Lawyers venture into the world of macroeconomics at their peril, but perhaps the Glom's savvy readers can help me understand the change in the aura of the world's beknighted central bankers.  Time was, when the Fed cut rates, the markets stood up and cheered like they were supposed to.  But that was the Greenspan era, and my sense is that Bernanke has not at all had the same luck with his monetary supply moves ... and that he wasn't getting the sort of rapturous responses the Fed was used to receiving even before the August phase of the financial crisis. 

Today the Europeans cut rates a little, and the British rates a ton (1.5%!  Incroyable!), and the markets over there reacted by collapsing 5-7%. 

What gives?  Cheap money alone can't solve a recession - but we already knew that.  But if banking is a confidence game, does that rule apply to central banking too?  I would have thought no (but see this), because central banks aren't levered.  Still, there's a pervasive sense of "you people can't help with your old hat rate cuts," in what I read.  If confidence has been lost in central bankers, whomever will we trust?

It apparently won't be a global financial crisis regulator, if the US has anything to say about it....

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When I was an undergraduate, I took a class on taxation in the spring of 1986. At the time, Congress was revising the Internal Revenue Code, ultimately producing the Tax Reform Act of 1986. My professor (who was about to retire) seemed oblivious to goings on in Washington, as he made us learn exclusively the old law. That class soured me on taxation to the point where I couldn't even bring myself to take the introductory tax class in law school, though I eventually bit the bullet and took corporate taxation, which was a lot more interesting than my undergraduate class!

Next semester, I am slated to teach securities regulation, and I am wondering whether I will find myself in much the same position as my undergraduate professor (sans the lack of motivation as a result of being on the cusp of retirement). My class deals with many fundamental concepts of disclosure and fraud that would be useful in any regulatory regime, but how much will that regulatory regime change, even as we are studying it? Here is the latest:

Sen. Charles Schumer (D., N.Y.) said Congress would try to redraw supervision of financial markets completely in the first six months. "Whether the economy was in tatters or not, we need a new system of regulation," said Sen. Schumer, a leading member of the Senate Banking Committee. (emphasis added)

How much will this affect Securities Regulation (the class)? It's hard to say at this point. Some of the relevant possible reforms mentioned in the article include:

• Creation of a "systemic-risk regulator"
• Shareholder approval of executive compensation packages
• Merger of the SEC with the Commodity Futures Trading Commission

Of course, much of what will happen over the next year will affect banking regulation more than securities regulation, but it appears that everything is on the table.

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It could be life.

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We read Barbarians at the Gate during the past 2 weeks for my Law, Literature and Business class, and I was struck on this re-read by the off-hand profanity in the book. Many of the protagonists curse as a matter of course, using an f---ing here or a s--- there merely to emphasize a point. In the most creative category, one scornfully proclaimed that a rival was his sexual consultant: “When I want his f—ing advice, I’ll ask for it.”

The profanity brought me up short because it’s not a part of my professional life anymore. In practice I cursed occasionally, and was around clients and fellow attorneys who did fairly frequently. But we hear less of this language in law school, particularly in student-faculty interactions. Indeed, during the discussion very few students could bring themselves to actually curse in class: “f-bombs” and “that kind of language” were as far as they went.

When I asked about the book’s profanity, the very first student to respond brought up gender. The 1980s Wall Street BATG describes is an unmistakably male world. There’s lots of testosterone sloshing around, posturing, grandstanding and pissing contests (that last one a metaphor that, as I pointed out to a male partner, just does not work for women). We discussed whether cursing creates a boys’ club women can’t join (because cursing is “unladylike”), whether it’s a proof of masculinity, whether times have changed.

If you’re a legal academic you’re probably thinking about this SSRN paper. Or yesterday’s oral argument on the FCC’s rule penalizing the broadcast of “fleeting expletives.” Both of which, in different ways, seem to be grappling with words that have power because they’re transgressive, either in the academic realm or in 6-a.m.-to-10 p.m. TV Land. During class I wondered if expletives play a different role in the business world. Are they instead a badge of toughness, a signal of the willingness to play hardball? And do women who do not swear, because of personal preference or in fear of others' perception, risk looking weak?

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After people stood in line yesterday to vote in some cases for several hours, today people in Maryland, Virginia, and DC found themselves standing in line for a different reason--to purchase a newspaper.  Indeed, by mid-morning, virtually every grocery store, convenience store, coffee shop, newstand, or bookshop in the area had run out of newspapers to sell.  In one case, a bookstore opened early, letting a few customers in at a time to purchase copies of the newspaper.  And within a few minutes, all the newspapers were gone and people in line were forced to look elsewhere.  To be sure, people may be able to go online and read the paper.  But this seems like one of those times where the online version would not do.  Instead, people wanted an actual newspaper to record a piece of political history.  Sometimes there is just nothing like the real thing.   

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We spent a good chunk of the summer following Microsoft's attempt to court Yahoo! In the end, Microsoft was driven away, in part because Yahoo! gave its heart to another suitor, Google. Now comes word that Google has dumped Yahoo!, ostensibly because of antitrust problems and complaints from customers.

Google's Chief Legal Officer David Drummond said that abandoning the alliance wasn't "legally necessary" but "the right thing to do because Google and Yahoo have been successful in online advertising and we realized that any cooperation between us would attract attention."

Do you get the feeling that this result is just fine with Google? The proposed deal with Yahoo! staved off an immediate competitive threat from Microsoft and left two wounded and frustrated competitors in the resulting rubble.

Now, if Google actually planned all of this, that would be really impressive.

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You can recapitalize banks with the sturm und drang of a legislated bailout, or you can try something that doesn't involve Congress at all.  The Fed shows us how it is done today with this rejiggering of interest rates designed to increase the amount of capital that banks may loan out.

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So says Katharine Q. Seelye, jumping the gun with a video retrospective on the election.

In January 2007, after our debate at the University of Chicago Law School, Kent Greenfield and I talked politics. At the time -- a year before the Iowa Caucus -- Hillary Clinton was the overwhelming favorite to win the Democratic nomination, but I thought she would be hard-pressed to prevail. Her negatives seemed too high. Though she ran a stronger race than I had imagined she could, I told Kent that I was intrigued by Barack Obama.

Now, almost 20 months later, it's hard to remember what a longshot Obama seemed at the time. Truth be told, I wasn't predicting an Obama victory, just saying that I thought he could be good for the country. While we all knew that the War in Iraq would play a significant role in the election, we didn't anticipate the importance of the economy as an issue. And, yet, despite the enormity of these issues, the major issue in this campaign from the beginning has been race. Race is the reason this has become "the most consequential election" of my life.

But race is not the reason I remain impressed with Obama after all of these months. I have come to respect his mind and his values, even though we disagree on many issues. While many people I esteem fear an Obama Administration, when I stood at the polling station earlier today, I chose to hope. For the first time in my life, I voted for a Democrat for the office of President of the United States because Barack Obama convinced me that he could change the world for the better. Indeed, if I am reading the images on television correctly, he already has.

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In an earlier post I suggested that a disclosure regime similar to the one imposed on public companies might be appropriate for the US government’s foray into the investment of public funds in private firms.  Today, through New York Times reporters, we get the response from the inner circle deciding how to allocate the TARP funds.

more ...

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I am working on a project exploring public perception of hedging and speculation.  Because of this interest, I noticed two articles in the NYT a week or so ago (yes, I'm a little behind on blogging).  The first article was titled "Some Regret Locking in Price for Oil," and reported that customers who rely on home-delivered heatin oil to heat their homes in the winter were given the chance to lock in the price of that heating oil this summer.  Many did, but of course the market price for heating oil is now down to around $3 a gallon.  This summer, customers signed contracts for fixed prices above $4 a gallon.  If the price of heating oil had continued to rise, then the customers would feel very smart; instead the price has dropped and now they are complaining to their heating oil companies. 

The second article, "Fuel Hedges Cause a Loss at Northwest," appeared in a different section of the paper.  Although fuel has gone down, any profits were wiped out because of its hedges on fuel oil.  The article doesn't say what types of hedges Northwest bought or what the terms were, but it should be a wash if Northwest was truly hedging.  Other than the costs of the hedging contracts, true heding shouldn't cause a true loss, although it could wipe out a potential profit due to falling fuel costs.

So in these two stories, the customers and Northwest did the same thing -- tried to be prudent in the face of rising fuel costs.  For Northwest, who is a user of fuel to create a product, hedging should reduce risk -- both downside risk and upside potential.  However, for the customers, who are end-users of fuel, their fixed-price contracts reduced their exposure to the risk of rising oil prices but left them vulnerable when the price declined.  But that's the nature of future contracts, right?  They are investments, and sometimes investments go down and sometimes they go up.

However, in the case of the heating oil customers, some vendors are negotiating with their customers and not making them bear the full loss.  A condominium is mentioned as being able to negotiate a different price for 2009, and a later blog entry on the NYT City Room reports that a Long Island woman quoted in the article was contacted by her oil company, which reduced her price per gallon by $.50.  The company said it made sense from a customer relations standpoint.

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So, I thought I would be clever and get to my polling place at 6:00 a.m., when voting started.  Unfortunately, a lot of people in my precinct seem to be just as clever.  I lined up at 6:06 a.m., and 52 minutes later, I was the 138th voter.  Apparently, the line started to form at 5:30 a.m.  Everything else went smoothly.  I was given a paper ballot and a ballpoint pen to darken circles.  I know from my almost 20 years of education that no machine in the world can read circles that aren't darkened in by a #2 pencil, but here's hoping.

Happy Election Day!!

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Chris Berman offered entertaining interviews of McCain and Obama during halftime of Monday Night Football. I could not have cared less about the game, but I was interested to see Obama endorse a college football playoff. He noted later in the interview that March Madness is his favorite sporting event, in part because of the up-or-out nature of the event, and he obviously thinks the same structure would bring the same excitement to college football. For the record, I agree.

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Robert J. Shiller should be applauded for being one of the few economists to consistently explore the potential ramifications of “irrational exuberance.”  In today’s New York Times Shiller asks why so few economists acknowledge the extent to which investor psychology can affect stock market prices.  The problem, I would argue, is not with the other economists, but with the inadequacy of Shiller’s explanations of the link between investor psychology to price instability.

Shiller’s analysis of the seeming blindness of most economists to the influence of investor psychology begins with the assertion that the “bubble” in residential real estate markets over the past few years was obvious.  According to Shiller, most economists were oblivious to this fact for two reasons: groupthink and inattention to “the recently developed field of behavioral economics.” Neither explanation is convincing.

more ...

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So, what do you do when your college footbabll team (and the team from your hometown) plays your law school football team?  Well, I root for Texas Tech, every single time, and I was not disappointed.  What a great game.  If I had a fourth child, I'd name him or her Crabtree.  Wow.

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The Washington Post's big Sunday story is on how badly the American pushed international terrorism financing prevention regime has done in courts in Europe.  That regime is designed to freeze the assets of people associated with terrorism, at least in the view of Treasury bureaucrats, before they can move those assets somewhere sinister.

Who could be against that?  Not me, in theory, but terrorism is something that you want your law enforcement officials to stop.  That's why the FBI and CIA spend considerable time on the issue.  The banking regulators who have also gotten involved have frozen the assets of an exceptionally wide array of people, and they've done it on the administrative quick.  They've been wrong a lot, and it still isn't clear how often they've been right.  The high error rate hasn't apparently bothered the Treasury Department - the upside of the asset freeze is that it is an extremely onerous sanction (imagine if you found yourself suddenly unable to use your credit or debit cards, house, phone, computer, car, or office - it's all freezable property) that can be put in place without any procedural protections.  Listings, both at the UN and the US, have continued apace.

A lot of people think the risk is worth the cost in error.  I've written a piece with Elena Baylis that begs to differ given the civil structure of the regime, and it's here, if you want a look.

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