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Deadline for financial regulatory reform

Dick Taffe — Thu, 24 Jun 2010 19:56:28 +0000

Congress is down to its self-imposed deadline to come up with a financial regulatory reform bill, leaving some of the most controversial provisions — like how to deal with the trading of derivatives — to the final hours. Law Professor Cornelius Hurley, director of the Morin Center for Banking and Financial Law and a former counsel to the Fed Board of Governors, says that a Congress that couldn’t bring itself to enact meaningful reform legislation during the height of the financial crisis now seems to be panicking to pass what he sees as deeply flawed bill.

“Having lost the moment to make bold changes, the legislative process has become all about the November elections and very little about sound public policy. Congress may well meet today’s deadline, but we won’t be the better for it.”

Contact Cornelius Hurley, 617-353-5427, ckhurley@bu.edu

Financial regulatory reform showdown

Dick Taffe — Mon, 21 Jun 2010 17:37:05 +0000

House and Senate conferees hope to wrap up this week the final version of financial regulatory reform legislation to send to President Obama, with chairmen Barney Frank and Chris Dodd delicately trying to compromises without losing votes for the overall package. What do about the trading of derivatives – the complex financial packages which helped sink the economy – remains up in the air. Law Professor Cornelius Hurley, director of the Morin Center for Banking and Financial Law and a former counsel to the Fed Board of Governors, says the proposal currently in the Senate version but objected to by both the House negotiators and the White House, wouldn’t be the best for taxpayers fearing another bailout but would be better than nothing.

“If derivatives trading is such a socially useful and profitable activity ($23 billion in revenue among the five banks that dominate the market) why can’t it exist outside of bank holding companies? The answer to the question is that it could exist in a different, nonbank setting, but, without the backing of the taxpayers, the activity would have to shed its casino-like features.”

Contact Cornelius Hurley, 617-353-5427, ckhurley@bu.edu

Arizona fighting the 14th Amendment

Dick Taffe — Wed, 16 Jun 2010 21:49:13 +0000

On the heels of passing a controversial law involving screening illegal immigrants, the Arizona legislature is considering a bill that would deny citizenship to children of illegal immigrants, despite the 14th Amendment to the U.S. Constitution that specifically grants naturalized citizenship to such children. Law Professor Susan Akram, an authority on immigration law, says getting such a law into constitutionally shape would mean having to amend the U.S. Constitution — which requires a two-thirds majority of both houses and approval by three-quarters of the states.

“Although Arizona’s effort to restrict the guarantees or benefits of birthright citizenship is by no means the first effort of its kind — and not likely to be the last — it has a very slim chance of passing constitutional muster.”

Contact Susan Akram, 617-358-3060, smakram@bu.edu

Derivatives amendment showdown

Dick Taffe — Tue, 15 Jun 2010 22:56:36 +0000

Enemies on all sides are coming down on Arkansas Democratic U.S. Senator Blanche Lincoln’s amendment to the regulatory reform bill that would rid banks of their lucrative derivatives business which played such a huge rule in the 2008 financial crash. Law Professor Cornelius Hurley, director of the Morin Center for Banking and Financial Law and a former counsel to the Fed Board of Governors, feels that the only problem with the amendment is that it doesn’t go far enough to drive “toxic” derivatives out of the bank-holding company temple entirely.

“By lodging this casino activity in bank holding company affiliates she runs the risk of the Fed doing in the next crisis exactly what it has done in this one, namely waiving the rigid rules that are supposed to separate banks from their holding company affiliates.”

Contact Cornelius Hurley, 617-353-5427, ckhurley@bu.edu

Congress eyes credit-rating agencies

Dick Taffe — Wed, 02 Jun 2010 21:00:54 +0000

The Congressionally sponsored bipartisan Financial Crisis Inquiry Commission now has cast its eyes on the credit-rating agencies and the impact they may have had on the Great Crash of 2008. Law Professor Elizabeth Nowicki, a veteran attorney from both Wall Street and the Securities and Exchange Commission, says the agencies are both hopelessly plagued by conflicts and in a position to undermine the very stability of the capital markets.

Nowicki: “Today’s hearings, then, will serve only as a political tool to emphasize the need for a dramatic response to the financial crisis.”

Meantime, School of Management master lecturer Mark Williams, a former Federal Reserve Bank examiner and author of “Uncontrolled Risk” about the fall of Lehman Brothers, says that while the rating agencies weren’t the main cause of the credit crisis, but they left the gate open and let the market and its participants behave in a more destructive manner.

Williams: “Meaningful financial reform will require that rating firms devise compensation plans that reward for high rating standards and provide penalties for intentional ratings manipulation.”

Contact Elizabeth Nowicki, 518-867-5355, enowicki@bu.edu; or Mark Williams, 617-358-2789, williams@bu.edu

BofA, Citi hid debt like Lehman

Dick Taffe — Thu, 27 May 2010 17:41:23 +0000

Bank of America and Citigroup brushed off reports that they incorrectly hid from investors billions in debt — similar to what Lehman Brothers did — to obscure its true level of risk. Company documents filed with regulators show the two Wall Street banks classified some short-term repurchase agreements (“repos”) as sales, which they should have shows as borrowings. Law Professor Elizabeth Nowicki, a former SEC and Wall Street attorney, says such “repo” transactions should have been disclosed — even if they were legal.

“Isn’t it material to one poker player to know that all the other poker players at the table regularly cheat in other games, even if none of the players actually cheats in the game then being played? Bank of America, Citi, and other banks using repos can count on being sued promptly by investors.”

Contact Elizabeth Nowicki, 518-867-5355, enowicki@bu.edu

Geithner urges global financial reform

Dick Taffe — Thu, 27 May 2010 16:59:56 +0000

Treasury Secretary Timothy Geithner is visiting with his European counterparts to say that the U.S. and Europe broadly agree on the need to reform the financial system but that global cooperation is needed. Law Professor Cornelius Hurley, director of the Morin Center for Banking and Financial Law and a former counsel to the Federal Reserve Board of Governors, says Geithner should be doing less lecturing and more listening in Europe in that the U.S. right now has only a “deeply flawed” legislative proposal to show as its response to the financial crisis.

“The better posture for the U.S. to strike on the international stage would be a willingness to cooperate with ongoing reform initiatives by the G-20, the Financial Stability Board, and others.”

Contact Cornelius Hurley, 617-353-5427, ckhurley@bu.edu

Apple online-music antitrust probe

Dick Taffe — Wed, 26 May 2010 21:25:28 +0000

The Justice Department reportedly is in the early stages of an antitrust investigation against Apple Inc., the largest seller of music online, looking into allegations that it used its dominant market position to try to keep music labels from granting exclusive access to content to Amazon.com. Law Professor Keith Hylton, an authority on antitrust law, says it makes sense for Apple to trim market support for certain songs when gets a smaller share of the profits from their sale — but they’re gotten aggressive about it lately.

“There are details that might indicate that they have gone too far in some instances; that remains to be seen. Still, in the long run, consumers generally gain from this activity.”

Contact Keith Hylton, 617-353-8959, knhylton@bu.edu

SEC moves to avoid “flash crash”

Dick Taffe — Wed, 26 May 2010 20:30:17 +0000

In an effort to avoid a repeat of the May 6th “flash crash” when computerized trading markets tumbled out of control, the Securities and Exchange Commission has voted unanimously to require audit trails to cover all trading orders from start to finish. Visiting Law Professor Elizabeth Nowicki, a former SEC and Wall Street attorney, says the proposal to allow the SEC constant, real-time access to that information to better monitor the markets is a great idea in support of investor protection — but it won’t fix everything.

“The reality is that this sort of information aggregation system is not a panacea, and, given how fast and sophisticated today’s trading markets are, it is unrealistic to expect that the SEC can ever truly be a real-time market regulator. Investors simply cannot expect that of the SEC.”

Contact Elizabeth Nowicki, 518-867-5355, enowicki@bu.edu

Regulators too close to oil industry

Dick Taffe — Tue, 25 May 2010 22:33:48 +0000

The Interior Department’s inspector general issued a report showing an all-to-cozy relationship between the department’s Minerals Management Service and the oil industry that it was supposed to be regulating. Law Professor Tamar Frankel, author of “Trust and Honesty: America’s Business Culture at a Crossroad” and an authority on legal ethics, says the problem of regulators becoming captives is complex and there should be limits on how much they can accept in gifts from those they’re overseeing.

“There are many other effective ways to nip corruption in the bud. The main point is to recognize that it is waiting in the shadows and to eliminate it before it starts festering and rotting the system.”

Contact Tamar Frankel, 617-353-3773, tfrankel@bu.edu