It's Time to Get Rid of Law Reviews

The Washington Beacon has published an absolutely jaw-dropping piece about the Harvard Law Review's article selection process, which allegedly gives substantial consideration not just to the assumed identity (race, gender, sexual orientation) of the author, but to the assumed identity of the authors of sources cited. (Who knew that I should have been indicating in every citation the race, gender, and orientation of the author?)

 

I haven't bothered submitting to HLR for some time, but if the allegations are true, it still leaves me dismayed that I have had my time wasted as an author and furious that I have had my time wasted doing outside reviews. Don't ask me to do free reviews when it's just for show. I'm just waiting for the class action... 

 

It’s easy to dismiss the HLR fiasco as an example of woke gone wild, and that’s undoubtedly part of the problem, but the more fundamental problem is that student editors should have no business selecting articles. Indeed, as I will argue below, law reviews are a medium that has served its purpose and they should shut down—there’s a much better way to disseminate legal scholarship:  connecting authors directly to legal research databases (direct-to-database publishing). 

 

 

Bulgaria finally adopts personal insolvency law

At long, long last, Bulgaria yesterday finally became the last EU Member State to adopt a personal insolvency law (Malta's law, effective late last year, seems to provide relief only for entrepreneurial debts, but it technically extends relief to individuals owing such debts, which is all the relevant EU Directive requires). To say the Bulgarian parliament adopted this law begrudgingly would be a significant overstatement of the enthusiasm for this new procedure--after many years of resistance, Bulgarian lawmakers seem to have relented under financial pressure from EU authorities. "Begrudgingly" also seems to be an apt characterization for how the new law offers debt relief to individuals, given its requirements and restrictions, but we'll have to see how the law is implemented. In any case, this is a watershed event worthy of note. 

AI Models on Law School Exams

The question of how well AI can do on law school exams is one that interests me, since I give exams and want them to be a measure of how much my students have learned (as opposed to their skills at using AI -- although I want them to learn those too). Others appear to be interested too -- just see the ssrn downloads for papers on this topic.  Caveat: I can't pretend that I have more than the shallowest of understandings of AI models.  But this cool new paper I came across might be of interest to folks.  

The paper is from a set of scholars at ETH in Zurich (a place long known for its excellent research).  As I understand the draft (and, to repeat, I don't understand a lot of this stuff), the paper finds that the large language models (LLMs) don't do that great when you increase the level of reasoning required on the exam.  I was also intrigued to read (I think) that LLMs are not necessarily better on multiple choice exams than essay type ones.  From the abstract, here is a sentence that stood out: "Our evaluation on both open-ended and multiple-choice questions present significant challenges for current LLMs; in particular, they notably struggle with open questions that require structured, multi-step legal reasoning".  

The paper is "LEXam: Benchmarking Legal Reasoning on 340 Legal Exams" 

Among the other cool things about this paper to me is how collaborative it is -- students, professors, and even judges.  To me, it reflects well on the culture of the institution that has such a degree of collaboration. 

Sharing Risk

Credit Slips readers will want to check out a brand-new book from Pat McCoy, the Liberty Mutual Insurance Professor at Boston College Law School (and a past guest blogger here). Sharing Risk offers both a diagnosis and prescription for the financial precarity of American households. Because over half of Americans do not make enough to meet basic needs, they often turn to borrowing to make ends meet. McCoy proposes expended risk-sharing arrangements about income security, housing, health insurance, and college education. McCoy's proposals seek to enable American families to flourish and secured their economic well-being.

The book is available directly from the University of California Press. McCoy also passed along that she is now blogging at a new substack. 

Fannie and Freddie Are Now Explicitly Guarantied

When will Donald ever learn to run his tweets by counsel before posting them? He consistently shoots his legal position in the foot. The latest is about the implicit government guaranties of Fannie Mae and Freddie Mac: 

I am working on TAKING THESE AMAZING COMPANIES PUBLIC, but I want to be clear, the US Government will keep its implicit GUARANTEES, and I will stay strong in my position on overseeing them as President.

Pro tip: it's not an "implicit" guaranty if you say it out loud. Once you do, it's explicit. 🤦

That's actually potentially a huge problem for federal accounting purposes. The whole reason that Fannie and Freddie's enormous book of debt is not on the federal balance sheet, blowing through the debt limit, is that the guaranty has always been implicit: it's about a wink and a nod. With this tweet, I am not sure that it is possible for Fannie/Freddie to come off the federal balance sheet even if privatized because of the now "explicit" guaranty. (Or as a fallback, there's a promissory estoppel argument.) As far as I can tell, because of an over-eagerness to tweet, Fannie and Freddie's obligations now bear the eagle. Maybe the CBO will view this differently, but all that comes to mind right now is the timeless words of Napoleon Dynamite:

https://imgur.com/sOgB6ZF

 

The Supreme Court Is Just Making Stuff Up About the Fed

The Supreme Court is welcome to have its opinions. But it is not welcome to have its own facts. Fact-finding is at the core of the judicial enterprise, and once the Court starts simply making things up, it loses its legitimacy. 

The Court took a dangerous step in that direction today with its opinion granting the President's order for a stay of the District Court's injunction of the President's removal of a member of the National Labor Relations Board and of the Merit Systems Protection Board.

Forcing Bank Deposits to Subsidize Stablecoins: the GENIUS Act

The Senate is set to take up a vote on this Thursday on the GENIUS Act, the legislation to create a regulatory framework for stablecoins. Whatever else one might think about stablecoins or the GENIUS Act, its insolvency provisions are an absolute mess, both conceptually and in drafting. If the GENIUS Act becomes the law, we're in for a FUBAR situation when a stablecoin issuer ends up insolvent. Even more concerning, if a bank custodian for a stablecoin issuer's reserves ends up insolvent, the claims of the stablecoin investors will come ahead of the bank depositors. That's right. Crypto comes ahead of ma-and-pa. 

The effect: stablecoins are being subsidized by bank deposits. Now that's GENIUS.

Pete Rose and Investment Markets

Hopefully readers will indulge me in a bit of a tangent for this post, which is about Pete Rose and his gambling, which often seems to be just another word for investing, particularly when investing in tokens that have no underlying fundamentals.

Rose, the all-time baseball hit leader and one of the most fun players to watch, was famously banned from the Baseball Hall of Fame for gambling on baseball, including on games in which he played or managed. There's now a push to posthumously rehabilitate him, with the President of the United States serving as one of his chief advocates. The President's argument is that Rose didn't do anything so bad because he never bet against his team. 

That's just incorrect. Rose claimed that he never bet against his team. We don't know if he did; he wasn’t the most credible character, given that he initially denied gambling on baseball at all. But let’s assume that he told the truth. Even if Rose never placed a bet directly against his team, he was absolutely betting against them because he wasn't placing one-off bets. He was a serial gambler with repeat relationships with a number of bookies. In that situation, gambling only on the Reds to win on certain days translates into gambling on the Reds to lose on other days.

The Form Knows Best (Does it Really?)

A few weeks ago, I got to give a talk at the University of Miami.  The focus: six myths about contracts, as many of us teach contract law (or at least as I teach it).  The talk was a blast -- the faculty at Miami were wonderful and generous, but poked all sorts of big holes in my claims.  The broader topic, in a little essay titled "The Form Knows Best" with two superb students (Tara Chowdhury and Faith Chudkowski), was the gravitational pull of the standard form on contract drafting practices. Our abstract:

Law students learn that contracts are carefully negotiated, precisely drafted, and shaped by doctrine. But lawyers tell a different story. This article compares six pillars of contract law with what we heard in over 170 interviews with senior transactional lawyers across M&A, sovereign bonds, and leveraged loans. The result is a gap between the Official Story taught in classrooms and the Unofficial Story told by practitioners—where boilerplate dominates, case law is rarely consulted, and market custom often prevails over rational design. We suggest that many contracts are better understood as historical artifacts—products of inherited forms and production pressure. Or, as one lawyer put it, more Mars Bar than masterpiece. That gap may matter—especially when courts often interpret form as if it reflects intent.

Deliberately Polluting the Death Master File Violates the Fair Credit Reporting Act

The Trump administration seems to be walking straight into a pair of Fair Credit Reporting Act violations by placing immigrants whom it knows to be alive on the Social Security Administration’s Death Master File. The Death Master File is a list compiled by the Social Security Administration of people Social Security believes to be dead (generally based on the filing of death benefit claims with Social Security, so it is not at all a complete list of who is actually dead). Creditors and other users of consumer reports regularly use the Death Master File, either directly or through a consumer reporting agency, as part of credit granting, employment, or insurance decisions—you don't want to be doing business with someone who is dead (and that might indicate that the living person with whom you are dealing isn't who they say they are). So, Death Master File issues end up being consumer reporting issues and fall under the Fair Credit Reporting Act, violations of which can not only create substantial private civil liability, but they can also be enjoined in a suit by a state attorney general.  

 

Fair Lending Deception by the CFPB

The Trump CFPB is seeking to vacate the consent order it entered into Townstone Mortgage for alleged violations of the Equal Credit Opportunity Act (ECOA). According to the Trump CFPB, CFPB staff engaged in misconduct by bamboozling former CFPB Director Kathy Kraninger about the legal strength of the case because they were woke warriors who took the position that “disparity automatically equaled discrimination,” and “wanted a de-facto mortgage quota, a policy aligned with the views of radical DEI proponents like Robin DiAngelo and Ibram X Kendi.” That view is hard to reconcile with the total number of discriminatory lending suits the CFPB has brought over the past eight years:  all of seven cases. Yup, that sure sounds like an out-of-control agency. 

 

If the Trump-controlled CFPB wants a consent order vacated "in the interests of justice," the district court should require it to prove both that there was in fact misconduct and that the misconduct harmed the defendant. The only "evidence" of this supposed misconduct is a self-serving, hearsay declaration by Dan Bishop, the Deputy Director of OMB (deputized to CFPB) reporting on his own alleged investigation. That's not "evidence." (And that's putting aside whether Bishop has been legally appointed to a CFPB position...)

 

But even if Bishop's story is credited entirely, there's still a problem. The supposed misconduct related to disparate impact liability and the reason the CFPB served a Civil Investigatory Demand on Townstone in the first place, but the defendant was sued for facial discrimination based discouragement of credit applications based on public statements its CEO made on a radio show named after the company. The Bureau could have brought the case without the information from the Civil Investigatory Demand. There’s no nexus between the supposed misconduct and the CFPB’s lawsuit, so there cannot be prejudice to the defendant. Accordingly, there's no reason to vacate the judgment in the interests of justice.

23andMe Bankruptcy

Quite a bankruptcy week. First there was Forever21's gone forever 22, and now we have 23andMe. Kudos to the Slips' own Melissa Jacoby and her co-authors Sara Gerke and Glenn Cohen for having the most timely publication ever regarding the 23andMe bankruptcy filing. But there are some weird things about this case, namely the debtor acquiescing in a massive stay violation and the St. Louis, Missouri, venue.