Nov 23, 2009 Caroline Bradley
Kenneth A. Bamberger, Technologies of Compliance: Risk and Regulation in a Digital Age, 88 Tex. L. Rev. (forthcoming 2010), available at SSRN. The global financial crisis raises profound questions about how financial markets and the participants in those markets should be regulated. The scale of the crisis has meant that issues which are normally discussed only by technical experts now are the subject of public debate. However, much of this public debate (and even some academic debate) about the future of financial regulation seems to assume that introducing a few new national and transnational institutions and changing a few rules can make a significant difference. For this reason, Kenneth Bamberger’s article, Technologies of Compliance: Risk and Regulation in a Digital Age, forthcoming in the Texas Law Review, is essential reading. The article shows that it is necessary to think about the ways in which private and obscure technologies of compliance risk distorting financial regulation.
Over the last few years, and somewhat ironically given the crisis, financial regulation has evolved to emphasize risk management by financial firms. Regulators have identified many varieties of interconnected risks which financial firms should manage. But although the crisis illustrates weaknesses in how financial firms have in fact managed the risks involved in their businesses, risk management as a focus of regulation is clearly here to stay. The G20, most recently in the Leaders’ Statement from the Pittsburgh Summit, and the Basel Committee (for example in its revisions to the Basel II market risk framework) continue to emphasize the idea of risk management as a core component of financial regulation. Policy makers are advocating the development of more sophisticated domestic and transnational institutions for the management of systemic risk.
The complexities of large financial corporations and financial regulation are such that modern risk management is necessarily a zone of automation. Transnational systemic risk management is also likely to involve automated systems. But although some of the critiques of the financial regulatory system in which the crisis was born, such as the UK’s Turner Review, note that regulators had acquiesced in the market’s over-reliance on complex mathematical models for risk management (in particular in the context of capital adequacy), the larger debate around financial regulation tends to be innocent of the complexities of compliance. By unpacking some of the layers of financial regulation, Bamberger provokes his readers to think carefully about the implications of the use of automated compliance systems for risk management.
Programmers who develop automated compliance systems, Bamberger argues, effectively make choices about how to interpret the law, and how to translate it into code. The law as applied may be different in important ways from the law that legislators and regulators promulgated — not least because the regulators’ choices to emphasize principles rather than rules are subverted by an implementation which turns principles into rules. Not only is law modified through the actions of managers of financial firms in applying it, but it is modified, perhaps in ways not fully understood by managers, by the programs which are used to apply it. Bamberger describes the processes which generate compliance systems as involving interactions between separate expert systems which communicate with each other imperfectly. The resulting risk management systems are ultimately a source of risk.
In contrast to public processes for the development of laws and regulations, the processes which generate compliance systems are private and opaque. Bamberger argues that choices about the interpretation of law should not be made by “private third-parties invisible to regulators.” He asks: “how does the technological instantiation of law-elaboration through implementation fare in light of the public law norms of accountability, effectiveness and legitimacy that traditionally govern the exercise of delegated discretion?”
Bamberger thus shows us that automated compliance systems are problematic from the perspective of genuine risk management and also from the perspective of good governance. The solutions he proposes for both sets of problem involve increasing transparency and improving the technical expertise of regulators, facilitating a dynamic collaboration of regulators and firms to develop effective risk management systems, including recognizing the importance of human judgment. Bamberger is not the only scholar whose work suggests that corporate lawyers should become more familiar with the implications of new governance scholarship, but his elegant unpacking of the subtle issues involved in automated compliance and the implications of this unpacking for thinking about risk management make this article required reading.
Oct 27, 2009 Bill Bratton
Anna Gelpern,
Financial Crisis Containment, 41
Conn. L. Rev. 1051 (2009). Available at
SSRN.
The financial crisis caught many unawares, and not just in their pocketbooks. Those of us who do corporate law had been operating for ever so long under a paradigm favoring market control of corporate actors. In so doing we familiarized ourselves with the financial economics of market success. Market failure did not escape our view, however. Between the standard objections to law and economics, the tech bubble of the late 1990s, and emerging literatures on behavioral influences on stock prices and pricing under heterogeneous expectations, we spent plenty of time writing about it and debating it. But matters like total or near-total economic collapse and prudential regulation occupied the desks of only a handful of people – specialists on structured finance like Steve Schwarcz and banking experts like Pat McCoy, Dan Tarullo, and Arthur Wilmarth. Lehman and TARP meant that the rest of us had some catching up to do, especially those of us who purport to know about finance.
Since last fall I have read a stack of papers and books about financial crisis, theoretical and historical. Some of this has been old material, old here meaning publication before the fall of 2008, and some of it has been new. But for the aforementioned colleagues, it has been the work of economists.
I would like to take the occasion to note that a new member has joined the small club of legal academic writers who have something to teach us about financial crisis. The writer is Anna Gelpern of American University, and the paper of admission is Financial Crisis Containment, 41 Conn. L. Rev. 1051 (2009), available at http://ssrn.com/abstract=1401062. The thesis is that crisis containment proceeds in a distinct regulatory space. Those who occupy it do not and cannot play by the usual rules. When regulators stand at the precipice and try to get things stabilized, standard concerns like ex ante incentive compatibility, security of contract, moral hazard, and even the liquidity-solvency distinction take the back seat. Gelpern reorients our perspective, coaxing common patterns of response from five past crises – this country in 1933, Mexico in 1982, Japan in the mid 1990s, Indonesia in 1997-1998, and Argentina in 2001-2002. As she does so, she emphasizes political choices and their distributive consequences. The account is refreshing and instructive.
Now, do not pick up this paper looking for the roadmap forward. This is description and typology. But the limits do not matter. It is compelling reading. Some of it is as gut wrenching as financial discourse can get. I found it especially valuable because I read it in tandem with a stack of material that approached the same phenomena within tight methodological boxes or with built in policy agendas. Some papers teach you volumes of what you need to know to formulate sound policy without purporting to dictate policy to you.
Oct 26, 2009 Michael Froomkin
Section Editors
The Section Editors choose the Contributing Editors and exercise editorial control over their section. In addition, each Section Editor will write at least one contribution (”jot”) per year. Questions about contributing to a section ought usually to be addressed to the section editors.
Professor Caroline M. Bradley
University of Miami School of Law
Professor William Wilson Bratton
Peter P. Weidenbruch Jr. Professor of Business Law at Georgetown University Law Center
Contributing Editors
Contributing Editors agree to write at least one jot for Jotwell each year.
Professor Robert B. Ahdieh
Director of the Center on Federalism and Intersystemic Governance at Emory University School of Law
Professor Steven M. Davidoff
University of Connecticut School of Law
Professor Anna Gelpern
American University – Washington College of Law
Professor Joe McCahery
University of Amsterdam, Amsterdam Center for Law & Economics
Professor Lawrence E. Mitchell
Theodore Rinehart Professor of Business Law at The George Washington University Law School
Professor Eric J. Pan
Director of the Samuel and Ronnie Heyman Center on Corporate Governance at
Benjamin N. Cardozo School of Law / Yeshiva University
Professor David Arthur Skeel
S. Samuel Arsht Professor of Corporate Law at the University of Pennsylvania Law School
Professor D. Gordon Smith
Associate Dean and Glen L. Farr Professor of Law
Oct 25, 2009 Michael Froomkin
Jotwell: The Journal of Things We Like (Lots) seeks short reviews of (very) recent scholarship related to the law that the reviewer likes and thinks deserves a wide audience. The ideal Jotwell review will not merely celebrate scholarly achievement, but situate it in the context of other scholarship in a manner that explains to both specialists and non-specialists why the work is important.
Although critique is welcome, reviewers should choose the subjects they write about with an eye toward identifying and celebrating work that makes an original contribution, and that will be of interest to others. Please see the Jotwell Mission Statement for more details.
Reviews need not be written in a particularly formal manner. Contributors should feel free to write in a manner that will be understandable to scholars, practitioners, and even non-lawyers.
Ordinarily, a Jotwell contribution will
- be between 500-1000 words;
- focus on one work, ideally a recent article, but a discussion of a recent book is also welcome;
- begin with a hyperlink to the original work — in order to make the conversation as inclusive as possible, there is a strong preference for reviews to focus on scholarly works that can be found online without using a subscription service such as Westlaw or Lexis. That said, reviews of articles that are not freely available online, and also of very recent books, are also welcome.
Initially, Jotwell particularly seeks contributions relating to:
We intend to add more sections in the coming months.
References
Authors are responsible for the content and cite-checking of their own articles. Jotwell editors and staff may make editorial suggestions, and may alter the formatting to conform to the house style, but the author remains the final authority on content appearing under his or her name.
- Please keep citations to a minimum.
- Please include a hyperlink, if possible, to any works referenced.
- Textual citations are preferred. Endnotes, with hyperlinks, are allowed if your HTML skills extend that far.
- Authors are welcome to follow The Bluebook: A Uniform System of Citation (18th ed. 2005), or the The Redbook: A Manual on Legal Style (2d Ed.) or indeed to adopt any other citation form which makes it easy to find the work cited.
Technical
Jotwell publishes in HTML, which is a very simple text format and which does not lend itself to footnotes; textual citations are much preferred.
Contributors should email their article, in plain text, in HTML, or in a common wordprocessor format (Open Office, WordPerfect, or Word) to ed.jotwell@gmail.com and we will forward the article to the appropriate Section Editors. Or you may, if you prefer, contact the appropriate Section Editors directly.
Oct 19, 2009 Michael Froomkin
The Journal of Things We Like (Lots)–JOTWELL–invites you to join us in filling a telling gap in legal scholarship by creating a space where legal academics will go to identify, celebrate, and discuss the best new legal scholarship. Currently there are about 350 law reviews in North America, not to mention relevant journals in related disciplines, foreign publications, and new online pre-print services such as SSRN and BePress. Never in legal publishing have so many written so much, and never has it been harder to figure out what to read, both inside and especially outside one’s own specialization. Perhaps if legal academics were more given to writing (and valuing) review essays, this problem would be less serious. But that is not, in the main, our style.
We in the legal academy value originality. We celebrate the new. And, whether we admit it or not, we also value incisiveness. An essay deconstructing, distinguishing, or even dismembering another’s theory is much more likely to be published, not to mention valued, than one which focuses mainly on praising the work of others. Books may be reviewed, but articles are responded to; and any writer of a response understands that his job is to do more than simply agree.
Most of us are able to keep abreast of our fields, but it is increasingly hard to know what we should be reading in related areas. It is nearly impossible to situate oneself in other fields that may be of interest but cannot be the major focus of our attention.
A small number of major law journals once served as the gatekeepers of legitimacy and, in so doing, signaled what was important. To be published in Harvard or Yale or other comparable journals was to enjoy an imprimatur that commanded attention; to read, or at least scan, those journals was due diligence that one was keeping up with developments in legal thinking and theory. The elite journals still have importance – something in Harvard is likely to get it and its author noticed. However, a focus on those few most-cited journals alone was never enough, and it certainly is not adequate today. Great articles appear in relatively obscure places. (And odd things sometimes find their way into major journals.) Plus, legal publishing has been both fragmented and democratized: specialty journals, faculty peer reviewed journals, interdisciplinary journals, all now play important roles in the intellectual ecology.
The Michigan Law Review publishes a useful annual review of new law books, but there’s nothing comparable for legal articles, some of which are almost as long as books (or are future books). Today, new intermediaries, notably subject-oriented legal blogs, provide useful if sometimes erratic notices and observations regarding the very latest scholarship. But there’s still a gap: other than asking the right person, there’s no easy and obvious way to find out what’s new, important, and interesting in most areas of the law.
Jotwell will help fill that gap. We will not be afraid to be laudatory, nor will we give points for scoring them. Rather, we will challenge ourselves and our colleagues to share their wisdom and be generous with their praise. We will be positive without apology.
Tell us what we ought to read!
How It Works
Jotwell will be organized in sections, each reflecting a subject area of legal specialization. Each section, with its own url of the form sectionname.jotwell.com, will be managed by a pair of Section Editors who will have independent editorial control over that section. The Section Editors will also be responsible for selecting a team of ten or more Contributing Editors. Each of these editors will commit to writing at least one Jotwell essay of 500-1000 words per year in which they identify and explain the significance of one or more significant recent works – preferably an article accessible online, but we won’t be doctrinaire about it. Our aim is to have at least one contribution appear in each section on a fixed day every month, although we won’t object to more. Section Editors will also be responsible for approving unsolicited essays for publication. Our initial sections will cover administrative law, constitutional law, corporate law, criminal law, cyberlaw, intellectual property law, legal profession, and tax law — and we intend to add new sections when there is interest in doing so.
For the legal omnivore, the ‘front page’ at Jotwell.com will contain the first part of every essay appearing elsewhere on the site. Links will take you to the full version in the individual sections. There, articles will be open to comments from readers.
The Details
Learn more about Jotwell:
