycott can be effective under certain conditions, a stock divestiture never can unless there is insufficient liquidity on the other side, a highly dubious condition in our financial market. The Presbyterian Church may have $7 billion in financial assets, but that's hardly a sufficient sum to control financial market pricing. ...

Instead of playing Pontius Pilate, the Presbyterians would be better off holding their stock and offering those annoying shareholder resolutions that companies today must typically face. Or they could organize actual boycotts of the goods and services produced by Israeli companies. Or, better yet, they could just keep their mouths shut.

Why I am Not a Libertarian

Over at the Conspiracy, Randy Barnett w rites:

Even if, as many Libertarians believe, governments themselves inherently violate rights, it does not follow (as some Libertarians appear to assume) that everything such an unjust institution does is a rights violation. Consider mail delivery. The post office may be an unjust monopoly (and unconstitutional to boot), but the letter carrier who coincidentally is walking up my driveway as I type this) is not violating my rights by delivering my mail. Likewise, even if the government of the United States is an unjust institution, this does not make everything (or anything) done by the U.S. Army a rights violation. ... One of the biggest errors made by Libertarian anarchists is assuming that because an institution is an unjust monopoly (because it confiscates its income by force and puts its competitors out of business by force), this makes everything such institutions do also unjust. The latter proposition simply does not follow from the former.

Do people really believe this crap? The post office is an "unjust monopoly"? [Assuming a requirement of universal service, core postal services probably constitute a public good, at least for most of our history. (See post below.)] The government as a whole is "unjust"? Please. I doubt whether Barnett believes such nonsense, but his post implies that some people do. Unfathomable. Here then we find the essential difference between sensible conservatism and the lunacy of libertarian anarchy. I plan to do more on this over the weekend. Suffice it for now to direct you to an oldie but goodie:

Let me simply quote [Russell] Kirk on this one: "[I]n any tolerable society, order is the first need. Liberty and justice may be established only after order is reasonably secure. But the libertarians give primacy to an abstract Liberty. Conservatives, knowing the 'liberty inheres in some sensible object', are aware that freedom may be found only within the framework of a social order, such as the Constitutional order of these United States. In exalting an absolute and indefinable "liberty" at the expense of order the libertarians imperil the very freedom that they praise."

Their view of the state as the great oppressor, particularly their view of government as the state as the enemy. While conservatives often share the libertarian's concern over bloated and inefficient government, libertarians take this view too far. They often seem to join with Marx in seeking the withering away of the state. Conservatives realize that government is necessary for an ordered liberty. Again Kirk: "Society requires not only that the passions of individuals should be subjected, but that even in the mass and body, as well as in the individual, the inclinations of men should frequently be thwarted, their will controlled, and their passions brought into subjection."

More to follow. But I cannot resist closing with this cheap shot from the pen of Father Richard John Neuhaus: "libertarianism remains in the largest part a thought experiment for college sophomores of all ages."

The Post Office Monopoly

Is the post office really an "u njust monopoly," as some libertarian anarchists apparently believe?

For most of its history, the post office was a tool of an older sort of nation-building. It was never intended to be profitable; its first duty was as national infrastructure. Everyone knows that "universal service"--long a buzzword in postal circles--implies subsidies for rural mail and mail to far-flung places, subsidies that are footed by urbanites whose per-unit mailing costs are typically much lower. Indeed, even in the post-1970 era, the agency has run at a loss two out of every three years. Americans have allowed this and have mostly found it to be unobjectionable.

The Constitution, after all, explicitly authorized Congress to establish a postal system for national purposes--not necessarily commercial ones-- and like national highways, we expect the post office to provide universal service at reasonable cost. The post office lies well within the spirit of the Federalist Papers, which argued for a capable central government with taxation and regulatory powers (though, it should be noted, without explicitly advocating a national postal function). Railroads feature prominently in tales of how the West was won, but the less glamorous post office clearly mattered too. In war, the national mail has been indispensable for keeping up morale among Americans overseas without compromising security. Even free-market advocates who favor privatizing the Postal Service recognize the attraction Americans see in the national mail, and realize how dim are the prospects that United States might implement a private mail system like that of the Netherlands. Clearly, in America, despite our free-market instincts, arguments that a national mail is a public good serving worthy national interests remain popular and strong.

Board demographics

Predictably, the recent regulatory development in corporate law, such as Sarbanes-Oxley (see my article The Creeping Federalization of Corporate Law) and new stock exchange corporate governance listing standards (see my article A Critique of the NYSE's Director Independence Listing Standards) are affecting the demographics of corporate boards of directors. The Transformation of US Corporate Boards: 1997-2003 finds:

During that period boards become smaller and more independent, there are fewer cases of interlocking directorships and a decrease in multiple directorships. We also find changes in director background: an increase in the number of directors with financial background and a decrease in the number of directors with industrial background. ... We find little change in the financial stake of independent directors and in separating CEOs from the chairman position.

Don't assume these changes are an unalloyed good until you've read my articles cited above.

Those Divesting Presbyterians

So the Presbyterian bureaucracy is divesting the denomination's funds from Israel. This is precisely the sort of whacked-out PC lunacy that contributed to my conversion from Presbyterianism to Catholicism. On the other hand, it seems a bit over-the-top to play the anti-semitism card as a couple of bloggers (including the big guy) have done. It ought to be possible to criticize - even severely - Israeli policy without being labelled an anti-semite. Anyway, that's neither here nor there as far as I'm concerned. As a corporate law guy, what interests me is whether divestment campaigns work (in the sense of achieving their proponent's goals). The answer seems to be no.

The Effect Of Socially Activist Investment Policies On The Financial Markets: Evidence From The South African Boycott concludes:

We find that the announcement of legislative/shareholder pressure of voluntary divestment from South Africa had little discernible effect either on the valuation of banks and corporations with South African operations or on the South African financial markets. There is weak evidence that institutional shareholdings increased when corporations divested. In sum, despite the public significance of the boycott and the multitude of divesting companies, financial markets seem to have perceived the boycott to be merely a "sideshow."

The Stock Market Impact of Social Pressure: The South African Divestment Case in fact found:

Using the South African divestment case, this study tests the hypothesis that social pressure affects stock returns. Both short-run (3-, 11-, and 77-day periods) and long-run (13-month periods) tests of stock returns surrounding U.S. corporate announcements of decisions to stay or leave South Africa were performed. Tests of the impact of institutional portfolio managers to divest stocks of U.S. firms staying in South Africa were also performed. Results indicate there was a negative wealth impact of social pressure: stock prices of firms announcing plans to stay in South Africa fared better relative to stock prices of firms announcing plans to leave.

In sum, divestment may make activists feel all warm and fuzzy, but the evidence is that (1) it has no significant effect on the target of the divestment campaign but (2) likely does harm the activists' portfolios. My take? I don't want Presbyterians managing my portfolio.

Update: When the PC(USA)'s General Assembly voted to divest the denomination's funds from corporations doing business with Israel, many folks in the blogosphere jumped to condemn the action as anti-Semitic (including the big guy). At the time, it struck me that people were being too quick to play the anti-Semitism card. Playing that card whenever Israel comes into criticism is a problem for two reasons. First, it tends to silence legitimate criticism of Israel, which is no more perfect and no more immune from constructive criticism than any other polity. Second, over time, playing the anti-Semitism card every time somebody criticizes Israel tends devalue the moral authority of that card. (Remember the story of the boy who cried wolf?)

In an Opinion Journal column, however, Jay Lefkowitz suggests:

A more nuanced standard, and one that properly recognizes that legitimate criticism of Israel is perfectly appropriate, was articulated last year by Natan Sharansky. A member of the Israeli cabinet who for years had been a prisoner of conscience in the Soviet gulag, Mr. Sharansky defined one current expression of anti-Semitism by three features: the application of double standards to Israel, the demonization of Israel and the delegitimization of Israel.

Fair enough. A nuanced standard indeed. Applying it, Lefkowitz goes on to make a persuasive case that the Presbyterian divestment was anti-Semitic:

The recent action by the Presbyterian Church sadly satisfies Mr. Sharansky's test. The church has singled out Israel, alone among all the nations of the world, for divestment. It has demonized Israel's treatment of the Palestinians, and it has delegitimized Israel's right to self-defense.

The church is not calling for divestment of its $7 billion portfolio from China, despite China's denial of the most basic political and religious rights and its particularly harsh treatment of followers of Falun Gong. It is not condemning Russia, even though Russia's policies in Chechnya are by any human-rights standard atrocious. It is not even calling for economic sanctions against Syria or Iran, whose human-rights records for their own people are egregious and whose Jewish citizens are denied the basic civil rights and liberties afforded to all Israelis, including its Arab citizens, some of whom even serve in the Knesset.

Lefkowitz also notes:

In contrast to the action taken by the Presbyterian Church this month, the Roman Catholic Church has recognized that one-sided criticism of Israel can at times be so grotesque that there is no name to describe it other than anti-Semitism. And in a document ironically signed the same week as the Presbyterian General Assembly, the Catholic Church equated anti-Zionism with anti-Semitism.

As regular readers know, I left the Presbyterian Church several years ago and converted to Catholicism. These events are just one more reason I'm glad I changed teams.

Things About Which I Don't Give a Hoot

In no particular order, here is a list of recent news topics and/or people in the news about which I simply don't care one whit:

• What Sandy Berger put in his socks (or was it briefs).
• What Joe Wilson knew and when he knew it.
• How many babies Michael Jackson has in the pipeline.
• How many kids Britney Spears' fiance has had with other women.
• What Moveon.org, the ACLU, the Libertarian Party, Michael Moore, or Donald Trump (among others) think about the state of the world.
• The 16 words.
• The 9/11 Commission.
• "I, Robot" the movie.
• "I, Robot," the book.
• The Tour de France.
• France, in general.
• Doonesbury
• Anti- Bush celebrities.
• Celebrities, in general.
• Celebrities named Hilton, in particular.
• Scott Peterson.

Each and everyone of these topics is hereby banned from this blog for the indefinite future on grounds of being too painfully boring for further discussion.