Category: Articles

Re: Defining Securitization – Article by Jonathan C. Lipson

From Volume 85, Number 5 (July 2012)
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This Article fills a gap in commercial finance law. Despite the fact that “securitization” has become enormously important to capital markets–and is sometimes blamed for the financial crisis–we have no agreed understanding of the term. Various regulators and commentators have generated a wide range of definitions, but many are vague or omit crucial elements. Perhaps more surprising, the Dodd-Frank financial services reform–the most aggressive attempt yet to regulate securitization–does not define it at all. How can we regulate something without a shared conception of what it is?

In order to develop a more fully considered definition of the term, this Article assesses data on the performance of securitizations, as well as the transaction form’s essential elements (its inputs, structure, and outputs). The definition offered here distinguishes “true” securitizations from other transactions, such as collateralized debt obligations and Enron’s structured financings. While the latter transactions may satisfy many current definitions of (or associated with) securitization, they in fact lack one or more essential elements of true securitizations. Not surprisingly, such transactions largely failed to advance the legitimate social and economic goals of securitization, the most basic of which is to connect the buyers and sellers of capital more effectively than traditional financing methods, such as bank lending or issuing shares of stock.

 

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What Is Securitization? And for What Purpose? – Article by Steven L. Schwarcz

From Volume 85, Number 5 (July 2012)
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In Re: Defining Securitization, Professor Jonathan Lipson attempts to define a “true” securitization transaction, ultimately characterizing it as “a purchase of primary payment rights by a special purpose entity that (1) legally isolates such payment rights from a bankruptcy (or similar insolvency) estate of the originator, and (2) results, directly or indirectly, in the issuance of securities whose value is determined by the payment rights so purchased.” There is much to admire in Lipson’s attempt but also much to question.

 

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Why (and How to) Define Securitization? A Sur-Reply to Professor Schwarcz – Article by Jonathan C. Lipson

From Volume 85, Number 5 (July 2012)
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In his brief essay, What Is Securitization? And for What Purpose? (“Purpose”), Professor Steven Schwarcz does me a great honor in responding to my article, Re: Defining Securitization (“Re: Defining”), where I ask what, exactly, does the term “securitization” mean?

As serious observers of, and participants in, securitization know, Professor Schwarcz is one of the leading authorities on the subject. His works–for both professional and academic audiences–are must-reads. Thus, if, as I say in Re: Defining, my goal was to be not the last word on this question but the first, the fact that he has written such a thoughtful response tells me I have succeeded.

Nevertheless, several of his criticisms warrant scrutiny. Unaddressed, they may leave readers misunderstanding the purpose of the definitional exercise I undertake in Re: Defining. Thus, I offer this brief “sur-reply” to Professor Schwarcz, which has four primary parts.

 

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Misdemeanors – Article by Alexandra Natapoff

From Volume 85, Number 5 (July 2012)
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Misdemeanor convictions are typically dismissed as low-level events that do not deserve the attention or due process accorded to felonies. And yet, ten million petty cases are filed every year, and the vast majority of U.S. convictions are misdemeanors. In comparison to felony adjudication, misdemeanor processing is largely informal and deregulated, characterized by high-volume arrests, weak prosecutorial screening, an impoverished defense bar, and high plea rates. Together, these characteristics generate convictions in bulk, often without meaningful scrutiny of whether those convictions are supported by evidence. Indeed, innocent misdemeanants routinely plead guilty to get out of jail because they cannot afford bail. The consequences of these convictions are significant: in addition to the stigma of a criminal record, misdemeanants are often heavily fined or incarcerated, and can lose jobs, housing, or educational opportunities. In other words, petty convictions are growing more frequent and burdensome even as we devote fewer institutional resources to ensuring their validity.

The misdemeanor phenomenon has profound systemic implications. It invites skepticism about whether thousands of individual misdemeanants are actually guilty. It reveals an important structural feature of the criminal system: that due process and rule of law wane at the bottom of the penal pyramid where offenses are pettiest and defendants are poorest. And it is a key ingredient in the racialization of crime, because misdemeanor processing is the mechanism by which poor defendants of color are swept up into the criminal system (in other words, criminalized) with little or no regard for their actual guilt. In sum, the misdemeanor process is an institutional gateway that explains many of the criminal system’s dynamics and dysfunctions.

 

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Pay for Regulator Performance – Article by M. Todd Henderson & Frederick Tung

From Volume 85, Number 4 (May 2012)
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Few doubt that executive compensation arrangements encouraged the excessive risk taking by banks that led to the recent Financial Crisis. Accordingly, academics and lawmakers have called for the reform of banker pay practices. In this Article, we argue that regulator pay is to blame as well, and that fixing it may be easier and more effective than reforming banker pay. Regulatory failures during the Financial Crisis resulted at least in part from a lack of sufficient incentives for examiners to act aggressively to prevent excessive risk. Bank regulators are rarely paid for performance, and in atypical cases involving performance bonus programs, the bonuses have been allocated in highly inefficient ways. We propose that regulators, specifically bank examiners, be compensated with a debt-heavy mix of phantom bank debt and equity, as well as a separate bonus linked to the timing of the decision to take over a bank. Our pay-for-performance approach for regulators would help reduce the incidence of future regulatory failures.

 

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The Rise of U.S. Food Sustainability Litigation – Article by Stephanie Tai

From Volume 85, Number 4 (May 2012)
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This Article provides one of the first critical looks at the interface between the values of the sustainable food movement and its rising use of litigation. In particular, it focuses on two growing areas of food sustainability litigation–challenges to Concentrated Animal Feeding Operations (“CAFOs”) and challenges to the use of genetically modified organisms (“GMOs”) in the food system–chosen because they involve growing sectors of U.S. agriculture over which members of the sustainable food movement have raised significant concerns.

 

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Antitrust Energy – Article by Barak Orbach & D. Daniel Sokol

From Volume 85, Number 3 (March 2012)
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  Antitrust law has been declared a failure, moribund, or possibly just a ghost from the trustbusting era. A quarter of a century ago, Thomas Hazlett declared: “Any responsible historian of American antitrust policy must conclude that, if one takes at face value the assertions that antitrust laws exist to advance competition and protect the consumer, that policy is a failure. The notorious Berkey Photo case may be the flagship of that failed policy.” Hazlett went as far as suggesting it would be “most effective . . . to consider federal enforcement of the antitrust laws to be a per se restraint of trade.” Robert Crandall and Clifford Winston examined the question: “Should the United States pursue a vigorous antitrust policy?” They found “little empirical evidence that past interventions have provided much direct benefit to consumers or significantly deterred anticompetitive behavior.” Other scholars examined whether antitrust was still alive. Yet, recently some stressed that antitrust is not dead, but while “at one time [it] was skewed toward over-enforcement, . . . today if there is any bias it is in the opposite direction.” Statistical figures indicate that, since the 1970s, the volume of civil antitrust litigation is low compared to prior decades. For these reasons and others, Jonathan Baker tried to provide “evidence of the necessity and success of antitrust enforcement.” The Supreme Court, however, voiced skepticism about antitrust litigation. In the fall of 2007, Antitrust therefore posed the question for a special issue: The End of Antitrust As We Know It?
 

 

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Antitrust and Business History – Article by Margaret C. Levenstein

From Volume 85, Number 3 (March 2012)
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What are the lessons of business history for antitrust policy? In particular, what are the lessons of business history for policies toward firms or practices that Standard Oil has come to symbolize: firms with monopoly power, firms that engage in predatory practices or vertical restraints, or more broadly, firms that just seem too big? There is an interesting and provocative literature that examines the practices and impact that such firms or practices have on consumers and competition. Several of the papers in this volume address the question of whether Standard Oil itself harmed consumers or competition. This discussion is active, after a century, in part because it gets to the underlying question of whether firms ever engage in predatory practices or whether such practices can in fact harm consumers.
 

 

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