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Erik Gerding
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Thanks for this comment, Cristie. I do worry that our (and particularly) focus on economic efficiency can prevent us from discussing the broader and vital political and social values that are at stake in financial regulation and the regulatory process more generally. Economics is not value free. There is nothing close consensus, however, in the United States today on the balance among market, state, and society. A lack of consensus should not stop a conversation. At the same time, no one can find that the events leading up the financial crisis was a sensible balance. Privatizing gains and socializing risk doesn't accord with any principled political view. I understand the rage and romance that drives the Tea Party, but Tea Party opposition to financial reform strikes me as misguided and an indication of a political dialogue that has run off the rails. First, it is just not credible that the government will not bail out financial firms. Second, the bailouts weren't the only problem. Had we allowed more financial firms to founder, we can debate what the exact consequences would have been, but they would have been severe. Financial institution risk imposes severe negative externalities -- to to put it more bluntly -- hurts workers, businesses, homeowners, who may never have taken out a subprime mortgage or invested in Wall Street. I think the populist wave after the financial crisis has been severely misdirected and squandered. My question is how does one channel populist rage so that it is productive. Personally, I get extremely nervous about populism and whether its energies in the wake of financial crises can be harnessed. The history of financial crises is full of exmaples of scapegoats and ugly legal reactions. (To reach far back in history: the English stock market bubble that burst in 1696 prompted Parliament and the mayor of London to impose restrictions that limited the number of Jewish stock brokers). We didn't really discuss it much in the forum -- despite Kim's prodding -- but popular energy is an incredibly powerful force that scholarship can too easily sidestep because of discomfort, the messiness it can add to analysis or whatever.
One thing to think about, Kim, is the asymetry created by administrative law. Ad law tends to make legal challenges easier for those commentators who are looking to challenge a rule. After all the traditional concern of ad law is the classical liberal one of constraining political power. But modern financial reform also worries about regulatory inaction. What does that mean for your study? Well you would predict that opponents of the Volcker Rule will make more substantive points. Proponents will focus more on "political theater" designed to embarass regulators into acting.
Three questions, Brett: 1. What motivates your regulatory contrarians? 2. How do you make sure they don't interfere too much with the effective functioning of an agency? 3. Doesn't the various administrative mechanisms in the Dodd-Frank strike you as the administrative engineering equivalent of the financial engineering that precipitated the crisis? Is there something to be said for the fact that financial reform tends to be patterned not only after the dominant ideology of the time (ours might be the "Age of Engineering") but also after the industry it is designed to regulate?
And I highly recommend Cristy's Wisconsin piece: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1525645 It is one of those pieces I said, "Damn, I wish I wrote that."
There is the Eliot Spitzer model of a policy entrepreneur. Okay, okay, he is not an attractive example. But consider how many talented litigators go to work in federal prosecutor offices (like the SDNY). If they do a good job, they get a psychic reward and help their long term career.
Kim: If Dodd-Frank tried to do less, it would have been wittled down even further. I respect calls that Dodd-Frank should have been more carefully crafted, but there is the political reality of the issue attention cycle and the likelihood that more modesty would have meant the industry would be deeper into the "red zone" in the rollback fight now.
I usually don't like to wade into politics on the blog, but I think you hit a really important point, Brett, about the current ideological climate. Frankly, I don't recognize traditional Republican concerns about institutions in the current political dialogue. Threatening the Federal Reserve Chairman (who ain't no bleedin' heart)? Moreover, the debate about public employee unions has the collateral effect of making the public sector look a lot less like an attractive (let alone a noble) calling.
One common reaction to the financial crisis, is that it was a failure of "leadership" and that we need better leaders in place to stave off future crises. This "Great Woman/Great Man" theory of financial reform is great for selling magazines. But we can't rely on the right person (whatever that means) being there at the right time. What I like about the scholarship of the panelists is that it focuses instead on institutional design. Dan & Brett's great Regulatory Contrarions piece, for example, proposes some creative ways to harness and institutionalize policy entrepreneurs. One of the biggest challenge to any institution that seeks to use policy entrepreneurs is figuring out how performing well will advance their long term career prospects. Onnig Dombalagian responded to one talk that I gave over a year ago that included a policy entrepreneur feature with a witty, but apt reference to the cursus honorum in Rome. There is more to be said for the Great Woman/Great Man approach at critical junctures -- as when a new agency is formed.
Thank you for this response, Cristie. I am struck in reading this thoughtful post and your insightful and nuanced writings over the years how different you (and many other law professors) approach regulator incentives and problems like capture than do many economists. As one point of comparison, consider the work of George Kaufman on regulatory forbearance that lead to "prompt corrective action." It is not just different ways of defining the problem, but also very different models of what makes regulators tick. As I noted in a later post, many economists have a similar attitude to Kaufman's earlier work about the failings of regulators in the current crisis and what is needed to address those failings. The need to make regulations more automatic has gained much traction in the economic community.
"This is why events unnerve me, They find it all, a different story, Notice whom for the wheels are turning, Turn again and turn towards this time"
To play devi's advocate: what if, instead of fighting regulatory capture, we try to make it work. What if we admit that big banks are naturally going to be cozy with regulators? Under certain circumstances, this gives regulators better information and additional tools -- like moral suasion -- to influence big banks. Some commentators attribute the concentration of banks in Canada to the success of Canadian regulators in heading off subprime investments by banks. Is there any validity to this, Christie? I've always wanted to ask you the big question: "Just how did you Canadians avoid the crisis?" Is there soemthing about the regulatory environment or process in Canada that gave it an advantage?
For one hybrid, see the Peer Review Scholarship Marketplace: http://www.legalpeerreview.org/ Faculty submit pieces to a consortium of student edited law journals and agree not to submit to any other journals for 6 weeks. The journals send the piece to 2 experts in the field for a double blind peer review. Both the journals and the author get a copy of the anonymized peer evaluation. Then any consortium journal can decide to make an offer, which the author can accept or reject. I don't know how the system is working, but it would certainly work better if more journals sign on and more authors submit. Note that law professors can also support this process by agreeing to be peer reviewers.
Toggle Commented Mar 31, 2011 on Third Party Peer Reviewing? at The Faculty Lounge
Answered like a good lawyer. But I still detect a "rogue" professor.
Professor Krawiec, may I ask a few questions. 1. Am I correct in my assumption after reading your post that you too were rooting against Duke? 2. Is the vicious rumour circulating in the legal academy that you are a Tarheel fan true? 3. If the Duke law faculty hires a Tarheel fan, would that be a "taboo trade?" Thanks very much.
This likely goes without saying, but the more people who have actually read the paper before the talk, the better the exchange of ideas. If few have read the draft, workshops become more an exercise in performance and public speaking. I like the idea of option 4 (a discussant) best too, but perhaps with instructions to that person to keep it brief - or to frame the comments as issues for the audience to discuss. Here is another question: what makes for good conference panel formats?
Toggle Commented Jan 11, 2010 on Yet More On Workshops at The Faculty Lounge