In Ring-Fencing, Professor Steven Schwarcz provides an insightful overview of the concept of “ring-fencing” as a “potential regulatory solution to problems in banking, finance, public utilities, and insurance.” As Professor Schwarcz explains, “ring-fencing can best be understood as legally deconstructing a firm in order to more optimally reallocate and reduce risk.” Ring-fencing has gained particular prominence in recent years as a strategy for limiting the systemic risk of large financial conglomerates (also referred to herein as “universal banks”). Professor Schwarcz describes several ring-fencing plans that have been adopted or proposed in the United States, United Kingdom, and European Union.
This Comment argues that “narrow banking” is a highly promising ring-fencing remedy for the problems created by universal banks. Narrow banking would strictly separate the deposit-taking function of universal banks from their capital markets activities. If properly implemented, narrow banking could significantly reduce the safety net subsidies currently exploited by large financial conglomerates and thereby diminish their incentives for excessive risk-taking.
Steven Schwarcz’s “Ring-Fencing” gets much of its impact from its broad definition of the term, which is usually heard these days when thinking about whether a multinational bank ought to be forbidden from removing the assets of its branches in one country to support its activities in another.
One of the singular contributions of the article lies in its willingness to look beyond that use of the term to think about what ring-fencing means more broadly and conceptually. As Schwarcz observes, ring-fencing is nothing less than a way to allocate resources, regulate firms, and reassure stakeholders that could be applied any enterprise. The ring-fencing metaphor posits the separation of assets within a firm—some are inside the ring fence, and others are not. To Schwarcz this amounts to “legally deconstructing a firm in order to more optimally reallocate and reduce risk,” which could include any restructuring involving holding companies, off-balance sheet entities, and even the creation of corporate subsidiaries.
Envision living with the constant fear of being tortured or killed for no other reason than having a different political opinion than those in power. While that may be difficult to imagine for those who live in the United States, unfortunately, many around the world must live with that fear or flee from their homes. That fear has mobilized an estimated 11,000 to 15,000 refugees to flee from Syria. The mass exodus followed Syrian President Bashar al-Assad’s siege of the western city of Homs, which is “the heart of an 11-month uprising against his rule.” In those early months of violence, only around 7000 Syrian refugees had registered with the United Nations High Commissioner for Refugees (“UNHCR”). However, given the persistent violence and the recent allegations that President al-Assad has used chemical weapons on or near civilian populations, it is unsurprising that current UNHCR projections estimate that there are over two million Syrian refugees. And according to the UNHCR, if current trends persist, there may be well over three million Syrian refugees by the end of 2013.
Although misdemeanors comprise an overwhelming majority of state criminal court cases, little judicial and scholarly attention has been focused on how misdemeanor courts actually operate. In her article, Misdemeanors, Alexandra Natapoff rights this wrong and explains how the low-visibility, highly discretionary decisions made by actors at the misdemeanor level often result in rampant discrimination, incredible inefficiency, and vast miscarriages of justice. Misdemeanors makes a significant contribution to the literature by refocusing attention on the importance of misdemeanor offenses and beginning an important dialogue about what steps should be taken going forward to fix our broken misdemeanor justice system.
Natapoff amasses an impressive amount of data and material to explain both the prominence of misdemeanor convictions in our justice system and the many problems with how our misdemeanor system operates. She rightly points out that legislative overcriminalization coupled with conflicting police responsibilities and vast police discretion has created a system in which poor people of color are routinely arrested for misdemeanor offenses even when there is little evidence to support their arrests.
Alexandra Natapoff’s article, Misdemeanors, shines a much-needed spotlight on the mass production of criminal justice and injustice in millions of low-level cases. For many decades, academics have dwelt ad nauseam on the biggest, sexiest criminal cases, especially capital and other serious felonies such as murder and rape. Courts and commentators have spun out elaborate accounts of the precise procedural guarantees that should govern adversarial combat between prosecutors and appointed defense counsel in these cases. But, as I have argued elsewhere, in making rules for the small sliver of jury trials, judges and scholars have neglected the much larger world of plea bargaining.
Natapoff draws on her experience in criminal defense to explore how far out of sync the ideal of adversarial due process is from the reality of cookie-cutter dispositions. She trenchantly explains how many low-level cases depend almost entirely on a police officer’s word, with no meaningful prosecutorial screening or defense counsel testing, or even no defense counsel at all.
Every generation it seems, a criminal law scholar arises like an Old Testament prophet and attempts to compel their colleagues to confront the uncomfortable fact that the kind of criminal justice the overwhelming majority of their fellow citizens experience involves misdemeanor crimes, adjudicated (if you can call it that) at the lowest level of courts, with little or no lawyering, few rules, and lots of scope for nasty prejudice. For this generation, Alexandra Natapoff is that Jeremiah. For her, it is bad enough, of course, that most felony justice has only a family resemblance to the picture acquired from most criminal law classes, but misdemeanors, if they show up at all, do so in the margins of the course, around issues like status offenses, voluntariness, or possession. When we take Natapoff’s challenge and treat the world as if these misdemeanors mattered, we experience something like what the filmmakers of the Matrix series so effectively captured: the slide from a sleek but apparently totally fake world, to one that is actually pretty disgusting and degrading.
In his 2012 article, Revisiting the Revisionist History of Standard Oil, Christopher Leslie takes issue with John McGee’s work on predatory pricing and its influence on antitrust law and scholarship. Leslie claims McGee’s analysis was methodologically flawed, ideologically motivated, but ultimately successful in “distorting” predatory pricing law by persuading courts to adopt a standard too permissive of anticompetitive predation. Holding aside the specific methodological critique of McGee’s analysis, in this paper I demonstrate that Leslie’s claim that McGee distorted predation law fails for a number of reasons. The most fundamental reason is that Leslie does not consider the likely counterfactual antitrust world without McGee’s analysis. Specifically, Leslie does not consider the very likely alternative explanation for the decline in plaintiffs’ success in predation cases–namely, Phillip Areeda and Donald Turner’s seminal 1975 analysis. Whether debates continue within the economics literature regarding the details of McGee’s contribution to our understanding of predatory pricing theory and the Standard Oil saga, there is scant evidence supporting Leslie’s primary claim that McGee has had a distorting influence that has induced courts to adopt permissive attitudes toward anticompetitive predation. Nor is there evidence in the economics literature supporting Leslie’s ancillary claim that current law underdeters anticompetitive predation. A proper understanding of the intellectual foundations of modern predation doctrine reveals a doctrine far more stable and durable than Leslie implies.
Andrew I. Gavil presents a thoughtful and illuminating portrait of the evolution of the rule of reason in United States antitrust law since Standard Oil. While the rule of reason, as initially embodied in Standard Oil Co. v. United States and Board of Trade of Chicago v. United States (“Chicago Board of Trade”), may have once been an invitation to make any and all arguments about the competitive nature of a given restraint, Gavil rightly points out that this is no longer the case. As currently employed, the rule-of-reason analysis is typically quite structured. The plaintiff must first show that the defendant’s action had an anticompetitive effect. If she can do this, then the defendant has the burden to prove that its action has a procompetitive benefit. If, and only if, the court finds that both sides have met their initial burden, will the court proceed to balance the two effects.
Of course, the evidence of anti- and procompetitive effects for any particular conduct is always far from perfect. Whenever evidence is imperfect, we know from decision theory (Bayes’ rule) that one’s prior beliefs about the plausibility of anti- or procompetitive effects will be important (and will be more important the less perfect the evidence). Thus, one can think of the per se rule in antitrust as just an extreme form of the rule of reason, in which the court’s prior beliefs dictate the decision. For example, a court’s prior belief that price-fixing is anticompetitive may be so strong that the evidence required to overcome that prior belief (establishing a procompetitive effect on balance) would have to be enormously powerful. One way to express the justification for the per se rule is that the probability that such evidence will exist is so small that it is not worth examining it. In that light, one can also view the structured rule of reason approach as one that should (although, in practice may not) reflect a similar paradigm in less extreme cases: we require stronger evidence of anticompetitive effects for conduct that we think are less likely to be anticompetitive and are more receptive to procompetitive effects arguments in such cases.
It has been well established in the economics literature that the antitrust laws have been used strategically to undermine the competitive market process, whether the alleged abuses were based in fact or not. It should, then, come as no surprise that the origins of one of the most famous decisions in antitrust jurisprudence, the 1911 judgment by the Supreme Court against Standard Oil, can be traced back to an alliance of rivals that had seen their business interests hurt by John D. Rockefeller, Sr.’s innovative entrepreneurship. In fact, the judgment seemed to confirm early fears attributed to “[m]ost economists in the late 19th century . . . [that] the law would impede attainment of superior efficiency promised by new forms of industrial organization.” Others concluded later that “the enforcement of the Sherman Act over the past 95 years has probably reduced industrial competitiveness.”
On that occasion more than a century ago–an event that has been called “the mother of all monopolization cases”–the Court decided unanimously (with Justice Harlan concurring in part and dissenting in part ) that the U.S. government had the right to impose “broader and more controlling remedies,” including the dissolution of an entire corporate entity, in announcing that they henceforth would apply a “rule of reason” in evaluating alleged antitrust law violations.
Even its more stalwart defenders are concerned that capitalism is in crisis. Alan Greenspan conceded a “flaw” in his free-market beliefs. The Financial Times, in 2012, invited Arundhati Roy and Occupy Wall Street to share a dialogue with high-level officials and leading economists over the crisis in capitalism.
The crisis in capitalism might have come as a shock to some, but not to many middle- and lower-income households. Well before 2008, middle-class Americans saw little gains in income, despite gains in productivity. When mass unemployment came, the middle class shrank further. America’s social net, U.S. Senator Bernie Sanders described in his historic speech, is threadbare. America’s infrastructure is crumbling. Primary and secondary education for many families is inadequate. Incarcerations, home foreclosures, underwater mortgages, the number of people in poverty, and the public’s dissatisfaction with Congress are at record highs. With America’s debt in the trillions of dollars, a larger fiscal crisis looms. Many Americans in 2012 were dissatisfied with the United States’ moral and ethical climate (68 percent surveyed), the federal government’s size and power (69 percent), and the state of America’s economy (83 percent). Given the dissatisfaction, it is a wonder why more people are not protesting.