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A Tale of Two Markets: Regulation and Innovation in Post-Crisis Mortgage and Structured Finance Markets
Get PDFThis Article takes stock of post-financial crisis regulatory developments to tell a tale of two markets within a political economy of financial regulation. The financial crisis stemmed from excessive risk-taking and dodgy practices in the subprime home mortgage market, a market that owed its existence to private-label securitization. The pre-crisis boom in private label mortgage-backed securities could never have happened, however, without financing from an array of structured products and vehicles created in the capital markets-CDOs, CDO2 s, and SIVs. It was these capital markets products that magnified mortgage credit risk and transmitted it into the financial system\u27s vulnerable nodes. The post-crisis regulation has proceeded on different lines for mortgage markets and for capital markets. Post-crisis regulation of residential mortgage origination and securitization markets includes a set of strict prohibitions on particular products and practices. In contrast, post-crisis regulation of capital markets takes a much lighter touch, increasing regulatory costs for certain transactions but not prohibiting them outright. Capital market regulation has been particularly focused on the capital requirements of a particular type of user of structured products-banks. Outside of bank regulation, capital markets remain free to innovate with structured products. This distinction is precisely what the political economy of regulation would predict. Interventions in consumer markets are likely to be more politically salient to voters because they address products that voters use directly, while structured products are purchased only by sophisticated financial institutional investors. Despite the lighter regulatory approach taken to capital markets, today\u27s structured products are qualitatively different than pre-crisis products. Subprime mortgage-backed securities, CDOs, CDO2 s, CDO-based synthetics, and SIVs have entirely disappeared from the market even without regulatory prohibitions. Even so, post-crisis regulation may have had an unintended effect. The increased regulation of banks has resulted in a shift of high-risk behavior in both the mortgage and structured products markets to the more thinly regulated nonbank sector, where financial innovation and regulatory arbitrage still proceed apace. The hydraulic effect of entity-based regulation may here be sowing the seeds of the next crisis
Fugitive Slaves and Undocumented Immigrants: Testing the Boundaries of Our Federalism
Get PDFFederalism—the dual system of sovereignty that invests both the nation as a whole and each individual state with the authority to govern the people of the United States of America—is a foundational pillar of American democracy. Throughout the nation’s history, political crises have tested the resilience of this dual system of government established by the United States Constitution. The fundamental contradiction of slavery in a nation founded on the principle that “all men are created equal” triggered the nation’s most prominent existential crisis, resulting in the Civil War. In the years leading up to that war, the federal government’s protection of the institution of slavery, via the Fugitive Slave Acts, clashed with the personal liberty laws of the free states. These states had eliminated slavery within their own borders, and hence did not embrace federal laws compelling them to allow (or assist in) the pursuit and capture of putative slaves living on free soil. The intensity of the resistance within these states increased as the federal government ratcheted up efforts to enforce the Fugitive Slave Acts, with little consideration given to the conflicting values of American citizens living in free states.
The most crucial federalism crisis of today stems from conflicting state and federal perspectives as to immigration. The Trump administration’s “zero tolerance” approach to “illegal” immigration has been tone deaf to the mores of people who live in diverse states such as California, especially as to immigrants who are seeking asylum. The President has personally repudiated and even mocked the nation’s long-standing commitment to the legal principle of non-refoulement, which prohibits the forcible return of refugees to countries where they face serious threats to their lives or freedom. Moreover, the Trump administration’s heavy reliance on executive action to achieve its goals, rather than the legislative process, has generated policies that lack widespread support among the national citizenry, not just that of an individual state .
The United States may learn some valuable lessons by reflecting on its past, specifically the history of the federal laws that sought to force the free states to recognize slavery within their borders. Heavy-handed attempts to compel compliance with federal law tend to engender resistance rather than cooperation, especially when, in the eyes of many, the federal law lacks both moral and democratic legitimacy. At a minimum, the federal government should not attempt to commandeer California and similar states to implement federal immigration policies that are misaligned with the values of the majority of their citizens. The safety valve of federalism allows these states to decline to do so
Twenty-First Century Formalism
Get PDFFormalism is one of the most widely applied but misunderstood features of law. Embroiled in a series of conflicts over the course of the twentieth century, formalism’s meaning has become confused as formalism has been enlisted by both proponents and opponents of specific legal methodologies. For some, formalism has simply become an epithet used to describe virtually anything they dislike in legal thinking. Used often and inconsistently as a stand-in (and frequently a strawman), formalism’s distinct identity has been lost, its meaning merged with whatever methodology it is being used to support or attack.
This Article seeks to separate formalism from those debates, identifying formalism for what it is: a commitment to form in legal thinking. Form is critical to understanding law; because law is a shared enterprise, it can only be understood and applied as it exists in some form. Formalism recognizes the form-bound nature of law and expands on that recognition by engaging with law in its various forms rather than as an abstraction.
The Article makes three main contributions to understanding formalism: First, it provides a modern definition of formalism, separating it from confusion over formalism caused by its invocation in a series of debates over law in the twentieth century. Second, it describes how formalism operates in methodologies and contexts beyond textualism and originalism, the two methodologies with which formalism is usually identified. Third, it explores the power of formalism beyond its value in determining the content of law. The form of law is what drives the various ways the law categorizes conduct, and law’s categories in turn give meaning to conduct beyond just the application of enforceable legal constraints. It is time for us to bring formalism into the twenty-first century and recognize it for its distinct role in understanding law and legal institutions
There Will Be Floods: Armoring the People of Florida to Make Informed Decisions on Flood Risk
Get PDFIn Florida, a peninsula surrounded by water with the second-lowest mean elevation in the country, there will be floods.[1] A global study ranking cities most vulnerable to losses from flooding lists Miami first in the United States and sixth globally; Tampa-St. Petersburg is listed as 16th globally.[2] Yet there are no state statutes or regulations in Florida that require a seller or landlord to make flood-related disclosures to homebuyers and renters. In contrast, while varying in scope, 29 states require flood-risk disclosures in real estate transactions.[3] Though Florida should be leading in this arena, in an evaluation of nationwide flood disclosure laws, the Natural Resources Defense Council gave Florida the lowest grade possible because of the lack of measures in place to protect homebuyers and renters.[4] This article provides an overview of the state of flood risk disclosures in real property transactions in Florida, what an ideal disclosure for both rental agreements and sales of residential property[5] would look like, and potential pathways for Florida to mandate flood risk disclosures. As the majority of states have recognized, by disclosing a property’s flood risk, a seller or landlord equips a buyer or renter with the information to prepare for the future and mitigate potential losses. Most importantly, people will be able to make informed decisions about one of the biggest investments they will choose to make in their life — where to live
Federal Ignorance and the Battle for Supervised Injection Sites
Get PDFFrom 1999 to 2017, over 400,000 people have died from opioid overdoses. The federal government recognizes the opioid epidemic as a crisis, yet it has failed to slow the surge of overdose deaths. Some states are, therefore, looking at the implementation of supervised injection sites. There are over 100 supervised injection sites around the world in twelve different countries, and these sites have produced hopeful data on counteracting the opioid crisis’s negative societal effects. However, the federal government has seemingly ignored any empirical evidence and continues to threaten state-sponsored supervised injection sites with criminal prosecution. This Note argues that any federal challenge to these supervised injection sites should be unsuccessful and will also dispel federal authorities’ conclusory allegations that these sites do not practically combat the harms of the opioid crisis
