Volume 32, Issue 2 (Summer 2015)
Aditi Bagchi, Other People’s Contracts, 32 Yale J. on Reg. 211 (2015). [PDF]
Contract law does not adequately account for the harms that we can inflict on third parties by joint agreement. Some terms are prohibited, and some third party interests are protected by independent causes of action. But a wide variety of material interests that are otherwise recognized in law may be burdened by other people’s contracts. This Article proposes that ambiguous contract terms be construed to avoid harming third parties.
This Comment fills that gap by providing a descriptive account of lettermarking and by suggesting ways to curb this pernicious practice. Part I documents the rise of lettermarking and explains how lettermarks damage American democracy. Part I also discusses Executive Order 13,457, promulgated by President George W. Bush in an attempt to control lettermarking. We explain why EO 13,457 has not been enforced and suggest that some supplementary control mechanism — preferably one that relies on private actors — will be needed to curb lettermarks.
Peter Conti-Brown, The Institutions of Federal Reserve Independence, 32 Yale J. on Reg. 257 (2015). [PDF]
The Federal Reserve System has come to occupy center stage in the formulation and implementation of national and global economic policy. And yet, the mechanisms through which the Fed creates that policy are rarely analyzed. Scholars, central bankers, and other policymakers assume that the Fed’s independent authority to make policy is created by law–specifically, the Federal Reserve Act, which created removability protection for actors within the Fed, long tenures for Fed Governors, and budgetary autonomy from Congress.
This Article analyzes these assumptions about law and argues that nothing about Fed independence is as it seems. Removability protection does not exist for the Fed Chair, but it exists in unconstitutional form for the Reserve Bank presidents. Governors never serve their full fourteen-year terms, giving every President since FDR twice the appointments that the Federal Reserve Act anticipated. And the budgetary independence designed in 1913 bears little relation to the budgetary independence of 2015. This Article thus challenges the prevailing accounts of agency independence in administrative law and central bank independence literature, both of which focus on law as the basis of Fed independence. It argues, instead, that the life of the Act–how its terms are interpreted, how its legal and economic contexts change, and how politics and individual personalities influence policymaking–is more important to understanding Fed independence than the birth of the Act, the language passed by Congress. The institutions of Federal Reserve independence include statute, but not only the statute. Law, conventions, politics, and personalities all shape the Fed’s unique policy-making space in ways that scholars, central bankers, and policy-makers have ignored.
Mitchell A. Kane, A Defense of Source Rules in International Taxation, 32 Yale J. on Reg. 311 (2015). [PDF]
The concept of “source” is central to the functioning of the current international tax system. To the extent the “source” of income is meant to reflect the spatial location of income; however, many academic commentators have come to regard the concept as completely incoherent. Further, that incoherence is viewed as a partial explanation of the perceived artificiality and frailties of current instantiations of source rules. In this Paper I make three basic claims. First, it is in fact coherent to conceive of the source concept in terms of the spatial location of income. Second, most of the problems with current instantiations of source rules can be understood as reflections of fundamental complications in designing an income tax in a closed economy and thus have nothing to do with spatial indeterminacy. This observation allows for incremental improvement to source rules in the same fashion as one can make incremental improvement to a closed economy income tax. Third, from an efficiency perspective, a novel and ambitious way to approach source rules would be to use such rules to segregate rents from non-rents and mobile income from non-mobile income. Traditionally, scholars have viewed the efficiency characteristics of a rents-only tax as an affirmative argument for cashflow taxes over income taxes. Holding the existence of the income tax constant, however, source rules could theoretically achieve an efficient result on this dimension. The practical implementation hurdles, though, are substantial.
Mark J. Roe & Stephen D. Adams, Restructuring Failed Financial Firms in Bankruptcy: Selling Lehman’s Derivatives Portfolio, 32 Yale J. on Reg. 363 (2015). [PDF]
Lehman Brothers’ failure and bankruptcy deepened the 2008 financial crisis whose negative effect on the United States’ economy lasted for several years. Yet, while Congress reformed financial regulation in hopes of avoiding another crisis, bankruptcy rules such as those that governed Lehman’s failure, have persisted unchanged. When Lehman failed, it lost considerable further value when its contracting counterparties terminated their financial contracts with Lehman. These broad terminations degraded Lehman’s overall value to its creditors beyond the immediate losses that caused its downfall. Lehman’s financial portfolio was thought to be running a paper profit of over $20 billion when it filed, and is said to have lost up to $75 billion as a result of the post-filing liquidation by Lehman’s counterparties of their deals with Lehman. How such a vast value loss can occur and how bankruptcy can ameliorate the problem are the subjects of this Article.
For bankruptcy to handle a systemically important financial institution successfully, it must be able to market those parts of the failed institution’s financial contracts portfolio that are saleable at their fundamental value, i.e., other than at fire sale prices. Current law prevents this marketing, however. It allows only two polar choices: sell the entire portfolio, intact, or allow for the liquidation of each contract, one-by-one. The latter is what happened for Lehman, disrupting markets worldwide. The former– sale intact– cannot be accomplished as a business matter for a very large financial contracts portfolio (and the most serious are embedded in the world’s biggest financial institutions) and would be economically undesirable even if possible. Bankruptcy needs authority, first, to preserve the failed firm’s overall portfolio value, and, second, to break up and sell a very large portfolio that is too large to sell intact.
Congress and the regulators have said that bankruptcy is the favored means for financial resolution. Yet, while regulatory initiatives have sought to make failure less likely and resolution more viable than it proved during the crisis, U.S. bankruptcy law has neither been fixed nor even updated since the financial crisis. If a major financial institution were to fail today, the same bankruptcy problems that arose during the past crisis and vexed Lehman could again disrupt the country’s and the world’s financial systems. We here outline one critically needed fix: authorizing bankruptcy to break up a large derivatives portfolio by selling its constituent product lines, one-by-one, instead of limiting bankruptcy to its current constraints of either a sale of the entire portfolio or a Lehman-style close-out of each contract, one-by-one.
Cass R. Sunstein, The Ethics of Nudging, 32 Yale J. on Reg. 413 (2015). [PDF]
All over the world, governments are using nudges as regulatory tools. Is this ethical? Much of the answer depends on whether nudges promote or instead undermine welfare, autonomy, and dignity. Many nudges, and those that deserve support, promote some or all of those ideals, and undermine none of them. If welfare is our guide, much nudging is actually required on ethical grounds, even if it comes from government. If autonomy is our guide, much nudging is also required on ethical grounds, in part because some nudges actually promote autonomy, in part because some nudges enable people to devote their limited time and attention to their most important concerns. Finally, nudges should not, and need not, compromise individual dignity, which many nudges actually promote. There is, however, a genuine risk that some nudges might count as manipulation; an emphasis on welfare, autonomy, and dignity helps to show how to avoid that risk.
Heather Whitney-Williams & Hillary M. Hoffmann, Fracking in Indian Country: The Federal Trust Relationship, Tribal Sovereignty, and the Beneficial Use of Produced Water, 32 Yale J. on Reg. 451 (2015). [PDF]
Potentially toxic wastewater discharges from hydraulic fracturing–known as “produced water”–are not subject to RCRA’s or the CWA’s permitting requirements. This is because the EPA has categorized produced water as a “special waste” when put to “beneficial uses” in arid regions. Some chemical components in produced water, however, are patented trade secrets that may prove injurious to human health.
This Article addresses the issue of produced water as it relates to Native American tribal lands, where fracking activity is increasingly common. Despite their status as sovereign nations, Native American tribes neither have the authority to impose their own produced water permitting standards under RCRA, nor the ability to meet financially burdensome standards in order to regulate water quality under the CWA. Together, these regulatory exemptions and unrealistic standards form a “livestock loophole” that allows untreated produced water disposal onto Native American lands.
This Article, at the nexus of environmental law and Indian law, argues that tribes have an important and distinct role in both accepting or declining produced water discharges on tribal lands, and in setting their own water quality standards under the CWA. This Article then makes recommendations consistent with such an account of tribal sovereignty and the federal government’s responsibility under the Federal Trust Doctrine.
Sarah Jane Hughes & Stephen T. Middlebrook, Advancing a Framework for Regulating Cryptocurrency Payments Intermediaries, 32 Yale J. on Reg. 495 (2015). [PDF]
This Article looks at competing models for regulating providers of services to individuals and businesses that take cryptocurrencies in payment for goods and services, including operators of online wallets and exchanges, and other cryptocurrency market intermediaries whose functions resemble “money service businesses” or “money transmission.” We conclude that, in addition to whatever “money services” or “money transmission” prudential regulation the States or federal government may adopt, the operation of wallets and exchanges requires a new commercial law that lays out rights and liabilities of cryptocurrency users in a robust and transparent fashion. We use Article 4A of the Uniform Commercial Code as a model for regulating cryptocurrency transactions in which intermediaries play a role.
Marguerite Colson & Eric Van Nostrand, Note, Sanctions That Sting: Private Sector Solutions to the Paper Tiger Problem, 32 Yale J. on Reg. 561 (2015). [PDF]
Whether used to draw Iran into nuclear talks or condemn apartheid in South Africa, economic sanctions have assumed an increasingly important role in our national security strategy. For one thing, their effectiveness has grown markedly, thanks to today’s global financial interdependence. Moreover, in light of this country’s war-weariness, sanctions provide an alternative to the use of force. Given these two trends, the outsized role of economic sanctions in our national security strategy is not surprising. What may surprise, however, is the fact that sanctions remain under-enforced. This Note offers four innovative solutions to that problem. Taken together our proposals demand greater cooperation on the part of the private actors subject to sanctions as well as the government branches that levy and enforce them. Along the way, our solutions raise compelling questions about what role–if any– private citizens ought to play in the traditionally public domain of national security. In the end, we don’t claim to have struck upon any fail-safe solutions to the problem of under-enforcement. Rather, we hope to direct the conversation toward a sanctions system that is both more economically efficient and more effective at achieving our foreign policy objectives.
Raphael Graybill, Comment, The Rook that Would Be King: Rooker-Feldman Abstention Analysis After Saudi Basic, 32 Yale J. on Reg. 591 (2015). [PDF]
The Rooker-Feldman doctrine prevents federal district courts from assuming jurisdiction in cases that seek review of state court judgments. For years, the doctrine was applied widely–often barring federal jurisdiction in cases far beyond the scope of the original doctrine. In 2005, the Supreme Court in Saudi Basic intervened to clarify Rooker-Feldman and to curtail its more extravagant applications. Ten years on, this Comment presents an original empirical analysis of the effects of the Saudi Basic decision on Rooker-Feldman analysis in federal district courts. The findings suggest that Rooker-Feldman abstention remains a popular tool for declining federal jurisdiction. Moreover, data suggest that its application has actually proliferated following the Saudi Basic decision, raising questions about the efficacy of the Court’s intervention and the development of procedural doctrine at the Supreme Court.