© Disney, “Duck Tales”
I expressed concern in my last post that uniform contract terms could destabilize securities markets in unexpected ways. In a recent paper, I dub this risk “Boilerplate Shock.” The paper uses boilerplate terms in Eurozone sovereign bonds as a case study, but I argue that any market in which a lot of securities are governed by uniform contract terms is vulnerable to boilerplate shock. In this post, I will focus on the Eurozone and my proposed solution to the risk of boilerplate shock there.
One major problem is that no one really knows how to deal with sovereign debt obligations denominated in a currency that still exists but is no longer used by the debtor. A partial breakup of the European Monetary Union would trigger some question marks in commercial law and private international law (among other things).
In the Eurozone sovereign lending market, bond contracts typically contain standardized language specifying:
(a) choice of governing law (often foreign), and
(b) currency of payment (euros).
The combined effect of these clauses, I argue, is to render any country that departs the euro more likely to default on its debt. Whatever the impact of the departure itself, a forced default would make things much worse for Europe and the world economy.
Leading scholars have concluded or strongly suggested that a sovereign that changes currencies can redenominate (convert) its bonds to its new currency even where the contract is governed by foreign law (e.g., Philip Wood (p. 177), Michael Gruson (p. 456), Arthur Nussbaum (pp. 353-59), Robert Hockett (passim)). As a descriptive matter, I believe this to be a mistaken interpretation of New York (and probably English) private international law and commercial law (see “Boilerplate Shock” pp. 47-67). But normatively, I agree: a sovereign should be able to redenominate its bonds under certain circumstances. Among other things, the alternative would make currency union breakups far more dangerous than they already are.
- The prevailing consensus underestimates the risk that a departing Eurozone member’s attempt to redenominate its sovereign bonds into a new currency will be ruled a default.
- Since the bonds of other struggling euro countries are largely governed by the same boilerplate terms ((a) and (b) above), this misapprehension has the potential to be particularly damaging. In addition to surprising the market (which appears to incorporate this consensus), it is likely to spread beyond the immediate debtor to the bonds of similarly situated countries that have issued under the same terms.
- Same for CDSs (which are likewise often governed by foreign law, usually New York).
- Thus, given the widespread use of terms (a) and (b), a ruling that a departing country cannot pay its euro-denominated contracts in a new currency could cause the market to demand unsustainable premiums from other weak debtors.
- This could cause Eurozone countries to lose market access. Greece is not TBTF in any sense, but some of its neighbors are—and are also too big for the EU (including the ECB) and IMF to bail out. Italy (the world’s 9th largest economy) and Spain (13th) come to mind.
Thus, if my commercial law/private international law analysis is right, these boilerplate contracts could end up playing quite a big role in the event of any euro breakup.
To mitigate this risk of boilerplate shock, I suggest a new rule of contract interpretation. The proposal is detailed at pp. 67-71 of the article. I suggest commercially significant jurisdictions adopt it by statute. Here is a quick summary.
Any sovereign that:
- Belongs to an international monetary union, and
- Issues bonds in the currency of that monetary union subsequent to the adoption of this rule, and
- Leaves the monetary union and introduces its own currency,
shall retain the right to redenominate its bond obligations into its new currency, UNLESS the sovereign has affirmatively waived the right to redenominate its bonds.
You’ll notice this is a default rule—merely a presumption of the right to redenominate—not a mandatory rule. It is also prospective-only: it does not apply to existing issuances. It also does not protect sovereigns that issue in foreign currency (e.g., Argentina), only those that are monetary union members and issue in the common currency (e.g., France).
The reason for these limitations is to minimize unintended consequences and near-term disruption to the market, but also to embody the relatively modest objectives of the rule. It is an information-forcing default rule that is intended to facilitate better risk management by parties. It is not a “save the world” rule.
The challenge, as I’ll discuss in my next post on the paper, is not that redenomination would be ruled impermissible when it ought to be available (otherwise, that might suggest a mandatory “pro-redenomination” rule). It is that the likely effect of these boilerplate terms—to prohibit redenomination—was almost certainly not bargained for and is largely unknown to parties. This market failure has, in turn, created latent risks to the broader financial system and the existing legal tools are poorly suited to address them.
The following post comes to us from Jill Fisch, the Perry Golkin Professor of Law at the University of Pennsylvania:
Just a few more thoughts about the event studies and question II in Halliburton. As I noted in my prior post, the level of discussion on the feasibility and mechanics of event studies was disappointing. I have explained the limitations with using event studies to address the question of price impact or price distortion for purposes of Basic. See Jill E. Fisch, The Trouble with Basic: Price Distortion after Halliburton, 90 Wash. U. L. Rev. 895, 919-21 (2013). In particular, a statement or series of statements that falsely confirm existing market expectations will not move stock price at the time it is made. An event study is incapable of measuring the effect that a counterfactual accurate disclosure would have had on the market, had it been made. A substantial number of securities fraud lawsuits present exactly this factual context. Basic itself was such a case. Basic denied the existence of merger negotiations for over a year during which time it was, in fact, involved in such negotiations. Basic’s lies had little or no effect on the stock price (indeed, the price rose after two of the three denials). When the merger was subsequently announced, the stock price rose dramatically. The argument in Basic was that, had the merger negotiations been accurately disclosed at an earlier time, the stock price would have been higher. What the stock price would have been, in October 1977, if Basic had not lied, is a question that event study methodology cannot answer. This, however, is the test that Professors Henderson and Pritchard seek to have the Court impose through a requirement that plaintiffs prove price impact at class certification.
Well, with that slightly intimidating intro....
I wasn't at oral argument, but I read the transcript and I concur with Jill Fisch - the Court seemed very interested in the suggestion that plaintiffs should bear the burden of proving price impact, and David Boies did not counter the argument particularly effectively; the big surprise came when the SG agreed with the idea, and I think that pretty much makes the outcome of Halliburton II overdetermined.
The thing is, when this same issue came before the Court twice before in different guises - Halliburton I and Amgen - the plaintiff-side briefing (including amici) made a more robust case for why a price impact approach wouldn't work. This time around, there was almost nothing from the plaintiff-side about it; the most vigorous opposition came, surprisingly, from the defense-side, in the amicus brief of SIFMA.
The problem with a price impact approach is simple: In most securities cases, the lie isn't "we're doing great!" The lie is, "we're having no problems; nothing is wrong, nothing to see here." A lie that merely confirms expectations, while concealing problems, does not visibly move the market - it has an impact in keeping prices level, but there's nothing measurable; there's nothing that an event study can detect. Or a corporation might disclose some problems, while concealing others - in that case, the price actually goes down, it just doesn't go down far enough. There's no way to demonstrate at the front end that the lie affected stock prices.
The suggestion is then made that price impact can be proved at the end - if the price goes down in response to a corrective disclosure, that shows that the stock price was inflated all along. Leaving aside that this is indistinguishable from loss causation, which would seem to run afoul of Halliburton I, the problem is that it's very difficult to tell from a market reaction at Time 2 what the market reaction was at Time 1.
For example, imagine a company commits accounting fraud to make it appear that it has met analyst expectations. There won't be much, if any, price movement in response to its earnings reports. When the company suddenly declares bankruptcy, the price will plunge to zero. But does that provide any proof that the market price was affected by the earlier false earnings reports? We'd expect the price to plunge to zero upon a declaration of bankruptcy even if the market was entirely ignoring the earnings reports; it doesn't add anything to the inquiry, unless you assume that at the time of the false earnings reports, the company was actually worthless - which is unlikely.
That's basically what happened in Halliburton. One of the alleged lies was that the company's reserves were sufficient to handle expected asbestos liability. Eventually, Halliburton admitted its reserves were too low, and enlarged them, prompting a price drop. Does that prove that the market was affected by earlier statements that the reserves were sufficient? Or was it just reacting to a bad business development? This is the issue that the plaintiffs lost on in the Fifth Circuit the first time around.
When the lie is actually an accounting lie, the plaintiffs still might have tools at their disposal to show the effect - they might look at analyst reports, show how analysts were analyzing earnings reports and reaching target share prices, etc. But "qualitative" lies will present a much harder - if not impossible - case. How do you demonstrate the impact of BP's claims to operate its wells safely? The "truth" only came out when Deepwater Horizon exploded - which hardly tells you anything about the impact of the initial statements.
It does raise interesting questions about other securities doctrines, though. For example, it's common now for courts to dismiss at least some claims on the pleadings for lack of materiality. If it's the plaintiffs' burden to show market movement, there's a strong argument to be made that this is improper; the plaintiffs should have the opportunity to make that showing rather than have a judge assume away real investors' reactions.
Additionally, courts have been relatively willing to assume that if the "truth" behind the lie is publicly known, that truth may be presumed to have affected stock prices in the same way as the initial lie, and therefore, plaintiffs cannot demonstrate materiality/reliance. The doctrine is incredibly inconsistent on this, but some courts have been relatively free with assuming that even fairly obscure bits of nominally "public" information are sufficient to offset corporate misstatements. If the Supreme Court requires plaintiffs to prove price impact, presumably defendants must do so for any offsetting truths, which might allow some claims to survive the pleading stage that would not have before.
We are pleased to have Ann Lipton, a Visiting Assistant Professor at Duke and a former securities litigator join us to offer insights into Halliburton II.
The following post comes to us from Jill Fisch, the Perry Golkin Professor of Law at the University of Pennsylvania:
I was at the Supreme Court this morning to hear the oral argument in the Halliburton case. The debate was lively and the Justices were engaged. Two big surprises. First, the Justices devoted very little attention to the question of whether Basic should be overruled. This was a disappointment to some of the conservative lawyers who were watching the argument with me. Although Aaron Streett led off aggressively in his argument, as in Petitioner’s Brief, with the statement that Basic was wrong when it was decided and more wrong now, the Justices did not seem to have much appetite for discussing this issue. Of course that doesn’t mean they won’t vote to overrule – it is impossible to read the Court from the questions asked at oral argument – but there was very little discussion on economic theory, fraud on the market, congressional intent, etc. Justice Kagan stopped Streett early on when he tried to argue that the Court said 10(b) was just like section 18, and asked wasn’t section 9 a closer analogy, but that was about it.
There was some discussion about congressional acquiescence. Streett argued that Congress hadn’t decided for or against Basic in the PSLRA. Roberts seemed mildly interested in this, but David Boies had a pretty good answer in terms of not just citing the PSLRA but also SLUSA and noting that the legislation would make little sense if class actions were eliminated. The biggest issue here was Justice Alito raising section 203 of the PSLRA in which Congress says nothing in the statute is intended to affect whether there is a private right of action. Justice Scalia critically noted that the parties did not even address section 203 in their briefs.
When Streett tried to talk about the economic arguments, saying that the economic premises for Basic have changed, CJ Roberts asked “How do I review the economic literature?” He then asked, somewhat skeptically whether Streett was suggesting that the Court “jettison” Basic because economists believe the efficient capital markets hypothesis is no longer true. Streett had trouble answering that. Several other Justices noted that the economic debate over the degree of market efficiency was beside the point, stating that prices generally respond to information. Streett did not disagree. Streett also argued that Basic was no longer right because today’s traders don’t rely on the integrity of market price, citing hedge funds, index funds and program traders. David Boies made use of this point when his turn came around, arguing that these new types of traders make market prices respond even more quickly to information and noting that the only information that program traders have is market price.
The second major surprise was the degree of attention that the Justices devoted to question II in the petition for cert. The Justices seemed quite taken by the position advocated by Professors Pritchard and Henderson (which they termed the “law professors’ position) (too bad for the rest of us law professors) that plaintiffs be required to prove price impact, at the class certification stage, through an event study. Several Justices characterized modifying Basic to require that plaintiffs prove price impact as a “middle ground.” They repeatedly asked detailed questions about event studies and why requiring event studies at class certification would be a big deal, especially since they are already used to establish market efficiency in some courts, as well as to prove loss causation. Justice Sotomayor for example, asked why proving price impact would be so difficult
Malcolm Stewart, arguing for the SEC, focused exclusively on retaining Basic, but was happy to sell the plaintiff’s down the river on requiring proof of price impact. Perhaps the most damaging point came when he was asked by Justice Kennedy whether the plaintiffs would be hurt by a requirement that they prove price impact at class certification. Stewart said that the plaintiffs would not be hurt and might even be helped because they would be focusing on the effect of the fraud on a particular stock and not on the market generally.
Two points from the oral argument were particularly troubling. First, as Stewart’s answer demonstrated, the argument was permeated with a limited understanding of how event studies work and the complexities involved in using an event study to measure price impact, particularly in the case of misrepresentations that falsely confirm continued good news. Several of the Justices seemed to think that an event study is an easy and reliable way to ascertain price impact; so if it is available, why not require it? CJ Roberts even asked Malcolm Stewart if event studies were around at the time of Basic. David Boies failed to explain the fact that, in many FOTM cases, there is no price effect at the time of the false statement and that an event study is faced with the complex or possibly scientifically impossible task of ascertaining how price would have reacted in the counterfactual situation in which the truth had been disclosed earlier. The big picture discussion of event studies also overlooked logistical issues that could turn out to be quite significant in the lower courts such as burden of proof – what happens if the economists cannot say whether or not the price was distorted to a sufficient degree of statistical significance? Boies did try to explain that the loss causation event study looks at a different event – the corrective disclosure – which is often a cleaner event for purposes of the event study methodology in that it is less likely to be affected by confounding information.
Second, Streett suggested and appeared to persuade the Justices that class certification was the end of the game – that if a class is certified, it is almost a sure win or an inevitable settlement because of the in terrorem effect of class actions. He repeatedly argued that, because the NYSE is an efficient market and therefore market efficiency is easy to prove for all NYSE-listed companies, relying on efficiency alone without also requiring price impact is not enough. Sotomayor appeared quite troubled by the fact that less than 1% of securities fraud cases go to trial and then asked David Boies what percentage of cases involve a court rejecting class certification, seeming to suggest that it is problematic if cases were not weeded out by the class certification stage. No one raised the fact that the PSLRA pleading requirement coupled with the motion to dismiss together effectively weed out a substantial number of cases at an early stage, prior to discovery and its effect on the incentives to settle. Similarly none of the lawyers focused on why price impact must be litigated at class certification or at trial – why not, alternatively, in the context of a motion for summary judgment – although Justice Ginsburg asked what difference it made at what stage price impact is litigated.
Gary Rosin has a post at Faculty Lounge with interesting statistics about law school-funded jobs to new graduates. Of course, the reason that we care is because of the rankings. Law schools report their employment statistics and put these jobs in the "Bar Admission Required, Full-Time, Long-Term" category according to the post. So, if you back out these jobs, then the numbers are different for about 14% of law schools. The differences range from 1 percentage point to 20, with a median of about 2.65 percentage points.
I agree that students would be much better off if these law school-funded jobs were reported in a separate category, and that in general, if all employement statistics were reported at a much more granular level.
However, the tone of much of the discourse about law school-funded jobs is that students would be better off if there were no law school-funded jobs. And there I feel I must disagree. Disclosure: Illinois is above the median on that list.
Shenanigans designed to merely move schools up or down in the rankings generally have no positive non-ranking effects. However, law school-funded jobs have substantial non-ranking effects. First, a law graduate without a job now has a job, with a salary, where there was none before. Second, the best designed law school-funded jobs convert to employer-funded jobs. For example, a law school may ask a firm, public interest organization, or corporation to take a chance on a law graduate with a promise of salary support for a certain period of time. At the end of that period, if all goes well, then the employer will put the law grad on the payroll. And, next year, that same organization may be more inclined to hire a new law grad on their own. As long as this arrangement is disclosed, it seems similar to a summer internship for credit or a graduate school post-doc.
Of course, critics will point to two things, even if disclosed. The first is just a variation on the scamblog meme: See, you guys can't get your graduates jobs, so you have to offer them this second-rate "opportunity." They went to law school because you said they would get real jobs. OK, awesome. It would be great if every graduate had an employment offer at graduation, but when it happens that they don't, isn't this a better solution than nothing? Second, one argument would be that the law school is funding all of this with tuition dollars, so students are subsidizing these arrangements. Yes, students tuition pays for many things, including facilities, utilities, salaries, programs, speaker series, colloquia, clinics, and scholarships. Some students pay more than others, and some students get "costlier" education. So yes, students without scholarships subsidize students with scholarships. Students that don't take colloquia or clinics subsidize those that do. At some schools, students not on journals may subsidize students on journals that are not self-supporting. In undergraduate colleges, students in cheaper majors may subsidize students in more expensive majors.
Anyway, if I were a prospective students, as long as these arrangements were transparently disclosed and all other employment statistics were similar to peers, I would see them as a signal that the school supported its students and thought about problems in a creative way.
The Supreme Court scheduled oral argument for tomorrow in Halliburton Co. v. Erica P. John Fund, Inc. (aka "Halliburton II"). This could well prove to be one of the most important securities law cases of the last 30 years, as the Court will reconsider the fraud-on-the-market presumption of Basic.
To hash through all the issues of the case -- from class certification to behavioral finance and efficient markets to statutory interpretation and stare decisis to alternative antifraud rules -- we will be having an online roundtable today and tomorrow featuring some of our regular contributors as well as a few guests.
Over at the business prof blog, Haskell Murray has taken up the mantle of relaying job announcements for law professors in business schools, and he does a nice assessment of the three most recent opportunities to come over the transom. Well worth a look, if you're looking for a job.
By now, the risk that a distressed European nation such as Greece might leave the Eurozone and thereby spark global economic calamity is well known. Regular readers of this blog may even privately relish the prominence of the issue. Not since the days of the gold standard has international monetary policy come so close to being a socially acceptable topic of dinner conversation.
As I noted in my first post, observers rightly perceive the Eurozone sovereign debt crisis to be driven by political and economic forces. But many consequences of a euro breakup would be determined by law, including sources of American (specifically New York) private law.
This is a complex issue. I try to address it more fully in a new article, "Boilerplate Shock," which I've just posted on SSRN.
In brief, and to continue picking on Greece, one key question in the event of a euro breakup would be: would a court recognize an attempt by Greece to convert its euro-denominated debt into its new currency, or would it instead insist that Greece pay in euros, the currency of contract? The answer is important because, as a practical matter, requiring payment in euro would be tantamount to forcing a default.
That's the familiar narrative, anyway. And I agree. But I believe that the ubiquity of boilerplate terms in these bonds—specifically, clauses selecting governing law (usually foreign) and currency of payment (euro)—is likely to make any dispute over redenomination even more damaging than this suggests.
In the article, I argue that the sparse literature on the question of redenominating sovereign bonds overlooks some sources—especially cases interpreting New York contract law and private international law—that, if extended to Eurozone sovereign bonds, could surprise the market and cause serious global repercussions. I argue that the reason for this is not only that the dominant view overlooks what are likely controlling sources of law. It is that standardization of contract terms across the Eurozone sovereign lending market makes the stakes of surprise that much higher.
If Greece's attempt to redenominate its bonds is declared a default, then the fact that the operative terms in Italian, Spanish, Irish, etc. sovereign bonds are the same or similar makes markets likely to demand unsustainable premiums from those countries. Capital and investor flight could be very rapid. We have seen several previews of this movie over the past few years in the Eurozone, and each time official-sector bailout institutions have saved the day. But the European Union/European Central Bank and IMF probably do not have the resources to stop a broad-based bank run of this nature, to say nothing of the political support necessary to attempt it.
Maybe none of that will happen. Nevertheless, the potential for uniform contract terms to create risk not just to individual third parties but to securities markets seems likely to grow at least as fast as those markets. Using Eurozone sovereign bonds as a case study, I introduce the term "boilerplate shock" to describe the potential for standardized contract terms—when they come to govern the entire market for a given security—to transform an isolated default on a single contract into a threat to the market of which it is a part, and, possibly, to the economy in general. My larger objective here is to foster a discussion of the potential for securities law and private-sector securities lawyers to manage (or alternatively, to contribute to) systemic risk.
I've posted an abstract below and will be returning to the subject. I look forward your comments.
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Bringing Numbers into Basic and Advanced Business Associations Courses:
How and Why to Teach Accounting, Finance, and Tax
Business planners and transactional lawyers know just how much the “number-crunching” disciplines overlap with business law. Even when the law does not require unincorporated business associations and closely held corporations to adopt generally accepted accounting principles, lawyers frequently deal with tax implications in choice of entity, the allocation of ownership interests, and the myriad other planning and dispute resolution circumstances in which accounting comes into play. In practice, unincorporated business association law (as contrasted with corporate law) has tended to be the domain of lawyers with tax and accounting orientation. Yet many law professors still struggle with the reality that their students (and sometimes the professors themselves) are not “numerate” enough to make these important connections. While recognizing the importance of numeracy, the basic course cannot in itself be devoted wholly to primers in accounting, tax, and finance.
The Executive Committee will devote the 2015 annual Section meeting in Washington to the critically important, but much-neglected, topic of effectively incorporating accounting, tax, and finance into courses in the law of business associations. In addition to featuring several invited speakers, we seek speakers (and papers) to address this subject. Within the broad topic, we seek papers dealing with any aspect of incorporating accounting, tax, and finance into the pedagogy of basic or advanced business law courses.
Any full-time faculty member of an AALS member school who has written an unpublished paper, is working on a paper, or who is interested in writing a paper in this area is invited to submit a 1 or 2-page proposal by May 1, 2014 (preferably by April 15, 2014). The Executive Committee will review all submissions and select two papers by May 15, 2014. A very polished draft must be submitted by November 1, 2014. The Executive Committee is exploring publication possibilities, but no commitment on that has been made. All submissions and inquiries should be directed to Jeffrey M. Lipshaw, Associate Professor, Suffolk University Law School firstname.lastname@example.org (617-305-1657).
With a hat tip to Corp Counsel, this story about Milton Webster, board member of the Chinese firm AgFeed, who blew the whistle on his company, is really unique. He was a member of the audit committee! He thought that a name brand law firm was more conflicted than solution-oriented! He resigned, and then went to the authorities (or, at least, the paintiffs)! I don't think I've ever heard of a member of the firm's audit committee dropping a dime on the firm he directs. You'll want to read this probe by Francine McKenna, but here's the Bloomberg long read as well.
Before returning to the legal boundaries of monetary policy, I wanted to briefly highlight some interesting contract and regulatory issues lurking just beneath the surface of an unusual Kansas state court order declaring a sperm donor to be the legal father of a child, against the wishes of all persons involved.
In 2009, a Topeka man answered a Craigslist ad soliciting sperm donations. The ad was placed by a lesbian couple, Jennifer Schreiner and Angela Bauer. The man supplied a donation. Schreiner became pregnant and delivered a baby. Schreiner began receiving Kansas welfare benefits for the child. Seeking child support payments, the state sued the sperm donor to establish paternity. The state argued that the donor—who lacks any relationship with the child or the couple (now estranged) beyond supplying the donation—was the child’s legal father, and therefore must pay child support.
This is where the case gets interesting as a matter of private ordering and trade regulation.
Prior to the donation, all persons involved—the donor and both members of the couple—signed a non-paternity agreement in which the donor waived his parental rights and was released from his parental obligations.
Both mothers opposed the state’s campaign to declare the donor the child's legal father.
Nevertheless, the court granted the state’s paternity petition, which means it can now seek to compel the donor to provide child support. The paternity finding also appears to give the donor a good shot at asserting parental rights (though he seems unlikely to try).
Justifying its decision to ignore the wishes of both parents and the donor, the court intoned:
A parent may not terminate parental rights by contract, however, even when the parties have consented.
Well, maybe this case is a morality tale about those who would seek a father for their child on Craigslist. A warning from a heartland state to those who would selfishly try to contract around their sacred parental obligations. A sign that courts place the welfare of the child above all else. Right?
Haha, of course not!
Kansas law makes it easy to conclusively terminate the parental rights and obligations of sperm donors by contract. Care to guess what you need to do, besides sign a contract?
Over at DealBook, I’ve got a piece on the analysis of FOMC transcripts – a cottage industry, now that the Bernanke era version of the committee has released its 2008 (that is, depth of the crisis) records. There’s lots of counting that can be done, including some, in honor of Jay Wexler’s Supreme Court study, on the number of times the FOMC broke into laughter. Easy enough to actually do for the Greenspan FOMC, and so I do it:
For what it is worth, the mood lightened as the chairman aged, although the F.O.M.C. certainly went through turbulent times during both the beginning and the end of Mr. Greenspan’s tenure. Meeting transcribers recorded laughter on a per-transcript-page basis increasing from an average of less than 20 percent from 1988 to 1992 to more than 20 percent from 2001 to 2006. In a few years, we will be able to make comparable statements about the F.O.M.C. when Ben S. Bernanke was the Fed chairman. Mr. Greenspan used wit far more than any other single Fed official (although he spoke far more at F.O.M.C. meetings than the others did) – laughter ensued after something he said 556 times over the course of his tenure.
Do give it a look.
Late last month I posted my colleague Mehrsa Baradaran's thoughts on the US Postal Service moving into banking. She'd written an article on the subject 2 years ago, and the US Postal Service seemed to be warming up to the idea. Since then, Mehrsa has written a NYT op-ed on the subject and, most recently, has a short piece up in the Harvard Law Review Online Forum: It's Time for Postal Banking.
From the introduction:
... government support and even subsidies to enable postal banking in the United States are appropriate and justifiable. First, banking-related subsidies are grounded in historical practice, as demonstrated by government support for credit unions, savings and loans, and student loan associations. Postal banking derives from these longstanding practices, but broadens the scope to include the poor, not just the middle class. Further, state support of banking throughout U.S. history has operated much like a social contract: the state supports the banking system in a variety of ways and, in return, banks serve as credit intermediaries, providing the populace with access to loans and financial services. Thus, subsidies for banking have been justified because they provide a benefit to all citizens. Mainstream banks have met part of their obligation, but a large portion of the population, namely the poor, has been left out. It is time, then, for the government itself to meet the demand for credit.
Go read the whole thing!
The Bitcoin exchange Mt. Gox appeared to be undergoing more convulsions Tuesday [February 25], as its website became unavailable and trading there appeared to have stopped, signaling a new stage in troubles that have dented the image of the virtual currency. . . .
Investors have been unable to withdraw funds from Mt. Gox since the beginning of this month. The exchange has said that a flaw in the bitcoin software allowed transaction records to be altered, potentially making possible fraudulent withdrawals. No allegations have been made of wrongdoing by the exchange, but the potential for theft has raised concern that the exchange wouldn't be able to meet its obligations.
The apparent collapse of Mt. Gox is just the latest shock to hit Bitcoin, the price of which is now off more than 50% from its December 2013 peak:
For those better acquainted with the dead-tree/dead-president variety of money, Bitcoin is a virtual currency not backed by any government. Rather than being printed or minted by a central bank, Bitcoins are created by a computer algorithm in a process known as "mining" and are stored online or on your computer. They are bought and sold on various exchanges, including until recently Mt. Gox (whose troubles have been reported for a few weeks now).
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