Yes.

UPDATE: And yes again.

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Justice Scalia and four others on the Supreme Court recently upheld the FCC's attempts to clamp down on the "foul-mouthed glitteratae from Hollywood," but that case was about "fleeting expletives," not this:

A couple of years ago, we learned (supposedly) that using "taboo words" at work can reduce stress. So now that Timothy Geithner is all relaxed, I wonder about the people he was trying to influence. Does swearing work as a leadership strategy? Are Mary Schapiro and Sheila Bair now going to fall in line behind Geithner and Ben Bernanke?

I suppose that the message of swearing is not intended to be, "I have lost control of myself," but that's the way it often comes across to me, especially when someone who doesn't normally swear let's out an "expletive-laced" tirade. Fleeting expletives I can understand, but talking like a comedian? The fact that this was a W$J story suggests to me that Geithner is not in the habit of speaking to other agency heads in this manner, so when I read about his "repeated use of obscenities," I conjure an image of a man on the edge. I don't know about you, but I tend not to take advice from people who are emotionally overwrought.

Then again, people who routinely use expletive-laced tirades don't fare any better with me. They seem like little children throwing tantrums. For example, I officed near a law partner who seemed unable to control his potty-mouth, and when people stopped reacting to his language, he started breaking pencils and throwing things. At that point, we usually walked away to avoid getting hurt. Not an effective leadership style, I would suggest.

I assume that Geithner was going for something like, "I am really passionate about this." We have plenty of non-expletives in the English language for conveying this message, and non-verbal cues are helpful, too. If Geithner is unable to convey the message without repeated use of obscenities -- a tactic obviously designed to intimidate rather than persuade -- then I wonder not only about his temperament, but about his intellectual capacity. Does he lack the vocabulary to adequately express his outrage?

Or is he just losing it?

UPDATE: Below are the results of a poll that was attached to the WSJ story.(Click to expand.)

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Writing about the doctrine of unconscionability, Arthur Leff penned one of the great passages ever written in a law review article:

This passage came to mind as I read Timothy Geithner's comment on the bill passed last Friday by the House of Representatives regulating executive compensation: "This is a positive step forward to increase accountability and transparency in executive compensation, and to help ensure that pay encourages long-term performance, not excessive risk-taking."

Allow me to appropriate Leff for purposes of this modern debate:

UPDATE: Glom friend J.W. Verret forwarded me some interesting commentary on the bill, first from the Jim Lehrer News Hour (the relevant segment begins at the 38 min mark) and second from the Senate Banking Committee (click the large red button on upper right). Congrats to J.W. for his continued rise as a public commentator all things corporate.

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I've got a post up over at the Washington Post's Hearing blog on how the Free Enterprise Fund v. PCAOB case could affect the regulatory reorg.  Go give it a look, if you're interested in that sort of thing.

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is fun. A new search site for the times when you feel non-linear. Or if you just want a visual approach to search. Here's a search of "Gordon":

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Two years ago, I started posting about "Going Google," (see, e.g., here, here, here, here), and Google has now decided to appropriate the slogan as a marketing campaign aimed at businesses.

Question for my professor friends: has any university or law school gone Google?

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I have been thinking about Christine's assertion in her insightful post on Obama's unsatisfactory pitch for health care reform: "Hey, no one likes the health care system. We all want a better system."

While I suppose it's true that we all want a better system, I am starting to recoil at the notion that we should all dislike the health care system. During the past few months, our family has had myriad health care events, including routine checkups, radiology, physical therapy, surgery, and hospice care. We have always received timely treatment, and we have been satisfied with the quality of that treatment. As you would expect, our satisfaction varies with the treatment provider -- some are excellent and others not so much -- but I would say the same about service in restaurants, car dealerships, and grocery stores.

Maybe our treatment costs too much. I am told that the U.S. system is expensive, but I don't feel personally burdened by health costs. Yes, a good chunk of my paycheck goes towards my insurance, but we consume a great deal of medical care, so that seems like rough justice to me. Another chunk goes toward government health insurance that currently benefits people outside of my family (Medicare, Medicaid), and I am ok with that, too.

My general sense of satisfaction with the health care system doesn't seem to depend on where I live. We have lived in umpteen states from Delaware to Oregon and from Wisconsin to Louisiana and had roughly the same experiences everywhere. Sure, I would love to get uniformly better treatment at a lower cost, but none of the current reform proposals are headed in that direction. The last time I heard anything about improving the quality of my medical care was weeks ago, and the big selling point on costs has been that the federal government will not increase the amount I pay for health care. (Now, you can even scratch that selling point.)

If you are still reading, you are probably thinking something along these lines: "Of course you are happy with your health care. You make enough money that you can live in a nice community and pay for good insurance."

You would be right to say all of that, but that is precisely the point. People in the middle class tend to be more or less satisfied with their own health care. We aren't much interested in the claim that health care reform "may start us down a treacherous path toward government-encouraged euthanasia." And this is not about federally funded abortion, at least not yet, or about big, scary government limiting our freedom to be fat and addicted to tobacco. It's about the fact that Congress and the President want to add 45 million people to the ranks of the insured -- most of whom are employed and young, for what it's worth -- without impairing our access (where are the extra doctors coming from?) and without increasing our costs. Oh, right, ignore that bit about the costs.

In short, the problem with health care reform is that reformers have not made a case that health care reform will do anything other than make my life worse. Apparently, the Democrats agree with my diagnosis:

With Republicans making headway by casting the legislation as a costly government takeover, Democrats have decided they must answer the question on the minds of those now insured: “What’s in it for me?”

Will they succeed in convincing us of the need for reform? I think they have a good chance of convincing us that the regulation of health insurance companies needs to be tweaked. Beyond that, this is a tough sell. Then the issue will become whether the Democrats want to push something more ambitious through over the objection of Republicans (and Blue Dogs?). It's hard to imagine a more thrilling prospect for Republicans who want to regain control of Congress.

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If you teach Contracts, you know Hoffman v. Red Owl. My former Wisconsin colleague Bill Whitford recently located Joseph Hoffmann, the plaintiff, who now lives in St. Joseph, Michigan. Bill describes the unlikely chain of events that led him to Hoffmann (who spells his name with two “n’s” ... the Wisconsin Supreme Court is responsible for the altered spelling) in footnote 9 of his new article about the case, Hoffman v. Red Owl Stores: The Rest of the Story, written with Stewart Macaulay. Here is the abstract:

This is a fascinating case, and the article is well worth reading. This account differs in important respects from the account offered by Bob Scott in Hoffman v. Red Owl Stores and the Myth of Precontractual Reliance, 68 Ohio St. L. J. 71, 101 (2007), who characterizes the case as an "outlier." The key distinction between these two accounts relates to the interpretation of statements made by Ed Lukowitz, the Red Owl Divisional General Manager, to Hoffmann preceding the sale of Hoffmann's bakery business. Here is Scott's version:

Compare Whitford and Macaulay:

Note the potential agency law issue -- whether Lokowitz was authorized to make the key representations to Hoffmann -- and the fact that Red Owl did not press this issue. Perhaps Red Owl knew that they would lose under the doctrine of apparent authority, or perhaps Lukowitz was, in fact, told to make those representations, only to have "corporate" change its mind about Hoffmann. Either way, Red Owl loses on the agency issue.

Elsewhere in the paper, Whitford and Macaulay portray Lukowitz as a "Red Owl employee who wanted to keep his job" because Lukowitz denied making important assurances to Hoffmann. While Lukowitz comes off in the case as a pawn, to me he looks like an irresponsible intermediary who was the primary cause of the dispute. While it's possible that someone at Red Owl's headquarters told Lukowitz that the "only hitch" in the deal was the sale of Hoffmann's bakery, I think it's more likely that Lukowitz was overstating Red Owl's actual commitment.

Although Red Owl is treated as a single person for purposes of this lawsuit, it's worth remembering that Red Owl has multiple decision makers in the hierarchy. My guess is that none of them had a strong incentive to approve this deal. Certainly, we wouldn't expect anyone above Lukowitz to get a commission (and Whitford and Macaulay note that even Lukowitz may not have had that sort of incentive). While these middle managers have some incentive to grow the company, they often have a bigger incentive to avoid mistakes than to pursue gains.

Think of it this way: if the store failed, the obvious question for HQ would be, "who authorized this?" If, on the other hand, the store succeeded, HQ would be less likely to focus on who authorized the store and more likely to focus on who found Hoffmann (i.e., Lukowitz). Thus, the middle managers and Lukowitz have asymmetric incentives, and I suspect that these incentives account for Lukowitz's excess zeal and HQ's excess caution.

UPDATE: When I went back to the case after reading Bill and Stewart's paper, I was surprised to see no mention of agency law. They told me in the paper that Red Owl didn't press the issue, but I guess I didn't quite believe them. Larry Ribstein feels the same way.

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Doug Berman jumps on this big sentencing case.  The Nacchio case was not on my radar much, but I take it that he was convicted of 19 counts of insider trading and sentenced to 72 months (6 years to you and me) for each count.  So, we're talking Madoff numbers here.  Now, how the prosecutors and district court got to this number was by calculations under the Guidelines of the profit that Nacchio realized from his securities fraud. 

I've written before about the strange disconnect in calculating the magnitude of loss caused by securities fraud in criminal courts and in private securities litigation.  In private securities litigation, the doctrine of loss causation requires courts to extricate out how much others' shares went down (if any) because of the revelation of the fraud, isolated from other economic events that are happening at the same time.  Loss causation is the death knell for plaintiffs, although an employment scheme for economists.  But in criminal securities fraud cases, prosecutors ignore other economic factors and focus on the bare drop in stock price following revelation of fraud, and it's only important in sentencing, not in a finding of guilt.  Insider trading is even trickier because you aren't measuring the diminution in value of shareholders' stock, but the gain of the insider's stock (or loss avoided).  I guess to make matters simple, the district court just counted the net profit Nacchio received for selling stock, without trying to separate out the amount of profit that was related to selling before revelation of bad news.  So, if I sell a $50 stock for $25 profit relying on insider information that had it been known, would have reduced the stock price to $49, then for Guidelines' purposes, that's a $25 profit, not a $1 profit.

But, the Tenth Circuit thinks the district court can do better.  The opinion is here.  The Tenth Circuit doesn't fully adopt Dura, recognizing that the goals of criminal punishment are different than the goals of civil litigation, but it goes pretty far in saying that the district court should have taken into account the inherent value of the stock (as it appreciated over time) and separated out other economic factors that went into the stock price.  This may not satisfy many academics who question the rationale behind criminalizing insider trading at all, but it is good for white collar crime sentencing generally.

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Andrew Cuomo's report decrying bonuses does have one signal advantage forthe young financier looking to get rich.  It tells you how many million plus paychecks the big players were offering, as Rob Cox notes. 

Here's the disappointingly short list of big TARP recipients along with the number of employees making over $1 million last year, available in appendix B of the report, not controlled to firm size or anything.  JPMorgan, Wells Fargo, Bank of America, and Citigroup are the largest banks in the country by far - and they make radically different numbers of millionaires.  But if it is an investment bank you were considering, as always, I'd consider Goldman Sachs:

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Two disclaimers:  (1) we rarely talk politics here at the Glom and (2) I voted for Obama.  That being said, Obama lost me last week.  (I think he also "jumped the shark" with the "come over for a beer" invitation, but I guess that's for another day.)

Obama lost me in his fifth press conference on health care reform.  Hey, no one likes the health care system.  We all want a better system.  It very well may be that a national health care system, while imperfect, would be better.  But the argument that Obama made, which I'm sure was vetted by lots of people before he said it (because I've watched The West Wing), completely made me want to filibuster.  I saw the headline last week, and I had meant to look at it later.  When I looked for it today, I realized that many other people had the same reaction.  President Obama:  your tonsillectomy example scares me to death.

OK, in case you don't know what I'm talking about.  Obama was trying to make an argument that in our current system, if doctors know that a more expensive, but unnecessary treatment is paid for my insurance of Medicare/Medicaid, then that's the treatment option that is suggested.  I have no idea if this is true, and I'm not sure of a good way to empirically test it.  My own experience is that my doctors are usually very cost-conscious and give me several options, but that's an "N" of 1.  So, Obama says, "So if they're looking and -- and you come in and you've got a bad sore throat, or your child has a bad sore throat, or has repeated sore throats, the doctor may look at the reimbursement system and say to himself, "You know what? I make a lot more money if I take this kid's tonsils out."  Unstated here is that under the Obama plan, your kid doesn't get his tonsils out.

AAAARRGGGHHH!  Someone needs to take the president aside and explain to him that yes, a large portion of the voting, taxpaying public fears medical overcharging.  This may be a problem, and if it is, then a new system should not have incentives to overcharge.  But another large portion of the public fears undertreatment.  Some people lie in bed worrying that they'll get cancer and it will bankrupt their family.  Other people lie in bed worrying that they have cancer, but their doctor won't order the right test that will catch it in time.  And nationalized health care really scares the second group of people because it conjures up nightmarish scenarios of waiting lists and rationing.  If the second group is going to buy in to health care reform, then you have to allay their fears, not confirm them.

As a parent, I am quite familiar with the near-continuous string of ear infections and the near-continuous string of strep throat diagnoses.  Maybe Obama has never taken the baby in for its umpteenth ear infection, hoping that someone will put in tubes and maybe someone in your house will get a full night's sleep, and then been told that his insurer requires him to go through another round of amoxicillin, which seems to be as effective as liquid Flinstone vitamins.  We have been very lucky in having great doctors that moved as quickly as possible, given standard protocols.  What drives fear into my heart is that one of my children will have strep four or five times in one season, missing 8 days of school (and that goes for me, too), but a tonsillectomy is out of the question because the federal government says no.

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Colleen Baker points me to Richard Posner's a list of questions for legal academics, and he thinks we've been remiss about answering them. 

Well, neither I nor many of our readers are steeped in macroeconomics, but it would be a shame if his questions weren't given a bit of a stab by someone.  Let's see if we can't help the judge out, shall we?  I list his questions, and a few possible responses, including blog posts, though I don't know if the judge - himself a blogger - would entirely approve of the latter.  Perhaps you can chime in with your own thoughts or answers in the comments.

1. Whether, given the economic emergency presented by the collapse of the global banking industry last September, Federal Reserve chairman Ben Bernanke is right in claiming that the Federal Reserve lacked legal authority to save Lehman Brothers, which was at or near the center of the crisis.

I've never understood Bernanke's claim, which I think every observer thinks is disingenuous.  It doesn't take macroeconomic sophistication to recognize that if you can bail out Bear Stearns and AIG, and open the discount window to primary dealers, not to mention create the TALF, you can bail out Lehman.  The claim, by the way, was that the Fed could not be assured that a bailout loan would be secured with sufficient collateral, as required by section 13 of the Federal Reserve Act, which provides for nothing of the kind.  Steve Davidoff and I wrote about it here.

2. Whether a bankruptcy judge should be permitted to cram down the mortgage on a primary residence (that is, reduce the mortgage to the current market value of the mortgage property).

Adam Levitin and Anna Gelpern have done an interesting piece on this, and I'm guessing that bankruptcy scholars are going to flood the zone.  It seems to me that it pits the natural process of bankruptcy - a haircut for creditors - against one of the traditional bankruptcy carve outs - secured creditors get to look to their security.  My own, completely uninformed view: what is the alternative to a cramdown?  If they're bankrupt, they're bankrupt, which means the creditor gets the house at its then market value, or, it seems to me, a cash equivalent.  Anyway, they're also writing about this at Credit Slips.  Randy Picker has blogged about it here.

3. In a bankruptcy, should government bailout loans be given priority over claims of secured creditors?

Again, it's not a strength, but the government has always given itself remarkable priority in bankruptcy, even to the point of modifying private contracts (again, in Depression era jurisprudence).  Why should this be different?  

4. Is there any constitutional limitation on the federal government's abrogating a private contract, for example a contractual obligation to pay bonuses to employee of AIG?

I can't imagine what collaborating with finance theorists would do to solve this question, but the sanctity of contract is not something that is taught as a part of the constitution in law school.  Rather, the government can take any and all property it wants provided it offers due process.  And the government abrogates private contracts all the time, contracts for involuntary servitude being but one example.  Still, it's not as if these questions aren't close, or that the regular abrogation of contracts by the government wouldn't be a bad thing.  I presume answering them would take constitutional theorists back to the Depression era cases, such as Home Building & Loan Ass'n v. Blaisdell, in which the Court upheld the Minnesota Mortgage Moratorium Act, and the Frazier-Lemke cognate federal efforts.  For fun, you could read a US brief summarizing the cases as standing for the principle of modification in a crisis at 1937 WL 63799. My guess is that bankruptcy scholars will also be looking at James Steven Rogers' well-cited 1983 article in the Harvard Law Review on this. 

UPDATE:  Larry Ribstein weighs in here; he notes that I've neglected to mention the, uh, Contracts Clause, which is indeed in the Constitution (but not an incredibly toothy provision).  I don't think he totally disagrees with my analysis at bottom, though.

5. In cases in which the depression prevents a firm from honoring a contract, can it ever appeal to such doctrines of contract law as impossibility and frustration, or to such common contractual provisions as force majeure clauses and material adverse conditions clauses, to be excused from performance without incurring legal liability for nonperformance?

It is an interesting question, isn't it?  The defense usually doesn't work for private parties; should serious economic disasters be treated differently from hurricanes?  I'd like to see an answer to this one myself.  But from a public policy perspective, I doubt we'd want firms to be able to invoke the clause on something where the time of entry and exit are as debated as a recession.  Note this surprising (to me) opinion from an Illinois state court:

Many, if not most, construction contracts are not completed in compliance with the time requirements of the original agreement; and the parties consistently amend the agreement. In such cases difficulty, if not impossibility, of performance may be caused by a myriad of factors: e.g., weather, strikes, illness, death, sudden shortages of materials, recessions and even war. Under such circumstances, the parties, acting in good faith, should be permitted to adjust their agreements without the necessity of new and different detriment and benefit.

Greenberg v Mallick Management, Inc., 527 N.E. 2d 943, 949 (Ill. App. 1988) (citing Restatement (Second) of Contracts § 89).

6. Should bankruptcy law be amended, with respect to the bankruptcy of financial institutions, to bring it closer to the "resolution" procedure by which the Federal Deposit Insurance Corporation winds up the affairs of banks that go broke. Were that done, would resolution still be a superior method of dealing with bankrupt financial institutions (not limited to banks)?

Another good one, because it seems to me that the debate about "resolution authority" involves a lot of government officials saying they need to be able to do something, the need for which hasn't been clear.  Resolution authority was last reformed in FIDICIA, which gave the Fed new powers in addition to the FDIC, and a Fed regional bank president thinks it has authority to break apart banks already.  To me, the Fed's engineering of a sale of Bear Stearns, while unprecedented in size, and involving a non-bank, suggests that it can resolve failed institutions pretty quickly (upheld on judicial review, btw).  But others dither.  So in addition to knowing whether revamped superbankruptices would be a good idea, I'd like to know what problem would be solved with this new authority that cannot already be solved.  New resolution authority is the first financial reform that Congress will give the government, by the way.

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Yesterday I moderated a broadcast by the SEC Historical Society, which highlighted top presentations from NERA Economic Consulting's seminar on finance, law and securities litigation.  The presentations focused on topics ranging from SEC settlement actions and policy changes related to such actions and misunderstandings about mark-to-market, to proposals for regulating credit default swaps and other over-the-counter derivatives as well as a proposal to facilitate the SEC’s detection of Ponzi schemes.  Although the topics were diverse, each presentation explored issues central to the financial crisis, while seeking to assess how new or proposed reforms would impact those issues.  One particularly intriguing presentation was from Marcia Kramer Mayer who proposed that the SEC adopt a multiple-source reporting system in order to better detect Ponzi schemes, such as the one committed by Bernard Madoff.   The proposed multiple-source reporting system, which draws its inspiration from the one employed by the IRS, would require investment advisers, independent custodians and the IRS to provide certain periodic data to the SEC about managed assets, while also inviting (but not requiring) investors to provide certain data about their assets.  The data would feed into computers programmed to routinely and automatically cross-check such data for disparities.  Mayer noted that one problem with the current system is that the SEC has no ready way to confirm information reported to it.  Reflective of this problem, Madoff not only submitted fraudulent reports to the SEC, but he also submitted different reports to the SEC and investors.  An advantage of the multiple-source reporting system is that it could catch such discrepancies, while providing an incentive for more honest reporting from advisers who would be aware of the SEC’s ability to receive information from different sources.   By Friday, a fuller exposition of the proposal will be available here, which will certainly do more justice to explaining the proposal than I could do.   Nevertheless, her proposal reflects an interesting way to think about how best to resolve the potential fraud and other problems that arise because of the simple fact that most often the SEC receives its routine information from the most self-interested party.

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Just a reminder about the Business Associations Call for Papers, which has a deadline of August 14th.  The session willexplore the financial crisis and recovery effort by examining its impact on corporate governance.  Below is the call, and submissions can be sent to me here.  Hope to see you in New Orleans.       

                The AALS Section on Business Associations will meet during the AALS Annual Meeting in New Orleans, from 9:00am-noon on Sunday, January 10, 2010.

                The topic for this year’s session is “The Financial Collapse and Recovery Effort: What Does it Mean For Corporate Governance?”  During the first half of the session, there will be a roundtable discussion and debate among prominent law school faculty and other commentators on legal and financial issues.  During the second half of the session, legal scholars will present papers related to the topic. 

Papers will be selected based on submissions made in response to this Call for Papers.  Possible topics include the role of the federal government, the role of the board, executive compensation and decision-making, financial innovation and complexity, legal issues related to behavioral economics and finance, shareholder and stakeholder rights, and the theory of the firm.  The Executive Committee encourages submissions on a broad range of issues related to this year’s topic, including empirical and theoretical perspectives. 

                If you are interested in presenting a paper, please submit a summary of no more than three double-spaced pages, preferably by e-mail, before Friday, August 14, 2009.  In addition to the summary, you also may submit a complete draft of your paper. 

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• The Times's page one story about Goldman's assiduous lobbying to become an asset manager for the PBGC is both underwhelming and a caution to those interested in public service.  What happened was that a Lehman veteran got appointed to head the pension insurer by President Bush, decided to bring in some outside talent, about which the outside talent evinced enthusiastic interest.  By talking to the guy wherever they could - even, gasp, on Sundays.  And by providing him with some free information.  Some might call that business, to the Times, it's a scandal.  Suggesting that it would be better to leave pension management to colorless bureaucratic lifers who never talk to anyone.  No allegation that the gambit lost money, by the way.
• Bainbridge v. Henning on Mark Cuban
• Richard Posner sets forth a list of research questions for legal academics regarding the crisis.  I'll have more to say about this one.

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