FedSoc LiveBlog: Showcase Panel: Bailouts and the Government as Insurer of Last Resort

Showcase Panel II: Bailouts and the Government as Insurer of Last Resort
Friday, Nov. 13
10:15 a.m. – 12:00 noon
Grand Ballroom

Hon. C. Boyden Gray, Gray & Schmitz LLP and Former U.S. Ambassador to the European Union
Mr. Maurice R. Greenberg, Chairman and Chief Executive Officer, C.V. Starr & Co., Inc.
Dr. Robert D. McTeer, Distinguished Fellow, National Center for Policy Analysis
Hon. Steven Wallman, Chief Executive Officer, Foliofn
– Moderator: Hon. Janice Rogers Brown, U.S. Court of Appeals, D.C. Circuit


Government inviting rent seeking to extort the government leads to need for bailout. Adam Smith supports this. Adam Smith originally a moralist, not an economist.

If you were a homeowner, would you sell a mortgage to someone you knew couldn’t pay you back?  No, not deliberately, unless govt. told you to with an offer to insure you.


The govt. then allowed the loans to be packaged into products and gave them good ratings and sold to more unsuspecting people.  The govt. promised to make the money available and pick you up if you default.


Adam Smith would not tolerate this.  Some say he didn’t understand human nature so we have to surround his views with a better sensitivity and how to control greed.


I would argue that this turns AS on his head, b/c he saw a community sense of people and individuals, but govt. will interrupt this.


AS’s first book was on morals, not economics.  His idea, or building block, was the ability for man to be part of a community.  It was seen as a gloss on the golden rule.  He did not tolerate businessmen: “No two businessmen could ever get together without some capture of public interest or plan to raise prices.”


Looking at recent history, maybe he knew something…  He would have opposed bailouts


I was at Munich meeting of UN Security Conference and was told that no two economists could ever agree on what caused Great Depression so it would be a waste to look for causes of the recent crisis.  So I asked if we are then writing thousands of pages of legislation to fix something we cant’ identify?


We will not break up the big banks, while Europe did so.


We need to figure out what we’re doing before we try to fix a regulatory structure that likes bailouts and perpetuates moral hazard.


(on the phone)

Discussing AIG bailout.

As many people know, AIG raised questions we don’t have answers too, and there needs to be such answers to set the record straight.


Not bailing out AIG bailout would have shown that you have the right to succeed and fail. Failure would be Ch. 11 and then back to business.


The case for bailouts is usually systemic risk, and the case against it is that saving management and owners from consequences of bad decisions creates moral hazard.  In most so-called bailouts of 2008, top decision makers were not saved, they lost their jobs and their wealth.  It wasn’t “heads I win tails you lose.”


Many who were saying of Lehman Bros. “let them fail,” later saw Lehman failure as the worst part of the crisis.


I’m not sure system could survive many more failures like this, which cost me about 30% of my “little” portfolio.


Under the circumstances, it worked well for 600 banks who held Mortgage backed assets.  Congress has used this as a pretext to expand government power under the worst populist sentiments. The public regards TARP as the govt. spending their money to support evil doers.


The Fed’s extraordinary lending last year is more likely to earn a net profit for taxpayers.  Skeptics take for granted that federal money will be highly complacent, but I doubt it.


Banks are scared of debt so they are holding the excess of the govt. money.

During Depression, reserve requirements for bank was increased, so banks contracted credit first.  Turned out that excess reserves were not considered excess by the banks. They wanted extra cushion against uncertainty.  Today’s banks are holding the excess reserves voluntarily, for the exact same reason.  Stimulus problem is like hunting wild hog with a shotgun, too diffuse, not focused.  It was old fashioned spending, “money spent money gone.”


Debt is head from 40% GDP to about twice that in a few years.  Raising taxes on weak economy is a danger that helped exacerbate the Depression. We are on a slipper slope to Smoot-Hawley, see Mexican trucks.


So how do we regulate?  The question has always been regulation or not, but how to get good regulation.  We must ask, if we are going to have regulation and market failure, how it can be done best.


The idea of millions of homeowners all buying into the same idea at the same time and being given the same credit terms looked like genius at the time by the banks, but what you end up with is “too big to fail” made up of millions of homeowners.  It is not simply an issue of large amounts of company stock.  We need to rethink regulatory apparatus in this light.


Some current ideas are interesting:  many people dislike them, mostly bankers.


Lots of homeowners signed up for things they didn’t understand.  They also didn’t realize that no one was looking out to make sure their home was available for assistance.


We can learn from this about how systemic risk is generated:  If you can stop homeowners at the time from getting sub-primes you can eliminate part of the cause that creates too big to fail.  Interconnectedness must be evaluated


We are not there yet, we need to study evolution and common law.

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FedSoc LiveBlog: Constitutional Interpretation & the Bill of Rights featuring Burt Neuborne and Randy Barnett

Constitutional Interpretation & the Bill of Rights
Friday, Nov. 13
9:00 a.m. – 10:00 a.m.
Grand Ballroom

– Presentation: Prof. Burt Neuborne, Inez Milholland Professor of Civil Liberties, Legal Director, Brennan Center for Justice, New York University School of Law
Commentary: Prof. Randy E. Barnett, Carmack Waterhouse Professor of Legal Theory, Georgetown University Law Center
Moderator: Hon. Diarmuid F. O’Scannlain, U.S. Court of Appeals, Ninth Circuit

Judge O’Scannlain introduced panelists

(Professor Neuborne)

(Professor Barnett)



We tend to tear words and clauses out of the Constitution and look at them in isolation (originalism, purposivism). Treat Bill of Right as reading random splatter. Reading it that way misses extraordinary aspect of founder’s genius. Unlike any other document in history, within its four corners, structural coherence that teaches us how to live in a tolerant and free democracy, both horizontally and vertically. Changes commitment to document if we looked at it that way, and changes how we look at cases.

Have you ever read Bill of Rights or entire Constitution as a coherent document? You would read the entirety of a poem to capture its ethos. Bill of rights looked at that way has remarkable coherence.

Why is Fourth Amendment after Second and before Eight? Why does it end with 10th and end with the First? [The first Amendment was originally Third] The first amendment protects the ideal commonwealth.

Next 9 amendments list risks and dangers to ideal commonwealth in the First Amendment. 2nd and 3rd deal with military overthrows. 4-8 deals with chronological development of law enforcement. Maybe it is random, but no other document has those rights in such an order. Madison’s genius not substantive, it was structural. adison’s capacity to see structural blueprint to create toelrant democratic society form a series of dangers that are placed in crhonological order of magnitude.

Why close with 9th and 10th? Founders did what you would expect brilliant people to do. They are cannons of construction. They tell us how to read the documents. Brittish Parliamentary Tradition- Equity of the statutes (expanded text analogically and filled lucanae with nontextual expansion), and inclusio unius (if not in text you cannot expand it).

9th- When rights are at stake- equity of the statutes is permissible. Fill the gaps.

10th amendment- When powers at stake, inclusio unius applies, must stay within the text

Broad reading of rights and narrow reading of powers more important than actual rights in BOR. This is the vertical reading of the BOR. It tells a coherent story.

Horizontal Coherence

First Amendment has 6 ideas- establishment, free exercise, speech, press, assemble, petition. Series of concentric circles from inner realm of human conscience . First amendment gives life cycle of the person. Begin in human conscience and move in concentric circles to law (petition).

Freedom of association is not in text of Constitution, Harlan dropped it in. Harlan acting in ethos of 9th amendment, and can use equity of statute to look at Amendment and using techniques of Brittish Lawyers to fill the lacunae with something compatible and logical and necessary to full enjoyment of the text. Conservatives tend to accept freedom of association because it is fill out blank in First Amendment with power from 9th to construe broadly, but not entirely, due to equity of the statute.

“I never finish in time. When the Grim Reaper comes for me, I will ask for a few more minutes.”


Explaining order of Amendments and Clauses are ingenious.

Original public meaning originalism. Difference between Constitutional Interpretation and Constitutional Construction.

Interpreting text of Constitution involves ascertaining its meaning. Interpretation attempts to identify information included in this text.

Original public meaning interpretation seeks information it conveyed to general public at the time it was enacted. Originalists may disagree how this inquiry is supposed to be conducted, but all share common question; ascertain information conveyed by text in context at the time it was enacted. Originalists convey that text may be insufficient to resolve case or controversy.

Constitutional construction- puts info text does convey into action.

Regulations about time, place, and manner do not improperly abridge freedom of speech, but coordinate the right. These rules cannot be found in the First Amendment. This is Constitutional Law, as opposed to the Constitution itself. If it cannot be deduced from the text, most of what the Court does is actually construction and not interpreation.

You are in the “Construction Zone,” where info provided by text has run out (Solum). Claim that Judges should let elected branches decided if text is silent is a form of Constitutional construction, because it is no where in the text.

How should one do constitutional construction? Depends on extratextual theory of Constitutional legitimacy; what makes Constitution binding. If legitimacy is based on original or ongoing consent of people, adopt a different concept, or if you beleive legitimacy is based on procedural method.

Holistic reading of BOR is interpretive if it reveals or uncovers original meaning of the text that is part of its public meaning. Ninth amendment refers to rights, and 10th amendment refers to powers.

Holistic approach interpretive if it resolves questions of ambiguity. Arms in 2nd amendment can refer to weapons or limbs. Rendering abstract term more specific in context than it may appear.

Due process may be vague, due process of law may be less vague. Juxtaposition with Priv or Immun or Equal Protection makes it less vague.

Since Constitutional construction is inevitable, wholism provides a good approach. But no normative justification why we should adopt holistic approach. The burden is no him before we adopt his approach.

A holistic approach intriguing way to decide text, but no reason wy we should interpet it like that when text runs out.

The danger, in various places, approach is neither to interpret or construct text, but instead uses it to contradict or supercede the text.

His approach- 2nd amendment to keep and bear arms as protecting individual right to serve in armed forces or local police forces analogous to militia. But this is not at all what the text says. Reason for rejecting individual rights treatment of 2nd amendment unpersuasive. This is just the standard approach to evade, rather than apply the meaning of the text.

1. Start with the text of the speech to discern the principles that underling the word.

2. Take principles, and apply to cases or controversies. Abandon and leave behind text and adopt principles. Black in Griswold- most effective way of diluting constitutional right is to substitute another word more or less restrictive in meaning. During Reconstruction clause, evaded meaning of amendments, leading to Plessy. When you plunge beneath surface of text to understand principles, and then apply it to the text. Not substitute to the text. To be faithful to elegant structure of BOR, use text as he finds, not the lovely poem he wishes it to be.

Neuborne Reply

People at ratifying convention looked at entire document. Need to recapture the psychology of people creating the founding document. Best way to recapture psychology is by reading the whole. If you rank the ways Judges make decisions, no hesitation to debate the holistic readings is the best way to do that, and the way to do that most respectful of the text.

Holistic reading subverts, or goes beyond a construction of the text, most controversial aspects.

He deploys only when respect for the text would mean the text would drift away. 250 years have left the text without contemporary meaning, and giving original meaning would give it absurd meaning.

2nd amendment anachronistic. Can’t use handguns and rifles to defend against standing army. [One word. Fallujah]

Militia has morphed into police and citizens army. Purely on the merits, looking at holistically, protects against unrepresentative bodies of armed coercion to single out people.

O’Scannlain asks about Incorporation.

Neuborne says it will be incorporated against the states. Its too important.

Neuborne noted that subsequent amendments should be read to modify Bill of Rights.


Pics and Video after the Jump

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Video: Taxicabs Confessions. Public Choice Theory and Taxi Cartels

Listen to the story of my taxi driver who spent years of his life, lots of money, and had to take several exams in order to obtain a taxi license in Washington, D.C.

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Google Street View Captures Fire Truck Hit and Run With an Old Lady On a Bike

Omniveillance strikes again. From Gizmodo:

The latest adventure for the Google Street View car comes to us from the Netherlands, where it witnessed a fire truck mow down an innocent old lady on a bike.


For my article on Omnivellance and Google Street View, see SSRN.

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My interview about FantasySCOTUS.net featured on Wall Street Journal Law Blog

I had the pleasure of chatting with Ashby Jones of the Wall Street Journal Law Blog, and he wrote a pretty good feature about FantasySCOTUS.net. Check out the interview here.

The old saw goes like this: that lawyers are not risk-takers. That’s part of the reason, we suspect that, David Boies aside, we don’t hear too many tales of BigLaw lawyers ripping it up on the craps tables in Vegas.

But now, at long last, a little gambling operation that gives lawyers — or at least those who follow the Supreme Court — a leg up on all others. It’s, yes, FantasyScotus.net, the self-proclaimed premier Supreme Court fantasy league (and it might be the only, as far as we can tell).

Click here to check it out. The idea behind the site, which is the brainchild of recent George Mason law grad Josh Blackman, is simple: you pick the way you think the Supreme Court will rule on its docket. You’re awarded points for picking the outcome of the case (whether the court affirms or reverses the lower court); the split (9-0, 8-1, 7-2, 6-3, 5-4, 4-1-4, or fragmented); as well as the justices in the majority and the justices in the dissent. It’s $5 or $10 to join, but the fee is waived for students, law clerks and unemployed attorneys.

At the end of the term, all the points accumulated will be tallied, and a winner decreed.

Blackman, currently clerking in the Western District of Pennsylvania, says he thought of the idea in September, shortly after the Citizens United arguments. Says Blackman: “I thought, ‘what if Vegas handicapped this case? What would the odds be?’ I took the thought and ran with it.”

Blackman says his the fees will largely go to cover his costs, and that the point is not to make money. “That’s not at all why I’m doing it,” he says. “I think it’s just cool and gives some variety to my life.”

And what’s the prize? It’s not going to be cash. “I don’t think lawyers would be incentivized by cash. It’s going to be something else, like a golden gavel, maybe one of those Supreme Court bobbleheads.”

We have no idea, LBers, if this idea is going to flop or take off. But it sounded sorta fun to us. If you wind up giving it a whirl, and loving or loathing, let us hear about it.

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Federalist Society LiveBlog: Professor Ilya Somin’s Discussion on Federalism

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