ProfessorBainbridge.com

Regulating bankers' pay

Marc Hodak has a great post on the inherent flaws in proposed government plans to regulate bank executive compensation.

Is the government pumping up another housing bubble?

Peter J. Wallison and Edward J. Pinto argue that the answer is "yes":

It is hard to believe, but it looks like the government will soon use the taxpayers’ checkbook again to create a vast market for mortgages with low or no down payments and for overstretched borrowers with blemished credit. As in the period leading to the 2008 financial crisis, these loans will again contribute to a housing bubble, which will feed on government funding and grow to enormous size. When it collapses, housing prices will drop and a financial crisis will ensue. And, once again, the taxpayers will have to bear the costs.

Go read the whole thing. And start worrying.

All-time greatest law firm holiday card

Law firm holiday cards usually suck. This year, however, Manatt's online card is pretty funny. But the best part is the disclaimer at the end, which I'll put below the fold to avoid spoiling the card for those who want to see the whole thing.

A Very Happy Festivus

Kindle and me in 2010

As part of my continuing series of year end round up posts, I recently looked at my Amazon purchases in the past year. One interesting fact that emerged was the dramatic increase in the number of ebooks I bought for Kindle compared to hard copies in 2010. The ratio was about 7 to 1 in favor of Kindle. Here's a few of my favorites of 2010:

What kind of idiot thinks having less competition among auditors is a good idea?

The kind that writes about finance for Rolling Stone:

New York State Attorney General Andrew Cuomo is about to file civil fraud charges against E&Y for the work it did helping Lehman cook its books during 2007 and 2008. The short version of what happened goes something like this. Lehman Brothers, like all the other big banks on Wall Street in those years, was nearing insolvency and desperate for cash. In advance of its quarterly reports in 2007, the firm executed a series of something called Repo 105 transactions in an attempt to make their balance sheet look healthier than it was. ...

My guess is that this suit is the beginning of the end for Ernst and Young and, who knows, may be the beginning of a series of investigations that ultimately take down the auditors and ratings agencies that made the financial crisis possible.

Set aside the huge question of what would replace auditors and rating agencies. There is relatively little risk that EY will in fact be forced out of business by this suit. The slight chance that it will happen, however, is extremely worrisome. As Larry Cunningham explains:

Today, only four auditing firms have the resources and expertise to audit the vast majority of thousands of large public corporations. If one of those dissolved, its clients would have to scramble to find a replacement. Some of the remaining three lack requisite expertise for some of those corporations and others would be disqualified from auditing due to consulting work they do for them.

The result would be hundreds, possibly thousands, of large corporations who could not get their financial statements audited as required by US federal securities law. Stock markets could go berserk, along with other financial markets. The costs now, of moving from four firms to three, would dwarf those incurred when Andersen’s dissolution moved the total from five to four.

Celebrate that.

Rolling Stone ought to stick to whatever fluff it does these days. Finance is clearly beyond it.

Census Finds fastest Growth in States w/ No Income Tax

Correlation or causation?

The "Done Something" Congress

The Democrats are celebrating the accomplishments of the current lame duck sessiopn of Congress. It's a sad commentary on American politics that major policy changes are most easily made post-election by relying on the unaccountable votes of a bunch of retired and fired legislators. It certainly makes a mockery of the idea that elections are a mechanism of accountability. It's time to revisit the 20th Amendment to slash the time between the election and the start of a new Congress and more generally ban lame duck sessions.

Trigger happy cop kills golden

Atlanta Journal-Constitution:

A Clayton County police officer was on foot patrol on North Shore Drive when the dog jumped off a porch and started barking and running toward the officer, Capt. Tina Daniel said. The officer ordered the dog to stop and when it didn't, the officer shot and killed the animal in its yard, Daniel said.

You'd assume it was a vicious breed foaming at the mouth right? Wrong. It was a golden retriever. What kind of pig idiot cop thinks he needs to shoot to kill a golden retriever? We can only hope it is true that karma is a real bitch.

Defending Carney's Crusade Against Insider Trading

Somebody named Gary Anderson is attacking CNBC reporter/blogger John Carney for daring to doubt the wisdom of insider trading laws and thus somehow being a shill for Goldman Sachs (or something):

I have an opinion about CNBC. I believe this network comes to the aid of Goldman Sachs, other major Wall Street firms, and the insider trading syndicate. I believe that this company has an interest in luring retail investors into the investment trap that is the stock market. This is purely my opinion, but there are some tell tale signs that my opinion may be true. No one is accusing CNBC of taking money from Goldman Sachs. No one is accusing Jim Cramer, or CNBC editor John Carney (formerly of Clusterstock), or Erin Burnett of taking money from the TBTF banksters or anyone else directly.

But clearly pumping stocks while Wall Street firms are accused of churning the price of stocks through manipulation and/or insider trading is a lucrative business. ...

What's his evidence against Carney? That Carney has an opinion that the federal insider trading laws are bad public policy:

The John Carney assault on insider trading laws has stepped up just prior to and during the expert network investigations that may point to Steve Cohen, a favorite of Goldman Sachs, JP Morgan and other investment banks. I have appreciated Carney's astute observation about Basel 3 in the past, and John even quoted me once, but I noticed recently that he is speaking at hedge funds. We saw how ineffective that sort of behavior made Larry Summers, who did nothing for mainstreet as Obama's financial guru. And John considers Michael Milken a great American and Enron as being unfairly prosecuted. Sheesh!

Carney's a big boy and can--and already has--spoken up in his own defense. In particular, John points out that:

... although I do take a position against a ban on insider trading, this has nothing at all to do with my employment at CNBC. In the first place, as far as I can tell, I'm the only person at CNBC to take this view. (If there are others, I invite you to speak up!) For all I know, the brass at CNBC is slightly embarrassed by my radicalism on this issue.

More importantly, this reflects a view I've held since long before I joined CNBC. In October of 2009, I shot down every single argument I'd ever heard supporting the insider trading ban. My official Business Insider biography, which I believe I wrote back in October of 2008, explained that I believe insider trading should be legal. Way back in April of 2007, I was arguing at DealBreaker that the primary reason insider trading is illegal is too boost investor confidence because the government, corporate America and the large brokerages want ordinary investors to feel confident they are playing on something of a level playing field with those with potentially better access to information.

So we can take as established that John is being intellectually honest in holding an opinion independent of whether or not his current employer benefits thereby.

Next, is the opinion so outlandish that only someone who is a shill for Wall Street could hold it? No. In fact, the case against the federal insider trading prohibition has a long and distinguished academic pedigree. The leading spokesman for the view that John holds is Henry Manne, a long-time law professor and retired dean of the George Mason law school. Henry wrote so much on why the insider trading prohibition is a bad idea that the Liberty Fund collected his works into a volume that was edited by yours truly.

As I explained in my introduction to that volume:

Henry Manne’s 1966 book INSIDER TRADING AND THE STOCK MARKET therefore ranks among the truly seminal events in the economic analysis of law. One exaggerates only slightly to say that Manne stunned the corporate law academy by daring to propose the deregulation of insider trading. As we will see, the response by all too many traditionalist scholars was immediate and vitriolic.

Indeed, if Anderson wants to brush up on his vitriol, he should check out some of Manne's critics.

While Manne's critics are many, so too are his followers. Together, they demolished the series of incredibly bogus policy justifications offered over the years for the insider trading prohibition. John's case against insider trading stands squarely in that intellectual tradition.

As those who know my own work in the field can attest, while I vastly admire Henry Manne, I am only halfway in Henry's camp on insider trading. I agree with Henry (and thus with John) that the traditional arguments against insider trading--that it is unfair, harms investors, shakes confidence in the markets, is immoral, unhealthy, and fattening--are all bogus. I disagree with Henry, however, about the affirmative case for deregulating insider trading. More important, I have what I think is a trump card on the pro-regulation side. Indeed, John has kindly referred to that card elsewhere:

The only sensible argument I've found by someone claiming that insider trading has a victim is made by Stephen Bainbridge, who says that some insider trading is theft of intellectual property of a company. What's more, difficulties that companies would have privately enforcing intellectual property rights in financial trading markets justifies federal enforcement, Bainbridge argues.

I elaborate on that theory on my book Securities Law: Insider Trading in Foundation Press' Turning Point Series.

So let's sum up. John has a long record of holding the view that the traditional arguments against insider trading are bogus. His views are well within the scope of mainstream academic discourse on the subject. He acknowledges that there is at least one good argument for prohibiting insider trading, which is the intellectually honest thing to do, while believing that that argument would lead to a prohibition that looks different than the current one (a point on which he's basically right). How that makes him a shill luring retail investors to their doom is beyond me. Instead, it makes him one of the handful of people willing to think logically about the subject instead of coming to it with knee jerk emotive reactions.

Amazon and me in 2010

It's time to start doing some year end wrap up posts. I started today by looking at my order history at Amazon.com for 2010 to see if there were any books I bought in the last year that I particularly enjoyed and thus would recommend to my loyal readers.

But the very first thing that struck me was the sheer number of purchases I made via Amazon last year: 116. Yes, that's right. I placed 116 orders at Amazon last year. It's an embarrassing number. It's a shopaholic number! Granted, I buy almost everything except groceries through Amazon these days. Books, DVDs, clothes, electronics, software, gourmet food, wine glasses, coffee, kitchen equipment, dog toys, and so on ad infinitum. Granted, I can't remember the last time I was inside a shopping mall. But even so. Every three days?

Anyway, perusing the list here's a few items that caught my eye as things I particularly enjoyed this year:

Reg FD and Insider Trading

Larry Ribstein's got a nice analysis of why "recent insider arrests cracking down on expert services are rooted in the SEC’s misguided Regulation FD."

Jay Brown on Executive Compensation

Jay thinks executive compensation is a problem in search of a solution.

I think it's a lousy set of solutions in search of a problem.

Reforming Criminal Law

Walter Olson:

Because being tough on crime doesn’t have to mean endorsing the unbounded growth of the prison-industrial complex and the endless criminalization of formerly lawful behavior. Endorsers include such prominent figures as former Attorney General Edwin Meese, Grover Norquist, Ward Connerly, John DiIulio, and Viet Dinh. [RightOnCrime.com]

Their statement of principles strikes me as pretty sensible.

Is the Roberts Court Pro-Business?

Ted Frank busts the myth.