Author: Lawrence Cunningham


Panic or Crisis?

Is Senator Phil Gramm right that economic turmoil is all in our heads, a sort of panic, or are there real problems, suggesting instead a crisis? More generally, how should the current US economic situation be described?

Some descriptive financial terms have fairly settled definitions, although exact classifications can remain contestable. For example, a recession, formally two successive quarters of negative growth, is rarely recognized until an economy is in one. At present, economists are split on whether the US economy is in or near one. A bear market, formally a 20% decline in general equity market prices, is easier to measure, and under that measure, US stock markets are in bear territory (indeed, price levels are not much higher than they were a decade ago).

The terms panic and crisis seem less susceptible to formal definition. Financial panic generally signals an irrational response to perceived economic conditions while crisis, which can include the results of panic, tends to connote a more substantive condition in which structural, cyclical or other forces pose actual acute financial adversity.

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The Coming Regulatory Revolution

As participants in the banking, futures, securities and insurance industries know, traditional US administrative procedure is cumbersome, time-consuming, requires public notice and comment, and often results in complex, detailed, mandatory rules. Federalism often adds multiple state layers to any federal regulation. Critics of contemporary US regulation, especially in these industries, who lament complexity, rules, mandates, and anti-competitive effects, will welcome a revolutionary new approach that is simple, uses principles, makes compliance optional, and has built-in competitive edges.

In the new approach, Congress preempts all state laws and consolidates all power in a senior regulator in Washington. That regulator, in turn, delegates all its functions to self-regulatory organizations from the respective supervised industries. These, in turn, adopt their own regulations, self-certify them for speedy adoption, with limited public notice or comment, and use broad vague statements rather than detailed rules.

This approach, the philosophical heart of the US Treasury Department’s March 2008 blueprint for changing US financial regulation, is procedurally revolutionary and would no doubt revolutionize the substance of the law in these fields.

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Roars on Auditor Liability

Amid revolutionary proposals to renovate US financial regulation, auditing firms continue to push for caps on their liability for bothced audits. In a report to the Treasury Department’s Committee on the Auditing Profession, the profession’s lobbying affiliate, Center for Audit Quality, collates pending cases against large firms to dramatize their campaign.US treasury_department_4.jpg

They report 90 pending cases asserting aggregate damages exceeding $140 billion, with a third of the cases seeking more than $1 billion apiece and 7 alleging more than $10 billion. The firms say these claims, altogether, support their view that their liability exposure is unfair to them and dangerous for the financial system. The only solution, they urge, is having Congress set statutory dollar caps on claims against them, along with exclusive federal jurisdiction over these cases using a light standard of liability, scienter instead of negligence.

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Law Professor Duties

How do law professors spend their time? Duties are traditionally divided into categories of teaching, scholarship and service (consulting is outside the traditional division). How investment is allocated among the three varies.

Teaching Hours Burden Post.jpgIt could be difficult to generate reliable information about varying allocation by individuals, but it may be possible to identify implicit allocations across schools. The American Bar Association reports annual teaching loads of all ABA approved law schools. A table (after the jump) reports for the most recent academic year available to me (2004-05). The average that year for all law schools with FTEs between 700 and 1000 is 10.2 credit hours.

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Cardozo and Posner on Contracts and Torts

Several recent inquiries (for example, here and here) investigate aspects of judicial decision making, including empirical studies of influence, reputation and productivity.

Posner picture.jpgA decade ago, I wrote an article inquiring into the comparative contributions to Contract law of Judges Cardozo and Posner. This was inspired by the former’s dominance of Contracts casebooks and the latter’s ascendency. Ranking judges by the frequency with which their opinions were reproduced in Contracts casebooks, Cardozo was firmly number one, followed by Traynor, with Posner a close third, beating out Hand, Holmes, Swan, Peters and other luminaries.

This affirmed Judge Posner’s enormous influence. It also suggested a small bit of formal evidence of a shift from legal analysis characterized by thickly textured doctrinalism to one consciously focused on instrumental and pragmatic method (although Cardozo showed hints of a proto-pragmatist). Notably, Cardozo’s and Posner’s reproduction frequency shared a couple of similarities. Each had an aggregate of 13 opinions reproduced in the casebooks and 6 of each of these had appeared in just 1 casebook apiece. On the other hand, Cardozo had 2 opinions that were clearly canonical, being reproduced in nearly every casebook, while Posner’s most frequently reproduced opinion appeared in only 2/3 of the books.

This summer, I’m beginning a like inquiry on comparative judicial contributions to Torts. Some similarities and some differences from the Contracts study appear in the preliminary data (being ably developed by my research assistants, Matt Albanese, Dana Parsons and Paul Stepnowsky).

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