We write about the revolving door here, and elsewhere, and we're not as worried about it as some. So what to make of Goldman's hiring of Fed bank supervisors? The critical problem here is that one hire may have brought (or obtained) Fed information to his new job at Goldman. Since the bank supervisor relationship is supposed to be pretty confidential - why would a bank let you examine their books if you're going to talk about their positions to their competitors? - this is a big deal. And also because of the ethics rules that generally require you to stay off of matters you worked on in the government.
Here's what happened:
Rohit Bansal, the 29-year-old former New York Fed regulator, was one such hire. At the time he left the Fed, Mr. Bansal was the “central point of contact” for certain banks.
Seizing upon Mr. Bansal’s expertise, Goldman assigned him to the part of the investment bank that advises other financial institutions based in the United States. That assignment presented Mr. Bansal with an ethical quandary: He might have to advise some of the same banks he once regulated.
Before starting at Goldman, Mr. Bansal sought to clarify whether New York Fed policy prevented him from helping those banks, according to a person briefed on the matter. Initially, he presented Goldman with a notice from the New York Fed, which indicated that he might have to steer clear of certain assignments for one client, the midsize bank in New York. (While the person briefed on the matter provided the name of the bank, The Times decided to withhold the name because the bank was not aware of the leak at the time.)
The New York Fed’s guidance was apparently somewhat ambiguous. And Mr. Bansal later assured Goldman colleagues that he could work behind the scenes for that banking client, the person briefed on the matter said, so long as he did not interact with the bank’s employees.
Mr. Bansal’s lawyer, Sean Casey at Kobre & Kim, declined to comment.
And then Goldman found him using some data that had to come from the Fed. Some thoughts:
- Our former supervisor has himself a very fancy lawyer
- When enforcement officials go through the revolving door, there's little reason to believe they have been encouraged to go easy on the industry they plan to join. Why not keep that guy where he is, and hire away the tormentor? Bank supervision, which is more collaborative, could be different.
- But note that what former bureaucrats are selling is, partly, expertise - particularly, the expertise about what current bureaucrats will do. The question is whether there is anything wrong with paying for this sort of expertise.
Which means a redo of the argument. We'll outsource, via Corporate Counsel, to Cooley:
The D.C. Circuit court of Appeals has granted the petitions of the SEC and Amnesty International for panel rehearing (and the motion of Amnesty to file a supplemental brief) in connection with the conflict minerals case,National Association of Manufacturers, Inc. v. SEC. (The Court also ordered that the petitions filed for rehearing en banc be deferred pending disposition of the petitions for panel rehearing.)
[In prior litigation, the D.C. Circuit,] "specifically citing the NAM conflict minerals case, ... indicated that “[t]o the extent that other cases in this circuit may be read as holding to the contrary and limiting Zauderer to cases in which the government points to an interest in correcting deception, we now overrule them.”
Zauderer applies a lenient standard of review to requirements of disclosure of purely factual information. Looks good for the SEC.
5 days ago the WSJ published an opinion piece on Delaware's fee shifting bylaws. I read it with interest, thinking "Maybe I should blog about that." Life intervened. In the meantime, my friend Steve Bainbridge posted not one, but two blogposts--footnoted, no less--on the topic.
I feel dispiritingly inadequate. But I also feel hearteningly efficient: Steve's made my work easier by first describing the fee-shifting bylaw on the merits (first post), and then applying an interest group analysis (second post)
You should read both Steve's posts, but what grabs me is the interest-group question. Steve takes as his starting point Larry Ribstein's riff on Macey & Miller's article, which is a candidate for the single law review article that most changed my view of corporate law. Usually at the end of my Corporations class's discussion of the duty of good faith, I say something like, "Yes, it's fuzzy. Maybe it's supposed to be..." Cue M&M:
Delaware could stimulate litigation by supplying legal rules that are unclear in application. The bar therefore has some interest in reducing the clarity of Delaware law to enhance the amount of litigation. But the bar risks killing the proverbial goose that laid the golden egg because it is primarily the certainty and stability of Delaware law that creates the opportunities for profits in the first place. The bar as a whole does not have an interest in making the law so unclear that corporations begin to move elsewhere in large numbers. The bar should instead favor an equilibrium point of uncertainty at which the marginal increase in bar revenues from litigation fees equals the marginal loss in revenues due to reduced incentives to incorporate in Delaware.
By this point in the semester I've waxed rhapsodic to my class about Delaware law. So I feel some guilt at disillusioning them by suggesting that the indeterminacy that so bedevils them and their outlining efforts may be by design. I can't help it, though. It's too much fun.
I digress. Steve's second post first asserts that:
Both sides of the litigation bar thus have a strong interest in banning fee shifting bylaws. Such bylaws would raise plaintiff costs, deterring lawsuits, reducing fees for all litigators.
To which I say, "Amen, brother." But then Steven suggests that
All corporate lawyers—litigators and transactional—have a strong incentive to oppose fee shifting bylaws. Hence, it was no surprise that the Delaware legislature—dominated in this area by the Delaware bar—leaped to ban such bylaws. The business groups that favor fee shifting bylaws were able to delay that action. But the final decision remains pending.
But that's not quite true, right? Certainly litigators want litigation. But deal lawyers don't want it--at least, not this particular kind of litigation. Indeterminacy over doctrinal areas like good faith is good for transactional types as well as litigators, because it gives them more nuances and risks to have to explain at length to boards as they advise on various types of action. The type of fee-shifting bylaw we're discussing, in contrast, is bad for deal lawyers--at least, if you think, as Steve does, that
There is a serious litigation crisis in American corporate law. As Lisa Rickard recently noted, “where shareholder litigation is reaching epidemic levels. Nowhere is this truer than in mergers and acquisitions. According to research conducted by the U.S. Chamber Institute for Legal Reform, lawsuits were filed in more than 90% of all corporate mergers and acquisitions valued at $100 million since 2010.” There simply is no possibility that fraud or breaches of fiduciary duty are present in 90% of M&A deals. Instead, we are faced with a world in which runaway frivolous litigation is having a major deleterious effect on U.S. capital markets.
If these suits amount to nothing more than a litigation tax on deals, then they discourage deals. And that's bad for deal lawyers.
Steve's posts left me with 2 questions:
- Small bore: Where are Delaware's transactional lawyers?
- Large bore: Will Delaware really be so short-sighted as to kill its corporate franchise goose?
Over at DealBook, I've got a take on MetLife's claim that it will be suing over its designation as a systemically important financial institution. A taste:
Congress gave the government 10 factors to take into account when making a too-big-to-fail designation. This sort of multiple-factor test all but requires regulators to balance values that have different degrees of quantifiability. Some can be counted, like the amount of leverage and off-balance sheet exposure. But others like “the nature, scope, size, scale, concentration, interconnectedness and mix of the activities of the company” have so many moving parts, some of them difficult to quantify, that expressing them mathematically may not be worth the effort. The government has also been given the leeway to consider “any other risk-related factors” that it deems appropriate, a standard that encourages judges to defer to regulators.
Do give it a look!
Ten years ago, on November 16, 2004 (Gordon's birthday), he and I joined forces and started blogging together here at Conglomerate. Most of you know the story, or here's our About page. Earlier that year, I had tried to rally a group blog together, and he was blogging alone. We decided to through our blogging lots in with one another, and the rest is history. I consider blogging with Gordon (and then Vic, Lisa, Fred, Usha, Dave and Erik) to be a privilege, honor and pleasure. I miss the fun days of the early blawgosphere when commercial and commercial-ized blogs were mere rumors, and we read and linked to each other early and often. The issues and concerns that were raised back then seem almost quaint now. The false dichotomy of blogging v. scholarship has been proven, and the spectre of untenured bloggers being fired never quite came to be. Long-form scholarship still has its detractors, but was not displaced by short-form bloggership. The bottom line for me is that blogging continues to be a way for scholars from different disciplines and different geographical areas to engage in real-time discourse and easily make connections, which is even more important in this age of dwindling travel budgets. Finally, it's hard to remember the last ten years of the blawgosphere without recognizing Larry Ribstein and Dan Markel, two pioneers of blogging who are sorely missed. Two people that I met on the internet.
Here is a photo taken in January 2007 with a quorum of Glommers and Friends of the Glom:
Boy, have we been waiting for Big Hero 6, and it was worth the wait. It's not this year's Frozen, but it is a crowd-pleaser.
First of all, the movie is the origin story of a group of superheroes that is never referred to as such in the movie, but is the "Big Hero 6." These characters are Marvel characters, but here they have very little similarity to that series. In the movie, the action is set in a beautiful, technologically advanced city called "San Fransokyo." This of course, is brilliant marketing for a movie with a ready-made global audience. If you pay attention, you will see that great pains have been taken to not pin down whether the city is in America or Japan. Someone talks about making "chicken wings," but doesn't necessarily call them "Buffalo wings," so they could very well be Japanese wings. The result is actually pretty cool, and the city is beautiful. On to the story: Hiro, our uh, hero, is a 13 year-old genius who squanders his abilities on illegal robot fights until his older brother, Tadashi, convinces him to enroll at the San Fransokyo Institute of Technology. This is Disney, so not only are the two presumed orphans (there parents are "gone"), but also a tragedy takes Tadashi's life early in the movie. (Sorry.)
But Tadashi didn't leave Hiro all alone. Tadashi had just perfected a healthcare robot named Baymax, a Stay-Puft marshmallow nurse who inflates from his charging box when he senses that Hiro is hurt. Hiro is at first skeptical, then annoyed, but soon he realizes two things: first, that Tadashi's death was not an accident and second, that Baymax can become a fighting robot to help him avenge Tadashi's death. Tadashi's university friends vow to help Hiro, mostly because they are worried about him, but come to embrace their new warrior-selves.
If Frozen appealed to younger kids, particularly those that adore princesses, castles and magic, Big Hero 6 appeals to older kids who adore science, computers, and superheroes. Though some Disney fans may dream of having an ice castle or a talking snowman, some Disney fans may think that a real dream house is having a lot of supercomputing power, a 3D printer and a fab lab. Hiro has these tools, which enable him to do technology magic. Hiro is a 13 year-old Tony Stark, only smarter.
My only quibble with the super-science depiction is (of course) its depiction of the two female technology students. The ensemble has to be rounded out for both ethnic diversity and gender diversity, but I think the ladies get short shrift. Hiro and Tadashi are super-smart, but fairly "normal" looking and acting. Tadashi is very attractive and looks sort of athletic. Hiro is very cute, with "One Direction" hair, which means it goes rakishly in many directions. The two ladies are named "Go Go" and "Honey Lemon." (We are told these are their lab nicknames.) Go Go is very aggressive and abrupt (a "daredevil adrenaline junkie"), while Honey Lemon ("as sweet as her namesake") wears miniskirts and creates weapons out of pink foam. Really? So female scientists either have to be super masculine or super feminine? Weird.
The movie gets very exciting and has moments that are especially heart-warming. And, it has some pretty funny moments. The comic relief of the movie is Fred, voiced by T.J. Miller, who is the funniest part of Silicon Valley. (Though our family remembers him fondly from one of the worst movies ever, Yogi Bear.) Fred provides great levity to the weighty plot (young boy trying to avenge death of brother with fighting robot). In the last 60 seconds, you realize that this movie is merely the beginning of a Big Hero 6 franchise, but that kind of makes you happy.
And Wharton finishes second, the deal is that it is always supposed to be in the top 3, so that's nice. The rankings are weird - they change methodology each time, which means that they got to put Duke first this year, which is incorrect. Most of the rankings, moreover, are based on student surveys (hmmm), and employer surveys, again, with widely varying samples over time. Social science, this is not.
However, perhaps the oddest single table in the rankings comes from what you'd think would be its most objective metric. BW counted the number of articles written by tenure track faculty in 20 journals, adopted a weird point system for apportioning credit based on length and co-authors (but not totally weird), and must have expressed the final number per capita (it's impossible to imagine that Wharton wouldn't finish first on the list otherwise - the school has 240 TT faculty, way more than anyone else).
Here's the top six, Ohio State is also in the top ten:
1. UC San Diego
4. Wash. U.
5. Texas at Dallas
I'm not really sure what to make of such a diverse array of schools, which don't include Chicago, Stanford, &c, &c. It's only through the survey responses that BW ends up with a ranking that looks somewhat "normal."
PS, if you're wondering what's a good business school journal, BW's list isn't bad. It includes:
the Harvard Business Review, Journal of Marketing, Operations Research, Information Systems Research, Journal of Finance, American Economic Review, Journal of Accounting Research, Journal of Financial Economics, Management Science, Academy of Management Review, Journal of Marketing Research, Strategic Management Journal, Accounting Review, Academy of Management Journal, Production & Operations Management, Journal of Business Ethics, Journal of Consumer Research, Review of Financial Studies, Administrative Science Quarterly, Marketing Science.
One thing I love about living in Utah County is that there are two "dollar" theaters where movies play at the end of their run at movie theaters. Saturday, the two boys and I saw The Book of Life for $3.50, even though it was still playing at full-priced venues. The seven year-old had wanted to see if after seeing the preview, but the almost thirteen year-old was skeptical. However, the movie won us all over.
This animated movie is a little different than normal Disney/Dreamworks fare. The characters are not drawn as beautiful, round Pixar characters. Instead, the characters are shaped like wooden puppets, and move like very graceful, magical jointed dolls. (Although the heroine has big doe eyes, like a Bratz doll, that seem out of place.) The setting is Mexico, and the decor and landscape is multi-colored and bold, like Mexican tile. The plot also revolves around The Day of the Dead and the two afterlife realms: The Land of the Remembered and The Land of the Forgotten. Death and hell aren't normal kiddie fare, but the result is magical and lovely.
The rulers of the two realms (La Muerte and Xibalba) make a wager regarding three childhood friends, Maria, Manolo and Joaquin over which boy will grow up to marry the girl. Though the story gives both boys lovable characteristics and positive qualities, it is clear that Manolo, who is sensitive and thoughtful, is the man for Maria, a forward-thinking woman who is educated in Europe. Joaquin is not the bad guy, though, which makes it hard to root against him. Eventually, Xibalba interferes when it looks like he is going to lose the bet, and Manolo ends up in the Land of the Remembered, an amazing realm pulsing with music, artistry and life. But that is not the end of the story, just the beginning.
The movie doesn't have the laugh out loud humor of a lot of animated movies, and the plot is fairly simple. However, the great soundtrack and beautiful artistry makes it a must-see. And, as much as we love to see fairy tales of Western and Northern Europe, it's good for a change to see a movie celebrating a different part of the globe.
I had to cancel class Monday because of a family emergency. I taught Wednesday, and was ready at the podium at 2:30 on Thursday.
I asked the student a hypothetical: "You hold a secret formula and are the minority shareholder. The majority shareholder wants you to reveal the secret formula to his son. What are you worried about?" The student seemed caught off guard, but after a pause he sensibly answered the question. I followed up with a question about the contract at issue. More of a pause, and classwide mutterings.
It seems I'd assigned the wrong reading for the day. I had 6 pages of well-thought-out notes in front of me, and was gazing out at 75 students who were prepared for a completely different set of cases.
What to do?
My first 2 years teaching, I wouldn't have had a clue. But it's not my first rodeo. I said, "Well, let me tell you a story..., summarized the key points of the case, and let the discussion proceed from there. Not pretty, perhaps, but workable--and actually a nice challenge for a Thursday afternoon. Any similar tips or stories from old hands out in the blogosphere about getting out of a teaching jam?
Otherwise, class dismissed.
Last year my daughter asked me, "You're in Glorytown, aren't you mom?" Startled, I managed an "Uh, I don't know... I guess?" Apparently in the current Athens kindergarten curriculum, arriving at "Glorytown" means having a good job that you love. That mystery cleared up, I managed a more confident, "Oh, yes, then I am in Glorytown."
Last week's WSJ reported on colleges that have begun disclosing return-on-investment figures--detailing by major averages post-graduation salaries. I have mixed feelings. I generally think more data is better. Yet as an English major and the daughter of an English professor, I find all this talk of ROI a tad short-sighted.
I get it, I get it. The liberal arts are so 1990s. Gone are the days when college was a highbrow finishing school reserved for the white, the wealthy, the privileged. I had an excellent student last year disparage his history major as a waste of time. What good did it do him?
Writing clearly and thinking clearly will get you far in the world, I told him. He countered that a history minor would have been enough for that, and maybe he's right. But I can't help but feel like getting to Glorytown has more to do with grit and work ethic than school- or major-specific ROIs.
Example #1: I'm reading Stephen King's memoir-cum-meditation on writing. He's made a heck of a lot of money despite being an English major. I haven't done so shabby myself. Most of my fellow-English majors from Georgetown have done pretty well. One of my best friends from high school played it safe by majoring in accounting, but abandoned that profession because she didn't find it fulfilling. She's a substitute teacher now--making much less money, but much happier.
Example #2: take 4 undergraduates.
- One smart, hardworking and driven, majors in English.
- The second, not as smart, hardworking and driven majors in finance.
- The third, not as as smart, middling driven, just wants to clock in the 4 years in college and get a job, majors in accounting.
- The fourth, brilliant, not hardworking, majors in physics.
Who'll make the most money 15 years after graduation? My money is on number one or two. Hardworking and driven, I suspect, gets you farther than anything else. Don't get me wrong, ROI is a fine metric, and with tuition where it is you'd be crazy not to think about what jobs your college degree will get you. But if you're in a job just for the salary, you probably won't be that successful--and you'll be entering a job market beset by peers attracted by that self-same salary. Obamacare has a better chance of being repealed than the law of supply and demand, my friends.
Eugene Scalia, of the family Scalia, has been the scourge of the SEC with his until recently effective insistence on a cost-benefit analysis to justify the imposition of new major rules on the capital markets. Now he's working for MetLife, the insurance company recently designated as a SIFI (which stands for "dangerously big bank-like institution"), and I guess the argument will be that the designation was arbitrary and capricious, and so inconsistent with the federal standards for administrative procedure, which probably, in Scalia's view, require a quantitative cost-benefit analysis done with meticulous care. Some thoughts:
- Courts often stay out of financial stability inquiries, but, then, they used to defer to the SEC's capital markets expertise, until Eugene Scalia came along. Perhaps Scalia can do something in this really nascent field of disputing SIFI designations. Still, uphill battle.
- If the FSOC somehow lost this case, it could always go global, and ask the Financial Stability Board to designate Met Life as a G-SIFI, which would give foreign regulators the right to persecute the firm's foreign operations, and maybe super-persecute it, if the American regulators could do nothing to control its SIFIness.
- The basic idea, by the way, which is hardly ludicrous, is that insurance companies aren't subject to bank runs, even if they are really big, and that only one of them failed, or was even at risk, during the last financial crisis. Since Met Life isn't in the business of writing unhedged credit default swaps (which is what AIG did, bolstered by its AAA rating and huge balance sheet), why should it have to hold bank-like levels of capital? There's more to that story, but I assume that is part of the story that MetLife will be telling.
HT: Matt Levine
Last week I visited Atlanta Tech Village, which opened last year in Buckhead and is founded and funded by David Cummings, a co-founder of Pardot who sold it for a reported $100 million. Cummings is channeling a significant part of his money into ATV, which is basically a big cool office building for startups. It's got standard Silicon Valley accoutrements: game rooms, snacks galore, 24-hour beer on tap, in-house coffeehouse open 7am-8pm (the signboard outside trumpeted that "extended hours" were coming soon!).
The idea is that it's a space for startups with 1-25 employees. The lower floors have smaller office space and as you move up larger spaces are available. Each floor had co-working space, and each wall was covered with scribblings from dry erase markers. Some looked like protobusiness plans or fancy equations, and others looked like artistic meanderings. They made me feel surrounded by creativity and innovation, and a bit intimidated.
Comapnies have to apply to get in, and have to agree to ATV's 4 values:
- Be Nice.
- Dream Big.
- Pay it Forward.
- Work Hard. Play Hard.
ATV isn't an incubator, because it doesn't take equity in the companies--it's more like a landlord, renting space and propel Atlanta forward as a place for startups and innovation. Because I'm an org-geek, I wondered about its organizational form: it's a for-profit, but according to our guide it's probably not going to pay for itself for decades.
So much for the descriptors. Is it going to work? I don't know. I'm by nature a skeptic, and many have tried unsuccessfully to recreate that Silicon Valley startup magic. But I want it to work, and I sure liked what I saw. I attended the weekly "startup chowdown": open to the public, $10 gets you 2 slices of pizza, salad, a drink, and a place to talk to entrepreneurs in ATV and around Atlanta. Then came Pitch Practice, an entertaining hour where anyone could take the mike, explain the context of their pitch, try it out, and get feedback from the crowd. We heard from 1) an entrepreneur who was attending a contest and had 30 seconds to convince attendees to vote for him so that he could give a longer pitch, 2) an entrepreneur with a 60-second pitch, and 3) 2 entrepreneurs with a 60-second pitch. It was really fun--the crowd was supportive, and really focused on helping each entrepreneur do a better job at conveying his message and accomplishing his personal goal.
Here's some language from the website that captures what I think ATV is trying to do:
Your workspace should be more than just a desk and a place to hang your hat – – it should bring the community together, promote serendipitous interactions, and be a powerful tool for recruiting the best talent. The Village is designed as a campus for cool people doing cool things in technology.
Fingers crossed, ATV.
Congratulations to the Giants on winning the World Series, one of the two least statistically inclined teams in baseball, the other, of course, being the Royals. Indeed, with the possible exception of the Red Sox, the teams that have won the World Series since the sabermetric revolution have all been rich (as are the Red Sox, so it is hard to characterize them as solely stats-driven), traditionally strong in scouting, or random.
What does this tell us about baseball analytics? Over the next week, I predict you'll hear:
- It tells us nothing, short series are random, and the fact that a moneyball team has never won the World Series is a product of chance.
- It tells us nothing, everyone uses statistics now, and therefore teams that say they are not moneyball teams are, in fact, moneyball teams.
- What about the Red Sox, doesn't that show that moneyball works, even though short series are random?
I like looking at sports through stats. It is way more thoughtful than "he wanted it more," or "you gotta make that play." I'm actually not positive it's much more predictive than just looking at net spends or surveys of experts. But what do I know? Everyone uses moneyball now.
It is one data point, but the cases where the the SEC would settle without requiring an admission of guilt or statement of facts were always likely to be those civil suits following criminal cases that did not go well. Rengan Rajnaratnam, Raj's brother, proved to be the one inside trader defendant that the Manhattan USAO could not convict. So the SEC is picking up sticks as well, in exchange for $840,000 bucks and a "let's just move on" kind of attitude. It's the kind of case where seeking an admission would likely just make the defendants dig in their heels, as I suggested here. And indeed, here's Rengan's lawyer, sounding threatening:
“The S.E.C. elected to offer, and Rengan elected to accept, a no admit/no deny settlement,” said Daniel Gitner, a lawyer for Mr. Rengan. “Rengan is moving on to the next phase of his life. If the S.E.C. has further comment, so will we.”
Okay, the headline was made to draw in the reader. Non-banks will be allowed to securitize to their heart's content, and banks will likely basically continue to do the same. However, the Basel Committee orchestrated a meeting in Tianjin between central bankers (they do monetary policy) and bank supervisors (they do safety and soundness),and came up with, among other standards, an approach to the ability of banks to hold collateralized debt obligations, the sort of obligations that have been blamed for the financial crisis.
I will quote the report made from the meeting, though that's pretty dull and bureaucratic. However:
- the freedom of banks to hold derivatives is being set in these informal international meetings among bureaucrats, a fact always worth repeating
- the limits on bank holdings of securitized assets is being set through a negotiated, and global, process involving bank regulators and capital market regulators
- some people, the US very much not included, would see no reason to consult those who set monetary policy, or what the currency is worth, on the appropriate way to limit the power of banks to hold derivatives, or whether derivatives would fail to protect a bank in crisis times
- the supervisors and central bankers met in Tianjin, which means that some of them hopefully took the world's fastest train from Beijing's airport to Beijing's port city.
It's all very global and committee of regulators oriented. Anyway, here's the report on securitization assets held by banks:
The Committee also reviewed progress towards finalising revisions to the Basel framework's securitisation standard and agreed the remaining significant policy details that will be published by year-end. It also recognised work that is being conducted jointly by the Basel Committee and the International Organization of Securities Commissions (IOSCO) to review securitisation markets. The Committee looks forward to the development of criteria that could help identify - and assist the financial industry's development of - simple and transparent securitisation structures. In 2015, the Committee will consider how to incorporate the criteria, once finalised, into the securitisation capital framework.