Conferring

Today I'm off to the Wharton Restructuring and Turnaround Conference, which looks to be a great, high level discussion of all things chapter 11ish. But it is surely a sign of the times that the keynote speaker is a banking lawyer.

The Backdrop for BROKE: Consumer Debt Then and Now

In the introductory chapter of the book, Broke: How Debt Bankrupts the Middle Class,  I present some data about consumer debt levels in the United States. As Bob Lawless and others have shown, levels of consumer debt are strongly correlated with bankruptcy filings. While conditions such as unemployment, rising health care costs, and skyrocketing college tuition--and recessions--all create pressures on consumers that lead to borrow, debt is the sine qua non of bankruptcy--the relief offered by the system is the reduction or elimination of debt--not the promise of a good paying job or a strong social safety net. Because bankruptcy is driven by debt, those filings help reveal whether the levels of consumer debt will create serious problems for the economy and American families.

In Broke, I present a figure, courtesy of the San Francisco Fed, that shows the dramatic growth in household debt in real dollars over the last few decades. Reproduced below, the figure shows that the sharp acceleration began in the mid 1980s. This is an important point to understanding why recovery is proving difficult from the recession. As I explain in the book, "The consumer debt overhang, however, began long before the financial crisis and the recession. Exhortations about subprime mortgages reflect only a relatively minor piece of a much broader recalibration in the balance sheets of middle-class families. . . . The boom in borrowing spans social classes, racial and ethnic groups, sexes and generations." Broke, pp 4-5. The gray bands on Figure show recessions; this recovery is more difficult, at least in part, because we have an unprecedented gap between income and debt. Is this gap disappearing as a consequence of consumer reluctance to borrower and tightened credit conditions?

How to Address Apparent Racial Disparity in the Consumer Bankruptcy System

The article discussed in the N.Y. Times story today is heavily empirical. It is also deliberately light on the prescriptive. Bob Lawless, Dov Cohen and I did make two modest proposals: (1) that a question about race of the debtor should be included on the form for a bankruptcy petition to make it possible to confirm (or disprove) the finding that African Americans file in chapter 13 at a much higher rate than debtors of other races (about double in the data we have), and (2) that all actors in the bankruptcy system—judges, trustees, attorneys and clients—be educated about the apparent racial disparity and the possibility that subtle racial bias may be producing it. The Times certainly helped with the second one!

Beyond that, we leave it to others and to each of us individually to come up with policy responses. In my view, Henry Hildebrand, a longtime chapter 13 trustee in Tennessee, got the big picture exactly right; he is quoted in the Times story as saying we should “use this study as an indication that we should be attempting to fix what has become a complex, expensive, unproductive system.” He will probably reappraise his views if he finds out that I agree with him! Those of us who participate in or study the system know that its complexity is onerous.

Kudos to Jean Braucher and Bob Lawless!

A new study by Credit Slips own Jean Braucher and Bob Lawless (with Dov Cohen) on race and bankruptcy filings received very prominent and well-deserved page A1 coverage in the New York Times.  It's a fabulous study, and it's wonderful to see it getting such great media attention. 

The Consumer Finance Pantheon?

In putting together a revised syllabus for my consumer finance course this semester, I was struck with how different this nascent field is from established courses like Contracts.  No matter what Contracts casebook one uses to teach, there are a bunch of well-established chestnuts that everyone knows:  Hadley v. Baxendale, for example, or Williams v. Walker-Thomas Furniture, Raffles v. Wichelhaus, Frigaliment, Lucy Lady Duff Gordon, Hawkins v. McGee, or Jacobs & Young v. Kent (and one could go on and on).  It's hard to say the same for Consumer Finance; indeed, I've got very few cases on my syllabus. 

I'm curious what Credit Slips readers think are the leading cases in the consumer finance area.

Your Favorite Business Bankruptcy/Restructuring Lingo: A Word of Thanks

Just a word of gratitude to readers for providing great responses to the prior call for corporate bankruptcy lingo. Thanks to your help, UNC Law's advanced business bankruptcy students are collaboratively examining such terms through a wiki and this will help them make an even smoother transition into the professional world. If any new lingo comes to mind, don't hesitate to pass it along! 

Foreclosure Timelines and Mortgage Delinquency: More Evidence from Bankruptcy

At the end of a lively session yesterday at Duke Law School featuring Professor Stephen Ware of University of Kansas Law School, there was a brief discussion of whether shorter foreclosure timelines and clearer rules would promote more workouts of delinquent mortgages. The aforementioned paper about bankrupt homeowners suggests that the opposite might actually be the case: among homeowners in bankruptcy, longer foreclosure timelines in their home states were associated with a lower probability of foreclosure initiation while shorter timelines were associated with a higher probability of foreclosure initiation.

BROKE: A New Book on Consumer Debt and Bankruptcy

Just in time for New Year's resolutions on 1) reading more, 2) paring back your own debt, and 3) learning more about consumer bankruptcy to help you do your job (if you are a lawyer, judge, or academic, media, etc), the book, Broke: How Debt Bankrupts the Middle Class was released from Stanford University Press.

The book makes extensive use of the 2007 Consumer Bankruptcy Project data, providing statistics, analysis, and commentary on consumer bankruptcy and debt topics. I edited the volume, and chapter contributors are many Credit Slips regulars or guest bloggers--Jacob Hacker, Bob Lawless, Kevin Leicht, Angela Littwin, Deborah Thorne, and Elizabeth Warren--along with other top scholars.

In the next few weeks, the chapter authors will blog here at Credit Slips about the research featured in the book, but to whet your appetite, I've included a table of contents for the book after the break. The book is accessible to lay readers but its scholarly focus provides plenty of data to educate and surprise even bankruptcy experts. Working on the book, I certainly learned a great deal about timely and important topics such as how pro se debtors (those without attorneys) fare in bankruptcy, where families go after they lose their homes to foreclosure, how bankruptcy affects couple's marriages, and the ways that bankrupt households differ in their financial straits from other households of concern such as those with low assets or late payments on debt. Of course I'm biased but I think the book provides the most comprehensive overview of the consumer bankruptcy system since the enactment of the 2005 bankruptcy amendments.

Financial Institutions Palooza at the Association of American Law Schools Annual Meeting

The Section on Financial Institutions and Consumer Financial Services will have a record four events at this weekend's Association of American Law Schools Annual Meeting in Washington, DC. The theme is rethinking and reviving the field of financial institutions on the ground and in the academy. We will take stock of reforms so far and consider the impact of the crises in the United States and Europe, but also will take a long-term view of the field from diverse theoretical, policy, and methodological perspectives.

The program begins on Saturday morning with a big-think "revival" panel featuring Jill Fisch, Howell Jackson, Kim Krawiec, Pat McCoy, Katharina Pistor, and Annelise Riles, immediately proceeding to the lunch keynote by Governor Sarah Bloom Raskin, introduced by Arthur Wilmarth. Next comes an offsite policy roundtable moderated by Adam Feibelman, with regulators and policy makers from different agencies. The weekend program  features five academic paper presentations on Saturday afternoon and Sunday morning, focusing on the state of financial reform and the way forward. Heidi Schooner will moderate the Call for Papers panel.

Full program details are here. Below are the links to the selected papers, authors, and commentators.

Understanding Anna Nicole Smith (or, at least, Stern v. Marshall): A Must-Read Analysis

Led by my colleague Elizabeth Gibson, four members of the National Bankruptcy Conference have produced a fantastic analysis of the Stern v. Marshall U.S. Supreme Court decision (that most recently has been mentioned on Credit Slips here and here). I strongly recommend it for judges, lawyers, academics and others interested in the bankruptcy system and/or federal court jurisdictional questions.    

Anna Nicole Smith, the Constitution, and Bankruptcy

To all law profs out there who plan to attend next week's Association of American Law Schools annual meeting, be sure not to miss the Creditors' and Debtors' Rights section program Saturday morning at 8:30.   The theme of the program:  "Marathon at 30:  A Retrospective on Bankruptcy Court Jurisdiction in the Shadow of Article III."  Bankruptcy Judge J. Rich Leonard will moderate a discussion featuring Douglas Baird, Susan Block-Lieb and Troy McKenzie.  The panelists will consider, among other issues, the confusion sown by the Supreme Court in the process of resolving claims to the estate of Anna Nicole Smith's billionaire husband in Stern v. Marshall.  For some background on the case, see CS posts here, here and here. 

Revamping the Advanced Bankruptcy Class

Thanks, Bob, for welcoming me back. I'd like to start with a quick poll. Credit Slips readers, off the top of your head, what short writings (say 5 pages or fewer) should law students be doing that would be directly relevant to business bankruptcy practice? They can be related to business cases of any size, and can be litigation, counseling, or transactionally oriented. If you'd prefer to write me directly than to comment below, I welcome your thoughts at bankruptcyprof@gmail.com. Feel free to forward my inquiry to bankruptcy listserves for which this would be appropriate. Thanks for sharing your expertise!

Ironies of the Legal Profession?

Funny to see the juxtaposition in the New York Times of a piece berating law schools for the irrelevance of their curriculum and then a piece about our former co-blogger Elizabeth Warren, a law professor whose work can be called anything but irrelevant (unless you think conceiving and standing up a new government agency that some think is the Leviathan itself is irrelevant). 

There's lots to say about what's right and what's wrong in the NYT piece on law schools--maybe for a future post--but for now let's just say that it paints with too broad of a brush. There are certainly real problems with the law school curriculum and legal scholarship, but the NYT didn't quite capture them.  The bigger problem with the piece, I think was that it accepted the idea that law schools should be preparing students with practice knowledge like where to file a certificate of merger. Baked into this critique is an acceptance of the beleagured economics of the legal profession, where billing is usually by the hour, rather than by the service, so clients often pay premium rates for non-premium services (that frankly don't require a legal education). This is what clients are increasingly pushing against--why pay laywers for work that doesn't really involve much training or knowledge? If law schools aren't succeeding in training their graduates to perform the non-premium services, is that really a failing? Or are law schools actually training students in the critical thinking skills-- statutory interpretation skills and policy argument skills--that can sustain premium billing rates?  

The Heirs of Karl Lleywellyn: the PEB Report, Green Cheese, and the Hijacking of American Law (Part I)

This last week the Permanent Editorial Board of the Uniform Commercial Code came out with a report bering the none-too-thrilling title of "Report on Application of the Uniform Commercial Code to Selected Issues Related to Mortgage Notes". There's an awful lot to say about this awful document, and I'm not going to attempt to cover it all in a single blog post. This post is going to cover what the report is, what authority it has, and why it is completely irrelevant (namely that it deals with negotiable notes, when virtually all mortgage notes are non-negotiable). Subsequent posts will deal with the substantive flaws in the report and with the motivation behind the report and with the way the uniform law making process has become completely hijacked by monied interests.

There are two critical takeaways from this post. First, it is important to understand that the PEB report is not law. It is not authoritative or binding. The PEB does not determine what the law is or what the Uniform Commercial Code means or does not mean. The report is merely dicta on dicta from a completely nonrepresentative, politically unresponsive body that includes some patently conflicted members.

Second, it is important to understand that the PEB report is utterly irrelevant because by its own terms it only addresses the enforceability of "negotiable" mortgage notes, and virtually all mortgage notes are non-negotiable. Therefore, even if everything in the PEB report were correct (which it ain't), it would have as much real world application as a report on the enforceability of mortgage notes made of green cheese. (This raises the question, of course, why there would be so much energy spent on an irrelevant document. I'll address that in a later blog post, but basically this report is a desperate attempt to put a finger on the scales of justice in favor of the banks).

New Balick Chair at Widener Law School

Many Credit Slips readers will remember Judge Helen S. Balick who presided over the U.S. Bankruptcy Court for the District of Delaware. The Widener School of Law has established a chair in her honor and invites persons to apply to serve as the first Helen S. Balick Chair in Business Bankruptcy Law. More details about the position are available here.

Warren and Empiriciscm

It is not often that intellectual debates about the nature of law and legal scholarship find their way into the popular media. Elizabeth Warren's campaign for U.S. Senate, however, has provided the occasion. This past weekend in the Boston Globe, Leon Neyfakh profiled Warren's academic career and her intellectual legacy. Neyfakh did a great job with a nuanced debate from the academy and explaining it for a popular audience. The article is well worth a read, especially for junior scholars who were not around for many of these earlier debates.

Regulatory Bankruptcy

My Jotwell review of Sarah Woo's last article is here. 

Call for Papers: Financial Institutions and Consumer Financial Services Section

There is still time to submit for this Call for Papers -- the extended window is closing on  September 20. In addition to the Call for Papers, the section program at the Annual Meetings of the Association of American Law Schools features a talk by Federal Reserve Governor Sarah Bloom Raskin, and a scholarly panel on reviving financial institutions, their study and regulation -- banks and beyond.

Conference on the Debt Crisis in the Eurozone

If you happen to be in Reykjavik or thereabouts in early October--or scouting the web for papers putting Europe in perspective--this looks like a wonderful conference, not least for bringing economists, finance, policy, and legal types together in one place (and my contribution notwithstanding).

The Systemic Risk Industry

There seems to be a cottage industry now in proposals to solve and/or mitigate systemic risk. I'm myself somewhat of a guilty party. The producers here are law profs and economists (and probably some other disciplines as well). These proposals fall into three buckets. One focuses on executive compensation as the key area for reform, a second on activity and/or size limitations, and the third on changing banks' capital structures. Strangely there seems to be little integration of these three approaches, although they would seem to be complements, rather than alternatives. But we scholars tend to see every problem as a nail for our particular hammer. 

It'll be interesting to see if this industry has a half-life longer than a couple of years; I suspect not, as many of the producers in the industry are not particularly interested in financial institutions per se and are likely to migrate to the next hot application of their tool box. Among existing proposals, the most intellectual activity has focused on capital structures as key. We've seen myraid co-co bond proposals, living wills, holding company structures, alternative capital risk-weighting, leverage limits, liquidity requirements, expanded shareholder liability, and all sorts of other variations on contingent capital. (I'm pointedly not linking any of these because my point isn't to pick on any single proposal, but to note a phenomenon.)  Some of these ideas are quite creative; some reinvent the wheel (it's astonishing how many proposals are blissfully unaware that similar devices have been tried and rejected by the market in US banking history).  Some are realistic that they can at best mitigate risk; others seem to truly believe that they will make the world safe for banking and eliminate risk.  

I'm rather conflicted regarding how to view this industry. On the one hand, I'm thrilled to see this level of scholarly attention to financial regulatory issues. Would that had been the case pre-crisis. On the other hand, I get the eerie sense from reading some of these proposals that I'm witnessing a redux of structured finance, in which a lot of excellent brain power was spent on trying to develop capital structures that eliminated risk, only to find out that it had been shifted and concentrated, rather than removed. (This might be because of the prominence of co-co bond proposals, which, like securitization, are automated bankruptcy systems.) 

I've argued elsewhere that at best we can reduce risk--akin to building higher levees or flood walls--but that doing so has its own costs.  The key point is that we cannot eliminate it from the system and need to learn to live with it and allocate losses more efficiently, fairly, and transparently ex-post.  Even this, I'm not sure will hold up. Credit Slips' Own Anna Gelpern has wisely pointed out that rules are inevitably tossed overboard during financial crises as soon as they become inconvenient. I have to think that this would apply both to capital structure rules (would co-cos really convert if it affected other financial institutions' holdings?) and to ex-post loss allocation rules (again, co-cos being in effect an automated loss allocation). I hate to take such a nihilistic position, but I think we risk deluding ourselves if we think we can seriously contain, much less eliminate risk by solely by adopting new capital structures.

Bankruptcy Politics and State Bankruptcy

I have a new paper out, Bankrupt Politics and the Politics of Bankruptcy, that examines state bankruptcy proposals and then uses them as a jumping-off point for sketching out a political theory of bankruptcy as a "creditor's armistice," an unstable political bargain, rather than an economic bargain ala Jackson & Baird's "creditor's bargain."  

The paper argues that bankruptcy is unlikely to do much good for the states because states' fiscal woes are akin to business model problems, rather than simple overleverage, and bankruptcy cannot fix business models.  States' business model--US fiscal federalism--is an inherently procyclical business model that is exacerbated by a moral hazard problem in state politics. Bankruptcy can no more fix this bad business model than it can make a buggy whip manufacturer (or a brick-and-mortar bookstore or video store) a viable operation.  

The intensely and patently political nature of the issues raised by state bankruptcy show a major set of deficiencies in contractarian theories of bankruptcy law, which have been developed primarily in the business bankruptcy context.  While others (such as our former co-blogger Elizabeth Warren) have criticized the creditors' bargain for failing to account for all of the stakeholders in bankruptcies, I argue that the inclusion or exclusion of various interests in bankruptcy is itself an essential part of a dynamic system of competing rent-seeking interests.

I don't attempt a formal exposition of an alternative political theory of bankruptcy in this paper--that's for another day--instead, I use this paper to lay out the idea and start linking the sovereign debt, subnational debt, business debt, and consumer debt literatures into a "unified theory" (yeah, I'm going to aim big, why not?) of debt restructuring (as in bankruptcy with a small "b").  The abstract is below the break:

Credit Card Securitization and Skin-in-the-Game

I have a new paper on credit card securitization and what it teaches us about the likely effectiveness of the Dodd-Frank Act's skin-in-the-game risk retention requirements. Credit card securitization has long required 4%-7% credit risk retention (cf. 5% under Dodd-Frank).  

I argue that when combined with other features of credit card securitization it was actually counterproductive at aligning issuer/securitizer and investor incentives and likely contributed to rate-jacking. Instead, credit card securitization didn't go off the rails like mortgage securitization because of the existence of implied recourse, effectively 100% skin-in-the-game. This suggests that skin-in-the-game cannot be relied upon as a one-size-fits-all cure. Its effectiveness will instead depend on the other securitization features with which it is combined.  

If you're interested in going into the sausauge factory of credit card securitization, there's plenty of gore and detail here for you. If you're interested in the connections between credit card securitization and rate-jacking, there's something here for you. And if you're interested in whether Dodd-Frank's risk retention requirements will be effective, there's something here for you too.  

The (overly long) abstract is below the break:

How to Find Me

I've had a series of funny phone calls this week, in which the speaker expresses total shock that I answer the phone. While I am notorious for never answering my phone, the real cause of the callers' surprise is that the number where I answer is sometimes the third one they have called looking for me. Why? I just relocated to Irvine, California as I've joined the faculty of the UC Irvine School of Law, after a year-long visit at Harvard Law School and several years on the faculty at the University of Iowa College of Law. For those of you looking for detailed information, the bio link on the Credit Slips homepage will get you what you need.

Sarah Woo

I am sad to report that my co-author, and recent Credit Slips guest blogger, Sarah Woo of NYU recently passed away after a long illness. She was one of the few who easily bridged the devide between banking and bankruptcy, and will be missed.

Call for Papers: Section on Financial Institutions and Consumer Financial Services

Following is a call for papers to be presented as part of the section program at the Association of American Law Schools Annual Meeting next January.

The program takes place one and a half years after the Dodd-Frank Act was signed into law.  The law left many of the details of financial reform to be filled in by regulators, raising the risk of capture.  Some of the most important rule makings have begun in earnest; others have stalled as reform fatigue sets in. Meanwhile, reform efforts in Europe and international regulatory initiatives remain works-in-progress. What lessons can we draw from the implementation of Dodd-Frank so far?  What have been the greatest achievements and the greatest disappointments as the legislative process has given way to the administrative?  What devils have lain hidden in the details of the Federal Register?  What aspects of reform have been largely forgotten?  What does the path of financial reform say about legislative and regulatory process?  What lessons can be drawn from the reform efforts in Europe and elsewhere?  Does the focus on regulating institutions detract from a focus on regulating financial instruments, markets or economic functions and risks? 

Call for Papers on Regulation in the Fringe Economy

Jim Hawkins, Jean Braucher and I, put together a symposuim proposal on frindge banking products, and we were very fortunate to have Washington and Lee School of Law (home of the illustrous Professor Margaret Howard) accept our proposal. As a result, the law school is now making the follwing call for papers. 

The symposium Regulation in the Fringe Economy will be the most significant attempt to date by legal scholars to address the vexing legal and social issues created by lenders on the fringes of the economy who offer payday, auto title, for-profit college, and refund anticipation loans. A complete list of confirmed participants and their paper topics is available at the conference website: http://law.wlu.edu/fringe.

Household Debt Panels at Law & Society

For those of you who will at the annual meeting for the Law & Society Association in San Francisco this week, there are panels exploring issues related to household debt on Thursday and Friday. Academics from North America, South America, and Europe and representing different disciplines will be presenting papers on issues relating to bankruptcy, credit reporting, credit regulation, and many other topics.

The schedule and line-up appears below the fold. The locations will be in the program for the annual meeting. Note that attendees must register through the Law & Society Association.

Recommended Reading

As I await the arrival of this semester's exams, and all the fun that those will entail, I'm getting caught up on my reading. The best of the bunch thus far is Emily Kaden's history of the Pitkin Affair, which appears at 84 Am. Bankr. L.J. 483 (2010), and online here. Having read a lot of bankruptcy history, I was generally familiar with the plot, but Emily presents the definitive history of the entire episode, which is so often referenced, but not explained, in latter histories of English and American bankruptcy.

The Morality of Strategic Default

Professor Curtis Bridgeman (FSU College of Law) has an article on The Morality of Jingle Mail:  Moral Myths About Strategic Default.  I have a fundamental philosophical disagreement with the article, but it's got a lot of very good, clear analysis of arguments about strategic default, including a very useful typology of argument.  

Big-Bankruptcy Empirical Research Post-Op (3): Jack-knife Fights and Pencils in Zimbabwe

If you have followed me this far--and it's understandable if you haven't--you might be curious to know what ultimately came of LoPucki's Big-Bankruptcy Empirical Research Conference, which I "live-blogged" (is that a verb?) yesterday.

The short answer:  It's all about jack-knifing and pencils in Zimbabwe.

Huh?

Background:  Nothing gets academics’ dander up like debates about methodology.  For legal academics, this often breaks into two related clashes.  (1) Whether to be an “empiricist” or not; and (2) if so, how to do it.  

The folks at LoPucki’s conference mostly drink the empiricism Kool Aid, so answer the first question “yes.”  After all, they included some of the nation’s leading business bankruptcy empiricists, among others Ken Ayotte (Northwestern), Joe Doherty (UCLA), Ted Eisenberg (Cornell), Bob Lawless (Illinois), Adam Levitin (Georgetown), Steve Lubben (Seton Hall), Ed Morrison (Columbia), Bill Whitford (Wisconsin), Sarah Woo (NYU) and, of course, LoPucki himself.

Rather, the real knife fight was over how to do this work.  Must it only be quantitative (and guided by a scientifically legitimate—falsifiable—hypothesis)? Or could (should) it also include (arguably less rigorous) qualitative methods?  Does it have to be social science?  Or is “good enough for law” good enough?

This may sound like mere wonkage.  But it matters for two reasons.  

Live-Blogging the Big-Bankruptcy Empirical Research Agenda (2): Defining Terms

Still at UCLA.

Regardless of how you define chapter 11 success, selecting the information that should compose a chapter 11 database to help you figure out what works (and what doesn't) is often a much trickier problem than you might think.  Consider, for example, the simplest question:  what is a “turnaround manager?” 

It’s a question you might want to be able to answer, because you might think that they do (or do not) make success (however defined) more likely.   The services of the  ZolfoCoopers and Alvarez and Marsals of the world  don't come cheap.  If they aren't improving outcomes, maybe they aren't worth the price.

Yet, we know that the ZolfoCoopers and Marsals are not the only turnaround managers. For example, LoPucki observed that many companies in trouble may simply let senior management go, and “promote some subordinate lackey who is declared to be a turnaround expert.”  Is that person a "turnaround manager"?

Program Reminder: AALS Section on Financial Institutions and Consumer Financial Services

The section program at the Annual Meeting of the Association of American Law Schools in San Francisco on January 7 is a veritable Credit Slips reunion show.  The theme is post-crisis regulation of finance.  The Call for Papers panel at 4 pm features papers by William Birdthistle, Jim Hawkins, Adam Levitin, Alan White and Sarah Woo.  The 7 am breakfast is a policy roundtable representing a range of interdisciplinary perspectives, including Cristie Ford, Bill Kovacic, Brett McDonnell and Annelise Riles, with Heidi Schooner moderating.  Both meetings are at the Parc 55 hotel in Union Square.  Registration informaiton is here; program details are here.

JSD with Bankruptcy Emphasis

We have some readers outside the United States who might be interested in the following. The University of Illinois College of Law has a JSD program, which awards an advanced graduate degree primarily designed for students intending to pursue an academic career. Typically, students come from outside the United States and often return to teach law in their home countries. Students are assigned to a faculty member who serves as the principal supervisor for their dissertation research.

Next year, I can supervise one JSD student who would work in the area of bankruptcy. The research project for the dissertation should involve empirical work on bankruptcy and consumer credit in the student's home country. The applicant would have to meet the requirements for and be successfully admitted to the JSD program. For more details, see the College of Law's web page about the JSD program.

Mortgage Servicing Paper

Credit Slips Guest Blogger Tara Twomey and I have a new paper out on mortgage servicing in the Yale Journal on Regulation.  It's long, but it tries to present a comprehensive overview of the economics and regulation of the servicing industry, as well as an argument that servicing suffers from a serious principal-agent problem.  We hope it will be a useful resource for those dealing with servicing and working on foreclosure-related issues.  

US News & Unintended Consequences for Bankruptcy Judges (and the Law Clerks They Hire)

A post over at Law School Transparency caught my eye (hat tip to Leiter's Law School Reports), and it should be catching the eyes of U.S. bankruptcy judges. Law School Transparency, started by law students, advocates for more transparency in the way law schools report employment data. This is undoubtedly a good thing.

The post describes correspondence with Bob Morse, the keeper of the U.S. News law school rankings. To the uninitiated, these rankings have a incredibly outsized influence on the legal academy and can influence how law schools make decisions about everything from career services to admitting part-time students. This is undoubtedly a bad thing.

Law & Society Call for Proposals

For our academic readers, I wanted to alert you to a call for proposals for the Law & Society annual meeting to be held June 2-5, 2011, in San Francisco. The Law & Society Association has approved an international research collaborative (IRC) on "Comparative and International Perspectives on Regulation of Household Credit, Debt, and Insolvency." The IRC will run panels at the San Francisco meeting as well as the 2012 international meeting for Law & Society to be held in Hawaii. Becoming a part of this group is a great way to get to know scholars from many different countries working on issues related to consumer debt.

Unfortunately, the time is short. Fortunately, the proposal need not be more than one- or two-paragraph abstract describing a project that would be ready for a full presentation by the time of the meeting. Of course, if you have work further along, we would like to receive that as well. If you have a proposal, send it to me by this Friday, December 3. We will give every proposal we receive full consideration, but cannot promise to accept every submission. If you do not have a project to present but would like to participate as part of the IRC, it would be great to see you in San Francisco.

The Constitution in the Financial Crisis

I'm off this morning to California, where I will be speaking at Stanford on "Bankruptcy and the Rule of Law." Looks to be a fascinating conference overal -- with an unusual foray into Constitutional Law for a bankruptcy person like myself.

Truth on the Market has the full details on the conference.

NCBJ Endowment Is Solicting Research Grant Proposals

Through its Endowment for Education, the National Conference of Bankruptcy Judges has supported many research projects through the years, including studies on topics as diverse as credit counseling, payday lending, and examiners in chapter 11. Judge Eileen Hollowell wrote me to say that the Endowment is currently soliciting applications for research grants. If you have a proposal for a research study, now is a good time to apply for a grant with the Endowment. Judge Hollowell added that the Endowment was particularly looking to fund studies from persons who have not received Endowment funding in the past. The Endowment is an especially great resource for scholars looking for support for the expenses connected with empirical research. Instructions, forms, and eligibility guidelines are available at the Endowment's web site.

What's Eating Todd Zywicki?

It's no secret that there's no love lost between Todd Zywicki and Elizabeth Warren.   But Todd's latest salvo in this feud is simply filled with inaccuracies.

Todd goes after Elizabeth for (1) her medical bankruptcy research, (2) the Two-Income Trap, and (3) the treatment of strategic defaults in Congressional Oversight Panel reports.  Todd's charges in (1) and (2) are just rewarmings of his past critiques of Elizabeth's work and of Meghan McArdle's botched hatchet job of Elizabeth in the Atlantic for which she was taken to the woodshed by numerous observers (see also here and here, for example).

But what about the Congressional Oversight Panel's treatment of strategic defaults? Here, Todd's claim is demonstrably false.

Empirical Caution: A Lesson from Auto Title Loans

A few weeks ago there was some nice discussion about Jim Hawkin's article on fringe banking.  Natalie questioned whether Jim's assumptions about payday lending correspond with empirical reality. Similarly, it's worth pointing out that the data Jim relies on regarding auto title lending aren't what he or even his source thought they represented.  

I make this observation not to ding Jim's paper, but to raise a really troubling problem for all academics: how to deal with data from other scholars' empirical work?  

Maybe I'm just paranoid...

But reading that Larry Summers is resigning makes me itchy.   While there's a perfectly plausible personal reason for his resignation, part of me worries that he sees something coming that I don't and that the shit is really going to hit the fan (Japan sovereign default?  Some other disaster?) and he doesn't want to be around when that happens.  

Get a Signed Glossy Photo from Adam Levitin

Reliable sources tell me that, on October 22, 2010, the American College of Bankruptcy is sponsoring a symposium, "Responses to the Financial Crisis," that will focus on the role of the bankruptcy system and how to handle "too big to fail" institutions. The symposium is open to the public and is provided at no cost to the participants, but you do have to register at the symposium web site (which also has more information). The symposium will take place at the Georgetown University School of Law.

Among the outstanding faculty on the program is Credit Slips regular and Georgetown law professor, Adam Levitin. Rumor has it that Levitin might provide a signed glossy photo if you ask and that if you ask nicely it will even be a photo of someone other than Levitin. However, no promises or warranties of fitness or merchantability are made. And, just to be clear, the phrase "reliable sources" means I heard about this symposium from someone other than Levitin. Adam, if you want equal time for rebuttal, the comments are open.

Explaining the Housing Bubble

Some self-promotion:  I've posted a new paper to SSRN, coauthored with Susan Wachter (Wharton).  It's entitled "Explaining the Housing Bubble."  Here's the abstract:

    There is little consensus as to the cause of the housing bubble that precipitated the financial crisis of 2008. Numerous explanations exist: misguided monetary policy; government policies encouraging affordable homeownership; irrational consumer expectations of rising housing prices; inelastic housing supply. None of these explanations, however, is capable of fully explaining the housing bubble, much less the parallel commercial real estate bubble.

    This Article posits a new explanation for the housing bubble. It demonstrates that the bubble was a supply-side phenomenon, attributable to an excess of mispriced mortgage finance: mortgage finance spreads declined and volume increased, even as risk increased, a confluence attributable only to an oversupply of mortgage finance.

    The mortgage finance supply glut occurred because markets failed to price risk correctly due to the complexity and heterogeneity of the private-label mortgage-backed securities (MBS) that began to dominate the market in 2004. The rise of private-label MBS exacerbated informational asymmetries between the financial institutions that intermediate mortgage finance and MBS investors. The result was overinvestment in MBS that boosted the financial intermediaries’ profits and enabled borrowers to bid up housing prices.

    Despite mortgage securitization’s inherent informational asymmetries, it is critical for the continued availability of the long-term fixed-rate mortgage, which has been the bedrock of American homeownership since the Depression. The benefits of securitization, therefore, must be reconciled with the need for economic stability. The Article proposes the standardization of MBS to reduce complexity and heterogeneity in order to rebuild a sustainable, stable housing finance market based around the long-term fixed-rate mortgage.

Direct-to-author (not posted) comments are most welcome.  

Hawkins' Fringe Banking Premise is that Payday and Title Loans are Short-term: If Only it Were True

Although I disagree with the starting point of the paper Katie wrote about yesterday, Fringe Banking by Professor Jim Hawkins, and thus disagree with most of Professor Hawkins’ conclusions, I have great respect for him and am grateful that his paper is part of the national discourse on this topic. I deal with very poor people regularly and know some have no place else to go besides payday or title lenders when they need cash. Thus, I try to keep an open mind that on some level products like payday loans could serve some utility in the world, if they were truly used sparingly and for emergencies only. And if there were no rollovers and people could not use 10 or 12 of them at a time. In other words, if they worked the way Professor Hawkins says they do.

Jim’s paper gets a valuable idea out there, but the facts about how these products are really used, and how they are marketed, explain why these loan products create more problems than they solve. My own curbside data of payday use (read the long version or the short version) suggest that Professor Hawkins’ starting point, that these loans are designed to be short term and thus to keep people out of a cycle of debt, is out of synch with the reality of either borrowing habits or lender business plans. Still, his idea does start a conversation, and in this field the two sides do not talk. Period. The product designs he speaks of, if actually followed in practice, would make this type of lending much less abusive. I might even like these products.

Fringe Banking and Financial Distress: Argument and Critique

Today at The Conglomerate Blog, there is an online workshop of former Credit Slips guestblogger Jim Hawkins' paper, Regulating at the Fringe: Reexamining the Relationship between Fringe Banking and Financial Distress. Jim shared some of his thoughts on what he claims is the "dubious" relationship between fringe banking and financial distress in some of his Credit Slips posts.

I found Jim's paper to be provocative and I've posted a critique of his approach at The Comglomerate as one of their invited commenters. I think Jim's definition of financial distress as too many dollars of debt is unduly narrow and that it is only by using that definition can be claim to debunk the relationship between fringe banking and financial distress--primarily by arguing that because these are small dollar loans they can't really be much of a problem. I also think Jim tends to overstate the extent to which the Bureau of Consumer Financial Protection was justified by concern about financial distress. I think its primary focus is on correcting malfunctions in markets caused by misinformation or deception. Jim himself seems open to intervention in fringe banking on that basis, as he concludes his paper by exploring rationales other than financial distress might support regulation. Check out The Conglomerate blog to join the conversation about this topic and to see the thoughts of other invited commentators: David Zaring, Larry Garvin, and Todd Zwyicki.

Call for Papers Extended to Invite Reactions to Dodd-Frank

I am honored to join Credit Slips, and grateful to Bob for the warm welcome. As process is always a sensible place to start, this first "occasional" post is to invite submissions for the January Association of American Law Schools (AALS) conference in San Francisco. The Financial Institutions and Consumer Financial Services Section committee has voted to extend the deadline from August 1 to September 20 to be sure we capture the love, hate, and analysis pouring forth after last week's signing of Dodd-Frank. Of course the full call for papers (here) is much broader than Dodd-Frank--we want it all!  So please spread the word.

Call for Papers: AALS Financial Institutions and Consumer Financial Services

Here is a Call for Papers for the Financial Institutions and Consumer Financial Services section of AALS.  Deadline is August 1st.  

Interchange Irony: George Mason University Edition

George Mason University law professors Todd Zywicki and Joshua Wright have been the leading (and almost sole) academic defenders of the current interchange fee system.

So how's this for irony:  Zywicki and Wright's own employer announced that it will no longer accept Visa for tuition payments because interchange fees are too high.  (You'll have to watch a 15-second BP propaganda bit before the video on GMU).  The school doesn't want other students or taxpayers footing the bill for rewards programs.  Antiregulatory ideology runs deep at GMU, but clearly it won't get in the way of a real world business decision.  

Note, btw, that GMU was able to opt-out of taking a particular card network (somehow the other networks are permitting a convenience fee to be tacked onto the tuition bill to cover interchange).  Universities are in a rather unique position of being able to refuse to take cards altogether.  For most merchants, taking payment cards is just part of operating in the modern commercial economy.  

Protecting Public Benefits from Garnishment

 Mark Budnitz at Georgia State University College of Law, in coordination with the National Consumer Law Center, is asking law professors to sign on to a letter supporting a proposal by Treasury and other federal agencies to mandate crucial protection for persons receiving federal benefits such as Social Security. Regular Credit Slips readers may remember that guestblogger Nathalie Martin's post on this problem, "Think Public Benefits are Exempt from Execution? Think Again." Prof. Budnitz succintly describes the problem. He writes:

"These funds are exempt under federal statutes.  Congress intended the funds to be beyond the grasp of creditors.  Nevertheless, these funds are routinely frozen and seized by debt collectors. When a debt collector obtains a judgment, it serves a garnishment order on the consumer's bank.  The bank freezes the consumer's account; often the bank turns over the garnished amount to the debt collector without first giving the consumer any notice.  Most banks simply honor the state court order; they do not examine the bank account to determine whether the funds are exempt.  For consumers whose primary or sole income are federal benefit payments (e.g., Social Security, SSI, veterans benefits), the effect is devastating.  The consumer often first learns of the bank's freeze when checks start to bounce.  He or she has no money for food, medicine and other necessities.  The proposed regulation would correct this problem.  It sets out a clear, uniform procedure for banks to follow. It prohibits the freezing and the seizure of exempt funds."

    Over twenty law professors have already signed on to Budnitz's letter.  In addition to supporting the proposed regulation, it recommends a few improvements. If you are a law professor and you want to sign onto this letter, please contact Prof. Budnitz who will give you further information. Members of the public will be able to comment soon; instructions are here.

"Beyond Foreclosure"--Conference in Chicago

On the morning of June 3, the Woodstock Institute is hosting "Beyond Foreclosures: The Impact of the Financial Crisis on the Wealth Gap and Economic Opportunity." The conference will discuss how the financial crisis has affected the access to financial services for the most vulnerable citizens. Topics include credit scoring, access to credit, access to banking, and bankruptcy filings (on which I am speaking). The conference will take place at the Federal Reserve Bank of Chicago, and registration is required. More information can be found on the conference website.