Law 748-003 - The Law and Economics of Financial CrisesProf. Andrew MorrissEmail: [email protected] Phone: 216-272-9187Course Description: Financial crises are regular features of market economies throughout history, including bubbles, bank failures, and liquidity crises. This class will examine multiple crises and the legal responses to them, ranging from the South Sea Bubble to the current global financial crisis, from tulip mania to the dot com bubble. We will examine topics including securitization, credit regulation, banking regulation, the recent collapse of the Icelandic economy, and the role of financial market actors such as hedge funds. No prerequisites.Objective: Students should understand the major theories explaining the current financial crisis and the major historical crises we discuss, be able to use the financial terms and concepts discussed, and understand the implications for the legal system and the practice of law of both the underlying economic events and the regulatory responses.Your responsibilities:1) Come to class, having done the reading and thought about the discussion questions (listed below) and be ready to discuss them.2) Actively participate in the class discussions.3) Present to the class twice as part of your team, once about a historical financial crisis and once about the current crisis. Presentations should be 10-15 minutes long and focus on presenting an issue for class discussion. The presentation should include a collection of resources for classmates interested in pursuing the issue further on their own (posted to the class blog) and at least one class blog post per team member expanding on the presentation in class. The presentation should also be posted to the class blog.4) Post to the class blog after each class, starting with class 2 – you can pose a question, provide a link to something you think the class might benefit from considering in light of our discussion, comment on the reading, point out a news item related to our class discussion, comment on a posting by a classmate, etc. (All of your posts should not be of the “I didn’t understand X” variety, however). (This requires a total of 11 individual posts).5) Take the take home final exam (an open book, open notes, open internet, closed classmate). Grading:Class participation: 20%Take Home Exam: 40%Team Presentations: 20%Blog posts: 20%The usual University of Alabama grading policies apply.1Readings: The readings are probably longer in pages per class terms than many law school classes. Somewhat mitigating that is that (a) many readings are from physically small, relatively large type face sources, (b) containing many graphs and so reducing the word count, (c) need not be read with the same intensity you would read a Supreme Court opinion, and (d) are logically written, unlike many Supreme Court opinions. Moreover, I have erred on the side of caution by including readings that explain concepts for those without economics or financial backgrounds. Thus if you know what “CDO” or “securitization” mean, you’ll find a lot you can skip over quickly. Because the existing crisis literature is still so new, it is difficult to find single readings that are both authoritative and objective; much of the literature has a distinct point of view. To make sure we get multiple points of view on the table where there is disagreement requires multiple sources.There is an average somewhere between 100-200 pages per 2 hour class, which would be a great deal to read during the 2.5 weeks of class even if both weekends were not home football game weekends. So I’m sending you the syllabus early in case you want to get a start on the readings. Where possible, I have provided web links. Where material is from a book, I’ve asked the library to secure copies of the relevant books and place them on reserve.I strongly suggest reading as much as you can in advance (which is what I am doing). I’ve signaled with an asterisk the most critically important readings for each week ScheduleClass 1 - Big Picture Issues I: What is a Financial Crisis?Readings:*Viral V. Acharya, et al., A Bird’s Eye View: The Financial Crisis of 2007-2008: Causes and Remedies in Restoring Financial Stability: How to Repair a Failed System (2009) pp.1-56.Lee Hudson Teslik, The U.S. Financial Regulatory System, Council on Foreign Relations http://www.cfr.org/publication/17417/ (approx.3 pages).Thomas Kaplan, The Federal Reserve: What the Hell Is It? Vanity Fair Politics and Power Blog, Aug. 7, 2009 available at http://www.vanityfair.com/online/politics/2009/08/the-federal-reserve-what-the-hell-is-it.html*Dalvinder Singh, Banking Regulation of the UK and US Financial Markets (2007) pp. 1-43.Charles E. Kindleberger & Robert Aliber, Manias, Panics and Crashes (5th ed. 2005) pp. 1-16.2*Barry Eichengreen, The Last Temptation of Risk, The National Interest Online (April 2009) available at http://www.nationalinterest.org/PrinterFriendly.aspx?id=21274 Lord Adair Turner, The Financial Crisis and the Future of Financial Regulation (2009) available at http://www.fsa.gov.uk/pages/Library/Communication/Speeches/2009/0121_at.shtml Federal Reserve Bank of New York, International Responses to the Crisis Timeline – available at http://www.newyorkfed.org/research/global_economy/IRCTimelinePublic.pdf Federal Reserve Bank of New York, Financial Turmoil Timeline available at http://www.newyorkfed.org/research/global_economy/Crisis_Timeline.pdf University of Iowa Center for International Finance and Development, Credit Crisis Timeline available at http://www.uiowa.edu/ifdebook/timeline/Financial_Crisis_Timeline.pdf We’re going to spend 2.5 weeks talking about financial crises, so let’s start by talking about what a crisis is – is it a set of economic conditions? A failure of governance? The result of bad choices or of uncontrollable forces? These readings will get us started on trying to answer those questions. Acharya, et al. provide an overview of the current financial crisis. The three timelines provide a graphical representation of events. Singh provides a description of pre-crisis banking regulation in the United Kingdom and the United States that highlights the differences inapproach between the UK and the US. Kaplan and Teslik provide capsule overviews of regulatory agencies in the United States dealing with financial issues. As you read these materials, imagine you are a congressional staff member and