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Daily Archives: August 3, 2013

The Merchants of Wall Street: Banking, Commerce, and Commodities

The Merchants of Wall Street: Banking, Commerce, and Commodities – Saule T. Omarova, University of North Carolina at Chapel Hill School of Law, November 24, 2012 Minnesota Law Review, Vol. 98, 2013

This article examines the principal legal, policy, and theoretical implications of a transformative – but so far unrecognized – change in the banking industry: the emergence, over the last decade, of U.S. financial conglomerates as leading global merchants in physical commodities, including crude and refined oil products, natural gas, coal, base metals, and wholesale electricity. Historically, one of the core principles of U.S. bank regulation has been the separation of banking from commerce. Several statutes – including the National Bank Act of 1863, the Bank Holding Company Act of 1956, the Gramm-Leach-Bliley Act of 1999, and even the Dodd-Frank Act of 2010 – affirm this foundational principle, which generally prohibits banks and bank holding companies from conducting commercial (i.e., non-financial) activities. Notwithstanding these statutory restrictions, however, large U.S. bank holding companies – notably, Morgan Stanley, Goldman Sachs, and JPMorgan – have since the early 2000s been moving aggressively into the purely commercial businesses of mining, processing, transporting, storing, and trading a wide range of vitally important physical commodities. And, equally surprisingly, it is virtually impossible under the current system of public disclosure and regulatory reporting to understand the true nature and scope of these institutions’ commodity activities. This article puts together the first comprehensive account to date of what appears to be publicly knowable about the nature and scope of U.S. banking organizations’ physical commodities activities and analyzes the existing legal and regulatory framework for conducting such activities. Based on this analysis, the article advances several claims. As a matter of legal doctrine, the article argues that the quiet transformation of U.S. bank holding companies into global commodity merchants effectively nullifies the foundational principle of separation of banking from commerce. It further argues that the currently existing statutory framework does not provide a sufficiently robust structure for the regulation and supervision of banking organizations’ extensive commercial operations in global commodity and energy markets.  As a normative matter, the article argues that banking organizations’ physical commodities activities raise potentially serious public policy concerns. These activities threaten to undermine the fundamental policy objectives that underlie the principle of separating banking from commerce: ensuring the safety and soundness of the U.S. banking system, maintaining a fair and efficient flow of credit in the economy, protecting market integrity, and preventing excessive concentration of economic power. In addition, banking organizations’ expansion into physical commodities implicates a distinct set of policy concerns relating to potential new sources and transmission channels of systemic risk, the integrity and efficacy of the regulatory process, and the governability of financial markets and institutions. Finally, the article argues that these developments in banks’ activities raise fundamental theoretical and conceptual questions about the very nature and social functions of financial intermediation. A factually-grounded examination of large financial institutions’ physical commodity activities lays a necessary conceptual foundation for potentially reconfiguring the entire system of financial services regulation.”

NYT – Measuring Us Against the World

Measuring Us Against the World – “The United States is one of the richest nations on earth, but on a number of social and economic measures, it is more typical of a developing country. Compared with other advanced nations, it ranks consistently among the worst performers in matters of economic equality and child welfare.”  RelatedContinue Reading

Facilitating Better Law Teaching

Facilitating Better Law Teaching, Martin Katz – University of Denver Sturm College of Law – August 2, 2013 Emory Law Journal, Vol. 62, No. 823, 2013 U Denver Legal Studies Research Paper No. 13-37 “This Essay is about solutions – real solutions that law schools can deploy right now to improve the education we provide.Continue Reading

Commentary – The New Sick-onomy?

The New Sick-onomy? Examining the Entrails of the U.S. Employment Situation – Blog Post by Daniel Alpert, on July 23, 2013 “Over 69 percent of the jobs created in Q2 2013 and over 57 percent of all the jobs created in the first half of 2013 were created in the three lowest wage sub-sectors ofContinue Reading

DOJ Proposes Remedy to Address Apple’s Price Fixing

News release: “The Department of Justice and 33 State Attorneys General today submitted to the court a proposed remedy to address Apple Inc.’s illegal conduct, following the July 10, 2013, U.S. District Court for the Southern District of New York decision finding that Apple conspired to fix the prices of e-books in the United States.  TheContinue Reading

Surveillance Order Reporting Act

CDT: “On the heels of the introduction of the “Surveillance Transparency Act” in the Senate, a bipartisan coalition in the House of Representatives led by Congresswoman Zoe Lofgren has just introduced its own bill pressing for more transparency around government demands to Internet and telephone companies about their users data. As with the bill inContinue Reading

NYT – Sarbanes-Oxley Changed Corporate America – Room for Debate

NYT Op: Room for Debate – with commentary by four contributors. Attorney Michael W. Peregrine states: “… the law has been spectacularly successful. Sarbanes-Oxley has forever changed the landscape of corporate governance. It has increased the accountability expectations we have of directors and officers, and their legal and accounting advisers as well.Sarbanes-Oxley seized the centerContinue Reading