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Scholarship Abstract Consumer law aims to empower consumers with accurate information and to protect them from misinformation. For complex goods and services, however, mandated disclosure laws . . .
Consumer law aims to empower consumers with accurate information and to protect them from misinformation. For complex goods and services, however, mandated disclosure laws and other consumer law tools have had only limited success in helping consumers project their satisfaction and costs. Market responses, such as ratings, have limitations that have prevented them from compensating adequately for consumer law’s shortcomings. This Article describes how regulators could improve measurements of quality and cost by borrowing a tool from drug law: randomization. In designated markets, consumers who accept an incentive to volunteer would be randomized among two or more choices, and the government would collect short- and long-term information about each consumer’s experience. For example, in the health insurance market, by providing discounts to consumers who select two or more possible insurers, the government could accomplish the goal of comparing insurers’ health outcomes, free from the current confounding concern that different health insurers serve different pools of insureds. Randomization similarly could help overcome informational problems and abusive conduct in highly regulated markets for health providers, educational institutions, and lawyers, as well as for more ordinary goods and services, such as automobile repair. The information generated through randomization not only could be of direct use to consumers, but also could serve as an input into additional regulation, allowing the government to make more informed decisions about mandating product features where data establishes that producers exploit systematic errors by consumers.
Scholarship Abstract In this paper, I make the case for a nominal GDP level target in the U.S. I begin by arguing that the Federal Reserve’s . . .
In this paper, I make the case for a nominal GDP level target in the U.S. I begin by arguing that the Federal Reserve’s current flexible average inflation targeting regime is deficient. I then argue that since a competitive monetary equilibrium is optimal, monetary policy should seek to replicate the competitive monetary model. Doing so resembles nominal GDP targeting. Finally, I offer the following practical reasons why policymakers might prefer a nominal GDP target. Nominal GDP targeting (a) does not require policymakers to determine whether current economic fluctuations are demand-driven or supply-driven nor does it require real-time estimates of the output gap, (b) automatically prevents the central bank from exacerbating supply shocks, and (c) leads to greater financial stability.
Scholarship Abstract This essay was prepared for “The Future of Financial Regulation Symposium” October 6, 2023, sponsored by the C. Boyden Gray Center. I assess the . . .
This essay was prepared for “The Future of Financial Regulation Symposium” October 6, 2023, sponsored by the C. Boyden Gray Center. I assess the future of consumer finance and financial protection by looking to the lessons of history. Consumer finance and financial protection in the United States exhibits a spontaneous evolution driven by changes in technology and consumer preferences in a repeated cycle. In general, consumers use consumer finance in a manner consistent with the predictions of rational behavior in order to improve their lives. Consistently, this goal of consumer betterment runs up against paternalistic and repressive laws, which attempt to prevent the beneficial evolution of technology and competition. Eventually economic forces overwhelm regulatory repression for the betterment of consumers.
I track three distinct eras in the evolution of consumer finance and financial regulation that provide a roadmap to the future evolution in the virtual era and emergent threats to consumers from private and public sources, including the growing use of the consumer finance system to infringe on the exercise of constitutionally-protected values.
Read at SSRN.
Popular Media A California state appellate court on Jan. 9 affirmed in Gilead Life Sciences, Inc. v. Superior Court of San Francisco the creation of a novel corporate tort, holding a . . .
A California state appellate court on Jan. 9 affirmed in Gilead Life Sciences, Inc. v. Superior Court of San Francisco the creation of a novel corporate tort, holding a firm liable for negligence for failing to develop and market a product superior to the firm’s current product on the market.
Read the full piece here.
Popular Media Artificial intelligence (AI) is transforming the financial services industry. For tax neutral IFCs such as Cayman, Bermuda, and Jersey, it has the potential to increase . . .
Artificial intelligence (AI) is transforming the financial services industry. For tax neutral IFCs such as Cayman, Bermuda, and Jersey, it has the potential to increase competitiveness and facilitate economic diversification. The benefits could be enormous, but to realise this potential, jurisdictions will have to be open to the new technology. Two factors underpin such openness. First, enabling businesses to access the skills to ensure that AI can be implemented successfully and appropriately. Second, avoiding excessively prescriptive and precautionary restrictions on the development and use of AI.
Regulatory Comments Re: “Regulatory Capital Rule: Large Banking Organizations and Banking Organizations With Significant Trading Activity”; Docket ID OCC–2023–0008 (OCC); Docket No. R–1813, RIN 7100–AG64 (Board); and . . .
To Whom It May Concern:
Reducing risk for banks and taxpayers while ensuring capital is accessible and affordable is of paramount importance. The costs of higher capital requirements will be passed down to large swaths of the U.S. economy, such as homebuyers, small businesses, and manufacturers. The Proposal lacks the economic analysis and the data needed to justify the amendments to the bank capital rules. It also circumvents Congress by dismissing the statutory provisions of the Economic Growth, Regulatory Relief, and Consumer Protection Act (P.L. 115-174). However, regulators have an opportunity to allow banks to participate in insurance and reinsurance-based credit risk transfers to ameliorate the burdensome effects of higher capital requirements under the Proposal.
Credit risk transfers effectively serve as a private capital buffer to protect taxpayers from underlying credit risks. Under the Proposal banks should be explicitly authorized to use insurance and reinsurance products to offload credit risk and provide relief from heightened capital requirements. The Proposal should allow insurance and reinsurance contracts to be considered as “eligible guarantees” while insurers and reinsurers should be considered “eligible guarantors.”
The Proposal should not leave standing regulatory barriers that prevent banks from using insurance and reinsurance as an option. For example, lowering the risk weight for exposures to certain insurance and reinsurance companies could be an alternative option.[1]
These private-sector products have a proven track record. One paper discusses the potential benefits of expanding government-sponsored enterprise’s credit risk transfer exposure to reinsurance.[2] The same benefits could be afforded to the banking sector, if the regulatory framework adequately authorizes it.
Other countries already allow their banks to use insurance and reinsurance credit risk transfers, putting banks in the U.S. at a competitive disadvantage.
Consumers, taxpayers, and banks do not need another financial crisis that results in another era of taxpayer-funded bank bailouts. They need tailored regulation that reduces risk and volatility and gives consumers access to affordable capital—all of which the private sector can bring to bear.
The Proposal should abide by the statutory mandates in P.L. 115-174 by tailoring regulations and ensuring that banks have the option to use private-sector alternatives to mitigate capital burdens while also enhancing capital allocation to all reaches of the U.S. economy.
Steve Pociask President/CEO American Consumer Institute
David Williams President Taxpayers Protection Alliance
John Berlau Director of Finance Policy Competitive Enterprise Institute
Saulius “Saul” Anuzis President 60 Plus Association
George Landrith President Frontiers for Freedom
Adam Brandon President FreedomWorks
Ray Lehmann Editor In Chief International Center for Law & Economics (For identification only)
Grover Norquist President Americans for Tax Reform
Jerry Theodorou Director R Street Institute
Douglas Holtz-Eakin President American Action Forum (For identification only)
James L. Martin Founder/Chairman 60 Plus Association
Mario H. Lopez President Hispanic Leadership Fund
Pete Sepp President National Taxpayers Union
Gerard Scimeca Chairman Consumer Action for a Strong Economy
[1] 88 FR 64053, 64054.
[2] https://us.milliman.com/en/insight/In-it-for-the-long-haul-A-case-for-the-expanded-use-of-the-GSEs reinsurance-CRT-executions.
Scholarship Abstract The court below erred in finding that the lack of explicit binding language or threats from the New York Department of Financial Services in . . .
The court below erred in finding that the lack of explicit binding language or threats from the New York Department of Financial Services in its guidance letters meant that no reasonable regulated firm would consider itself bound by those letters. The reality of banking and insurance regulation is that firms frequently feel that they risk sanction if they do not comply with nominally non-binding guidance.
Further, the use of guidance and reputation risk as tools of regulation has shown itself to enable abuses where regulators sought to enforce their policy preferences, rather than the law, under the guise of protecting the safety and soundness of regulated financial firms.
Finally, the nature and logic of reputation risk regulation, even if applied by a neutral regulator, enables a regulator-enforced “economic hecklers veto” by parties with sufficient economic power over a regulated firm.
Scholarship Abstract Erie Railroad v. Tompkins is a cornerstone of modern American law. Erie overturned Swift v. Tyson, a case that had stood for nearly a century with minimal objection. Swift involved . . .
Erie Railroad v. Tompkins is a cornerstone of modern American law. Erie overturned Swift v. Tyson, a case that had stood for nearly a century with minimal objection. Swift involved the negotiability of commercial paper and the holding of the case, that in disputes heard in federal courts under diversity jurisdiction, the court should use traditional common law methods to resolve the case rather than feeling bound by the authoritative pronouncements of a state court.
Correspondence between Harvard Law School’s Lon Fuller and Yale’s Arthur Corbin—arguably the two greatest Contracts Law professors of the mid-Twentieth Century—reveals widespread ridicule and dismay among commercial lawyers and scholars following Erie. Fuller quotes the great Harvard Constitutional Law scholar as saying the Supreme Court “pulled a brodie” in Erie. This article reviews Erie from the perspective of commercial law, rather than the public law commentary that has dominated discussion of the Erie doctrine since its birth, seeking to understand the depth of contempt for Erie among commercial lawyers in terms of its consequences, reasoning, and jurisprudential approach.
Popular Media The credit card you used to purchase your latte this morning and to fill your car with gas was probably issued by a bank based . . .
The credit card you used to purchase your latte this morning and to fill your car with gas was probably issued by a bank based in Delaware, South Dakota or some state other than Colorado. Why? Because under a unanimous 1978 decision authored by liberal lion William Brennan, the Supreme Court ruled that banks holding a “national charter” would be governed by the interest rate ceilings of the state in which the bank is based instead of the state of the customer’s residence. This one decision transformed the American economy, unleashing unprecedented competition and putting Visa, Mastercard and other credit cards in the hands of millions of American families who were previously reliant on pawnbrokers, personal finance companies and store credit to make ends meet.
Yet a law set to go into effect in Colorado in July would deprive the most credit-deprived Coloradans of the same access to competitive financial services available to the more well-off and effectively destroy the rapidly growing fintech industry in the state. The consequences to Colorado’s more financially strapped households could be catastrophic. Other states are considering following suit.