Roundup: what not to do

Today, the Wall Street Journal reported that investigators at the SEC's Division on Enforcement are going to specialize in particular types of offenses.

Kaskari resigns: Dennis Kucinich says "don't take it personally," via DealScape.

If you're in a good mood, don't read what Felix Salmon has to say about the GDP report (link, too).

Several good things on the Corporate Counsel Blog including - summary of TARP repayment learning.

Finally, from the blog of the recently re-christened Harvard Law School Forum on Corporate Governance and Financial Regulation (whew) a discussion of the executive compensation provisions of TARP pre and ante ARRA.

Banks With Toxic Assets, Urine Luck!

Yesterday, in the Wall Street Journal, Wilbur Ross added more detail to his previously stated desire to take the government up on its offer to lend money to those who want to buy toxic bank assets. He wants to take advantage of the Treasury's Public / Private Investment Partnership (known as "Pee-Pip" because of its initials.)

Ross says he'll invest as much as $1 billion. By my calculations, that will give him a $12 billion fund. JP Morgan, for one, has no interest in that money. Nope, not them. You can just stop askin'.

In other PPIP news, the Treasury announced that it has received over 100 applications from potential Pee-Pipers.

Whose Idea Was This, Anyway?

Andrew Ross Sorkin writes that the government is now trying to make us forget about the whole stress test thing.

Break Out the Quotes

Every day it looks more and more like the hedge fund industry was full of managers who collected fees, but did no management. According to the New York Times DealBook the SEC's Division of Enforcement is very busy digging into the business of about 150 such "hedge funds". In even more depressing hedge-news, Hedge Fund Law Blog reports that the SEC has penalized a hedge fund due diligence firm for recommending a fund that was really a ponzi scheme because they didn't do any diligence.

You *Say* You Want a Revolution.

On Sunday, the Wall Street Journal published an overview of Charles Schumer's proposed corporate governance bill. The draft, which the reporters saw but Schumer did not release, focuses on increasing the power of shareholders. The alleged bill hasn't yet been introduced. The article also suggests that Barney Frank may be writing a competing bill, but based on this interview in Barron's (via Compliance Ex) his focus seems to be more on reform of regulatory agencies.

Spring Tweets!

A recent article in the WSJ discusses the use of twitter among large corporations and potential issues with the SEC. The SEC has joined in this new social media trend and is an active twitterer (SEC: http://twitter.com/SEC_Investor_Ed). Not quite the following as Ashton Kutcher, but give it time.

Last year in early August 2008, the SEC issued an interpretive release regarding guidance on the use of company web sites. Press release and video are also available.

Don't forget, you can also follow the Speculative Debauch* on twitter: http://twitter.com/specdebauch

Not Material as a Matter of Law?

So, apparently, the stress tests are over and the banks did fine. And that, sweetheart, is all you need to know. The Treasury says it will release the results on May 4th. Presumably, they're giving the banks a chance to get their spin right?

It is public knowledge which banks were tested. What's more, according to a partner at Alston & Bird tested banks that enter into a capital support agreement with treasury have to file an 8-K. But what about the stress test results? Do the results have to be disclosed?

Public companies can't make an untrue statement of material fact or omit a material fact that would make other statements misleading. A fact is "material" if there is a substantial likelihood that a reasonable investor would consider the fact important. That rule comes from the Supreme Court (TSC v. Northway, 426 US 438) and has been enshrined in SEC rules 405 and 12b-2. The occurrence of the stress test is a fact and probably noteworthy to yer reasonable investor, but the results aren't facts. The results are projections based on assumptions about the state of the economy and on that count, the law isn't settled:

Current tests for determining the materiality of predictive or projective information range from case-by-case balancing of the information's potential aid against its potential harm to investors to rulings that predictive information, as a matter of law, is not material.

MATERIALITY OF PREDICTIVE INFORMATION AFTER BASIC: A PROPOSED TWO-PART TEST OF MATERIALITY 1990 U. Ill. L. Rev. 207, 208 (.1990)

Blog Roundup!

Yee Haw!

The Wall Street Journal reports that NYAG Andrew Coumo is investigating government pressure behind the Merrill BofA merger. The article links to several original documents.

Reuters reports that at least one SEC commissioner wants the SEC to be part of an international regulatory council.

Footnoted has great coverage of the trend to reincorporate in North Dakota.

Corporate Counsel has a great summary of developments in the rules about investors aggregating their shares to meet the SEC rules for shareholder proposals under rule 14a-8.

Uninstructed Voting Gets Marching Orders

The Wall Street Journal is reporting that the SEC has decided to approve the NYSE's re-proposed amendments to Rule 452. Rule 452 allows brokers to vote shares on routine matters if shareholders don't tell them how to vote. The amendment would classify director elections as non-routine. As I blogged last month, the SEC has gotten lots of comment letters on the proposal. No official word from the SEC so far.

A More Professional Me

The first of two articles I wrote about the financial crisis, "The Financial Crisis: complexity made (somewhat) less complex" has finally been posted on West's Librarian Relations website.

BARBAROUS RELIC!

I just finished reading Lords of Finance by Liaquat Ahamed. It is a wonderful book, but about half way through I had the same experience you have when you realize that the Star Wars movies are *really about Darth Vader*! A lot of Lords of Finance is about the resurrection and well-deserved second demise of the gold standard. Since reading the book, I've been looking for an excuse to write about the gold standard and today, China gave me an excuse!

In the early eighteenth century the world accidentally backed into the gold standard. It was Isaac Newton's idea. In eighteenth century English coins were made of gold and silver. This is called "bimetalism." The exchange rate between gold and silver was set on an exchange. A big silver strike in New Spain, for instance, would make silver less valuable relative to gold. At the time, silver bought more gold in continental Europe than in England. Enterprising Englishman began melting their silver coins exchanging them for gold in France and bringing the gold back to England to buy silver. Soon, silver coins became scarce in England. In 1717, Isaac Newton, master of the Royal Mint, proposed fixing the exchange rate as a way to maintain bimetalism. By raising and lowering the exchange rate, Newton was able to control the flow of gold into the country. Other countries in Europe soon saw how clever this was and adopted the idea. Soon after, they discovered that fixed exchange rates put a stop to cross-border currency arbitrage. When countries in Europe all went to paper currency they maintained the gold standard by making their paper convertible to gold at a fixed rate. The only thing that could shake the stability of this system was the discovery of more gold.

There were, of course, ways to cheat the system. If you want to find out what they were, read the book.

Post-Modernism

The securities law are, essentially, remedial. Since the crash of 1929 precipitated the '33 Act and the '34 Act, financial scandals have preceded new laws.

Browsing through the titles of proposed securities legislation (see the spreadsheet) I saw language implying remedies on the way - "responsibility," "integrity," "reform" (twice) "transparency" (twice) and, "accountability" (three times).

Looking back, I noticed that the laws that get blamed for causing the financial crisis described themselves with the word "modernization" - The Commodity Futures Modernization Act of 2000 (CFMA) and Gramm-Leach-Bliley, or the Financial Services Modernization Act of 1999 (GLB).

Because I'm curious that way, I decided to use the federal securities legislative history database (FSEC-LH) on Westlaw to see if modern has always stood for less regulation and "reform" for more.

Forms of the word modernize appear only 31 times in FSEC-LH. The first occurrences are recent and are associated with stronger regulation. The Senate Report (S Rep 101-300) accompanying The Market Reform Act of 1990 says the law addresses "a number of critically important areas where legislation is needed to modernize the SEC's authority to protect investors." In his signing statement for the Futures Trading Practices Act of 1992 (FTPA, 1992 WL 457484), which reinforced the Commodity Exchange Act, George Bush describes FTPA as a "modernization of our financial laws". When modernization next raises its visage it is associated with the Financial Services Competitiveness Act of 1995 (HR Rep 104-127) - the first draft of GLB. The word eventually makes its way to the title; to the CFMA and then it vanishes.

Transparency and accountability appear to be analogous to modernization. They haven't previously been used in the titles of securities bills.

Starting in the late 1980's the titles of securities bills start to change from being purely descriptive, Securities Act, to something a bit more aspirational, Securities Litigation Uniform Standards Act. This is part of a general trend. Before the Financial Institutions Reform, Recovery and Enforcement Act of 1989 (FIRREA) the word reform does not appear in any bill titles, but following the collapse of the savings and loan system and the stock market crash of 1989 there's a string:

* The Penny Stock Reform Act (PL 101-429)
* The Market Reform Act of 1990 (PL 101-432)
* The Limited Partnership Rollup Reform Act (PL 102-254)
* The Government Securities Reform Act (PL 102-722)

All of laws listed above strengthened securities regulation.

Speculative Debauch Uncovers Commie Plot

Yesterday, I blogged about how the Socialist members of the European Parliament were blocking a proposed hedge fund regulation because they believe its focus on regulating managers instead of the funds themselves makes the legislation "almost worthless."

This morning I read that the only "socialist" member of the US Congress, Barney Sanders of Vermont, is blocking the appointment of former GS partner Gary Gensler to run the CFTC. Sanders' problem with Gensler is that he is the guy who actually wrote the Commodity Futures Modernization Act. Gensler was also a strong supporter of the Gramm-Leach-Bliley Act, he called it: "a real chance for meaningful reform."

This is what's really weird: both sides agree on what needs to be accomplished. Everyone wants better regulations to prevent future economic chaos. So, each side accuses the other of playing into the hands of evil bankers. Collin Peterson says that delaying Genslers's appointment is playing right into the hands of Wall Street (see 2009 WLNR 7534278). Peterson is supporting Gensler's nomination for the same reason that Sanders is opposing it.

Blame for the deadlock should be probably be laid at the door of whoever decided Gensler was the right person to rebuild a regulatory regime he worked hard to dismantle. Is it more charitable to view the decision as dumb, or perverse?

If You're Going to a Cocktail Party

Much buzz in the blogosphere about two articles:

Andrew Ross Sorokin, in NY Times DealBook, wants to know: how dumb do the banks think we are?

Scholarly paper says that CDS counterparties probably won't reduce risk (via FT Alphaville).

EU Hedge Fund Rules Aground

The Guardian is reporting that the EU's proposed hedge fund regulation, "Proposal for a Directive on Alternative Investment Fund Managers," is hung up because there's disagreement of the proper role of regulation. EurActiv has great coverage of the ongoing dispute including links to the draft regulation and the letter from the Socialist members.

I am Cringing

For them that missed it, a recording of last week's webinar: How to Stay Ahead of the Financial Crisis is now available on the West Librarian Relations website. I'm listening to it now because I love hearing the sound of my own voice.

Also Note

Many thanks to Felix Salmon over at Reuters for linking to this modest proposal to the SEC. "It should be painfully obvious by now that ... had stock sales been banned in 2007 the stock market crash of 2008 - 2009 would never have happened."

All about the tone: "Treasury Congratulates Liberia on the Buy Back of Outstanding Commercial Debt."

From Pom Talk: a simple(ish) and short(ish) primer on fair value accounting. I just know someone asked you for this yesterday!

From Erika over at Tax 101: the IRS' "dirty dozen" tax scams. Personally, I would have limited it to a "magnificent seven."

AAARRRGGGGGHHHH!!!!!

If you're going to be in Charlotte on April 29th, the most entertaining show in town will be at the Belk Theater - Bank of America's annual meeting. The price of admission is only $8.73 (that's BofA's share price as of this moment). There are 11 items on the agenda including two competing say-on-pay proposals (via Corporate Counsel blog).

It has been a long road to the final proxy. BofA has been the subject of at least ten no-action letters regarding shareholder proposals. Bad management decisions (cf Merrill Lynch) left BofA shareholders pretty ticked. It looked like the wind was behind a bunch of governance proposals (like the separation of chair and CEO: via Race to the Bottom) that usually get shut out of the party and end up hanging around outside trying to look tough. But, as has happended so frequently during this crisis, opposition appears to be crystallizing around personality instead of process.

Ken Lewis probably needs to go, but let's not take our eye off the ball (again) - this crisis won't get solved with pitchforks and flaming torches.

If you can't be in Charlotte, BofA reminds you that "you may listen to a live audiocast of the meeting on our website at http://investor.bankofamerica.com at 10:00 a.m., local time, on April 29, 2009."

JP Morgan: toxics not for sale.

During Yesterday's earnings call, Jamie Diamond of JP Morgan Chase announced that his bank wouldn't be participating in the Treasury's toxic asset repurchase program, "We have no intent on using PPIP at all," he said, "I don't think toxic assets is the problem."

Click here for Marketplace's capsule report and here to see the earnings release and hear the whole conference call.

Isn't That Special?

Today's WB Legal Currents has a substantial discussion of shareholder meetings - special and, you know, not so special - and the SEC's 14a-8 no-action letter process for shareholder proposals.

While you're there, be sure to click on the link to "Voting Swaps: Hedge Funds' Three Card Monte." An article about how issuers are trying to combat vote swapping among shareholders. People are marvelously inventive.

The SEC This Week

Staff Accounting Bulletin 111, replacing topic 5:M, Other Than Temporary Impairment of Certain Investments in Equity Securities and related Technical Amendments and Recodification of Financial Reporting Policies.

Mary Schapiro's statement at the credit rating agency roundtable and related request for comments.

Comment period re-opended for intra-agency privacy rules.

Meredith Cross, formerly of Wilmer Hale, is the new head of Corporation Finance.

Adoption of updated EDGAR Filer Manual.

Blogging Goldman's Agreement II: the fake investor

"WHEREAS, the United States Department of the Treasury (the "Investor") may from time to time agree to purchase shares of preferred stock and warrants from eligible financial institutions which elect to participate in the Troubled Asset Relief Program Capital Purchase Program ("CPP");"

Goldman's agreement with Treasury certainly looks like an ordinary securities purchase agreement. But, as was later revealed, Treasury is not an ordinary investor. For one thing, Treasury doesn't appear to have to power to bind the United States Government. Back in October of 2008, when Goldman signed up for the Capital Purchase Program, the attached executive compensation strings were contained in section 111(b) of the Emergency Economic Stabilzation Act of 2008. Section 4.10 of the securities purchase agreement memorializes the intention of the company to "ensure that its Benefit Plans with respect to Senior Executive Officers comply in all respects with section 111(b) of the EESA."

Then Congress changed the rules. The American Recovery and Reinvestment Act of 2009, passed in February 2009 by the newly-minted 111th Congress, established new, retroactive executive compensation rules for TARP recipients. Effectively, Congress went over Treasury's head and unilateraly amended a bunch of exisiting contracts. This is an emergency and things have been done in a hurry so no one is going to squawk about changed terms, but is it any wonder that TARP recipients want out of these agreements?

See Part 1 of Blogging Goldman's Agreement

Briefly Noted

Race to the Bottom discusses the 9th Circuit's decision in Rubke v. Capitol Bancorp Ltd. (551 F.3d 1156) and the application of PSLRA pleading standards to claims under section 11 of the '33 Act.

Reuters DealZone reports that Barclays is a step ahead of US banks - it is planning to sell a unit rather than taking bailout money and then trying to get out of it later.

The Harvard Corporate Governance Blog offers a transcript of SEC Chair Mary Schapiro's recent speech to the Council of Insititutional Investors.

Treasury unveils a TARP program for Mutual Banks.

Pom Talk blogs about the Council of Institutional Investors white paper on the regulation of credit rating agencies.

Blogging Goldman's Agreement With Treasury

With Goldman Sachs announcing its intention to be the Snake Plisskin of TARP, I thought it might be a good time to take a closer look at how one escapes from the Treasury's Capital Purchase Program (CPP).

FinancialStability.gov has a great new page with links to all the various CPP agreements. The standard CPP terms envision a three year relationship between the bailed-out bank and the Treasury. Section 5 of the Standard Terms provides that the securities issued to Treasury may not be redeemed "prior to the dividend repayment falling on or after the third anniversary of the Original Issue Date."

If the bank wants out before three years they have to get permission from the "Appropriate Federal Banking Agency" and they have to sell Tier 1 equity (a "Qualified Equity Offering") amounting to 25% of the value of the securities issued to Treasury (the "Minimum Amount"). Goldman got $10 billion from the CPP so they need to sell $2.5 billion in equity to throw off the yoke of Treasury.

It is Not the Ides of April

Today is the official launch day for my colleague Erika Beck's tax blog Tax 101! I wonder why she chose today? It isn't the ides of April, is it? Erika used to be a tax librarian at Emory Law School and she has an LLM in taxation. Her blog will focus on tax reform and "tax research tips for the uninitiated." I shudder to imagine what the tax law initiation is like.

Free Resources: from today's webinar

During today's National Library Week webinar, I mentioned a number of free resources that provide current awareness and/or explain concepts relating to the financial crisis.

Felix Salmon's blog - Felix is a Reuters columnist who blogs about the financial crisis. He covers one issue per day with good linking.

The Speculative Debauch - this blog is intended to provide current awareness and explanations for law librarians practicing in the securities / corporate law area.

Reuters DealZone - a business blog that covers the transactional market: hedge funds, private equity, LBO's and M&A.

Marketplace White Board - a series of entertaining videos explaining financial crisis terms like collateralized debt obligation and credit default swap.

Planet Money - a current awareness blog with a glossary of terms.

This American Life - two excellent, in-depth shows about the economic crisis: Bad Bank and Another Frightening Show About the Economy.

Eight Habits of Highly Effective Researchers

Many thanks to today's guest poster, Dan Ferro, Manager of Corporate Resources at Fried Frank Harris Shriver & Jacobson LLP in New York. As his first offering he has provided his analysis of what makes a good researcher.

------------------------------------------------------------------------------------

Having worked as a researcher and managed researchers for more than 20 years, I've noticed that those who excel share certain approaches to their work, and have performance characteristics in common. Most of my experience has come from researching corporate contracts and the corporate transactions market but I believe the following would be relevant in any area of research.

Intellectual Curiosity - Researchers should be intellectually curious, and it is a great advantage to have a genuine interest in the material you are researching. Without interest in the material, research can become dry and boring very quickly.

Perseverance – Do not take no for an answer. Assume what you are looking for is there to be found. If you’ve looked at 25 documents and haven't found it, try 50 or 100. If you have tried five different search strings and found nothing, try ten.

Resourcefulness and Creative Thinking – Don’t look solely to plug names or numbers into a database and get results. It is great when we can do that, but it is not research. Think about other ways to construct your text search or synonymous phrases for your search term. Think about solving the problem from a different angle.

Communication – Communication and clarity are important to attorneys. Often they do not know how we do what we do. If you are giving documents that are not 100% on point, explain why. If an attorney asks for X and you give Y, with a thorough explanation that is often OK. Without an explanation, your customer may think you did not understand the request.

Thoroughness – Make sure your work product fits the request as closely as possible. Just because your search string retrieved a document, does not mean it answers your customer's question. Be certain you understand what you are searching for and how your results fit the context of the request.

Questions – Unless you are 100% sure you understand the request, ask questions. Ask someone else in your working group, the attorney who gave the request, or another attorney with expertise in the field. Be careful when asking certain attorneys for clarification, since they may not be 100% certain themselves and may become defensive regarding questioning.

Attitude – Requestors should be made to feel that their work is important and will be handled promptly and efficiently. Do your best to have a positive, service-oriented mentality.

Presentation – It’s important to clearly sort documents and flag relevant provisions or pages. The documents we work with can be 50 – 100 pages or more and customers may become frustrated if they have to flip through several pages to find the one or two relevant portions.

TALF Offering Update

This morning I ran some searches in Westlaw Business' Registrations & Prospectuses database to try to gauge whether TALF is having an effect on asset-backed securitization. The asset-backed finance market has, famously, evaporated since the credit crisis began. In January of 2006, for example, WB records 99 asset-backed transactions. This January, there were 5. February, with 3 deals, marked the low water mark. In the last 30 days there have been 16 deals. 4 were already in process before TALF was announced and 5 aren't TALF elgible because they're backed by ineligible assets (mortgages, mostly).

That leaves nine deals that can be directly attributed to TALF: 5 auto loan pools, 2 credit card pools, and 2 student loan pools. These nine deals total about $11 billion.

Two of the auto loan deals are being originated by large car dealerships (World Omni Financial and CarMAx Auto Financing).

Financial Crisis Pending Legislation

In honor of National Library Week, I am publishing a list of financial-crisis related bills that have been proposed during the last two Congressional sessions. It is my intention to update this list on a weekly basis.

Bullish on Downgrades

When the history of this period is written, yesterday may become known as "Downgrade Wednesday." To quote Montagu Norman, "I should like this prediction to be filed for future reference."

S&P started off by putting all CMBS instruments on watch. For dessert, they downgraded the entire mortgage insurance sector. Moody's, not to be outdone, downgraded Berkshire Hathaway.

Also News

The Wall Street Journal reports that the SEC filed a motion to block a group of investors from filing a bankruptcy suit against Bernie Madoff (see: 4/8/09, Memo of Law in Opposition, 08 Civ 10791, SDNY). The SEC argues that the ongoing SIPC claim coupled with the DOJ forfeiture proceeding will get more assets than bankrupcty. The SEC also states "unequivocally" that assets recovered will be distributed to Madoff's victims.

In a nice post, Compliance Week's Filing Cabinet Blog notes the SEC's eagerness to get comments about short selling.

The Financial Times reports that increased enforcement of the Foreign Corrupt Practices Act may affect big pharma mergers.

WSJ report on James Lambright, the 38-year-old lawyer who is in charge of distributing TARP's money.

More Blogging the Crisis

Reuters columnist Felix Salmon is writing a new blog about the financial crisis.

Blogs That Track Stimulus

As if you don't have enough to do - below is a quick list of blogs that track bailout and stimulus developments.

US Budget Watch
Stimulus Watch
Bailout Sleuth

Nearly National Library Week!

Next week I'm going to be presenting (three times) a webinar on how Westlaw and Westlaw Business can help you stay atop developments in the ongoing financial crisis. *ahem*

The financial crisis has changed the legal landscape. From the kaleidoscope of Madoff-spawned litigation to the regulatory shakeup that's waiting in the wings, it is a difficult time to keep current. Westlaw and Westlaw Business can help by providing tools that make it easier to:

* Track legislative developments
* Monitor administrative, civil and criminal proceedings
* Find crisis-related corporate disclosure
* Keep tabs on bailout transactions

Times are as follows: Eastern Standard all.

Tuesday, April 14th: 12:30 pm
Wednesday, April 15th: 1:00 pm
Thursday, April 16th: 3:00 pm

Please email me if you'd like the webinar information.

Another Prescription for Over-the-Counter

Congress Daily (2009 WLNR 6514585) reports that the US Chamber of Commerce is lobbying against total regulation of the over-the-counter derivatives market. Alarmed by the rapid progress of bills like the Derivatives Markets Transparency Act, "the Chamber is researching how their member companies use such OTC products and will take the results to argue to lawmakers that the market should be preserved." The Chamber wants to show that while "most derivative products [should] be placed on the burgeoning clearinghouse system [...] certain products, such as some currency contracts, that need the extra flexibility of the OTC market."

Please Note

S&P's report on corporate defaults in 2008.

SIFMA's charting of bailout programs.

The SEC has proposed new limits on short selling (via NY Times DealBook).

I Give Up. Why?

FT Alphaville reports on a press release from the Connecticut Attorney General asking "why are we bailing out the credit rating agencies?"

The Next Really Bad Thing

Standard & Poors has completed a review of securities collateralized by commercial mortgages and, as predicted, has put a whole bunch of them on watch for downgrade. The Wall Street Journal reports that "The watch includes 2,648 classes of commercial mortgage pass-through certificates from 170 conduit and fusion transactions."

Barney Frank's Plan

On Monday, Barney Frank spoke at the Kennedy School at Harvard and laid out his plan for regulatory reform. His main points are in line with the administration's, though his outlook is not as broad:

* A ban on 100 percent securitization of loans.
* Elimination of the “perverse incentives” in a system that pays enormous bonuses for good results but exacts no penalty for disastrous ones.
* Resolution authority.
* Control of systemic risk.

On a less informative, but more entertaining, note - he also had an argument with a law student in the audience.

Did Anyone Get the Number of that Special Purpose Vehicle?

An article in this weekend's Washington Post set off an ado by reporting that the Federal Reserve is circumventing the executive compensation restrictions in the American Recovery and Reinvestment Act (HR 1). The Fed is distributing money through special purpose entities so that TARP money isn't, technically, coming from the government. Whether you're fer or agin you have to wonder why its being done this way.

Section 111(a)(3) of HR 1 applies executive compensation limits to any entity receiving "financial assistance" under TARP. The New York Fed has decided that financial assistance depends on intent. The TALF program, for instance, is intended to stimulate consumer auto lending. Therefore, ABS sponsors participating in the program aren't being bailed out - people who buy cars are.

The New York Fed explains that "Executive compensation restrictions are targeted towards ensuring that executives of institutions that receive government support are not unjustly enriched at the taxpayers’ expense. Given the goals of the TALF and the desire to encourage market participants to stimulate credit formation and utilize the facility, the restrictions will not be applied to TALF sponsors."

This appears to be a straightforward question of Congressional intent. So, why not just ask Congress? Why all the sneaking around? My guess is that the Fed is afraid to raise the issue at all. Even if Congress did draft too broadly, chances are no one is going to have the nerve to face the public wrath that would flow from loosening executive compensation restrictions in the bailout law.

Is Failure Not an Option?

Yesterday, I was reading "The Great Crash," by John Kenneth Galbraith, and I was struck that in 1929 and in the present crash the crisis was exacerbated by a seemingly arbitrary decision to let a large financial institution collapse.

Bank of United States was founded on the Lower East Side of Manhattan in 1913 (in a building that now houses Winda Restaurant Supplies and White Slab Palace). By 1930 it was one of the largest banks in New York, but it had passed from the capable hands of its founder Joseph Marcus to his differently-abled son, Bernard. The younger Marcus sold equity in the bank. The shares came with an ironclad guarantee: the bank would buy them back at the issue price of $200. In 1930, when the shares were trading at $90, a shareholder went into a branch in the Bronx and asked the bank to buy back her shares. They tried to talk her out of it. When she came back the next day, she came with friends who also had shares to sell. Thus began the first post-1929 bank run.

Even though the New York Superintendent of Banks thought "management was on an extremely dangerous and probably illegal course of action" (Trescott, The Failure of the Bank of United States, 1930; Journal of Money, Credit, and Banking, August 1992, 384). He asked J. Herbert Case, president of the New York Fed, to step in and rescue the bank. Case proposed a plan to merge Bank of United States with three other large banks, but during a late night meeting on December 8th, the plan fell apart (Proposal to Merge Four Banks Abandonded, New York Times, 12/9/30).

Bank of United States failed on the 11th. At the time, it was the largest bank failure in US history. "The demise of this bank worsened the panic. As deposits were withdrawn, banks contracted credit, driving the economy deeper into recession." (Glasner and Cooley, Business Cycles and Depressions: An Encyclopedia, Taylor & Francis, 1997) The failure of Bank of United States made depoistors across the country fear for their savings. As John Steele Gordon put it: "Wall Street refused to help a bank it could have saved. That touched off a wildfire of failure throughout America."

The Wall Street Journal called the downfall of Lehman Brothers "largely of its own making. The firm bet heavily on investments in overheated real-estate markets," but, the Journal adds, "Lehman's bankruptcy ... proved far more destabilizing ... than many had expected." Many, but not everyone - the French Minister of Finance Christine Legard warned Henry Paulson not to let Lehman fail.

The government's decision to allow Lehman to collapse made other investment banks appear vulnerable. The Wall Street Journal called it "a turning point in the way investors assess risk."

For more on Bank of United States see the entry in Wikipedia (it really is good).

Briefly Noted

The Deal Professor on the collapse of the IBM bid for Sun Microsystems.

The Riskmetrics Blog reports that the SEC will propose new proxy access alternatives in May.

The SEC is getting a lot of comment letters about the NYSE's proposed revision of the uninstructed voting rules.

On the Harvard Corporate Governance Blog: a Wachtell memo about Judge Posner's decision in the Beck v. Dobrowski merger litigation, 2009 WL 723172 (7th Cir. March 20, 2009).

Brother, Can you Spare a Quarter?

Legal Advisory league tables for the first quarter of 2009 are available (for free) on Thomson Reuters' league table site. And what a quarter! Deals are down 29% to the "lowest level for quarterly deal activity since the third quarter of 2004."

Who'll be Famine?

Deal Professor published the first in a four-part series "Four Buyouts of the Apocaplyse." The series is more than just an excellent title - it will also feature in-depth discussion of the four private equity buyouts that have not been scuttled by the credit crisis. Just four?

Lamb on Lyon(dell)

DealScape has a brief article about Chancellor Lamb's remarks on Lyondell Chemical v. Ryan (2009 WL 790477) at the Tulane Corporate Law Conference.

Diminishing Rate of Return

The Financial Accounting Standards Board just can't stop explaining fair value. Yesterday, FASB adopted three new Staff Positions about fair-value accounting. This post on the Corporate Counsel Blog has links to the documents and several articles on the changes.

SEC Update

The Municipal Securities Rulemaking Board proposed a pilot program adding continuous disclosure from municipal issuers to its electronic disclosure system, EMMA.

At the end of April, Erik Sirri, Director of the Division of Trading and Markets, is leaving the SEC to return to academia.

TARP Update Hearing

Witness statements from yesterday's TARP six-month update are available on the Senate Finance Committee website.

The Less You Know ... the Better.

That's what Bernard Madoff told Fairfield Greenwich Advisors LLC. The Massachusetts Securities Division begs to differ. It has commenced a suit under the Commonwealth's blue sky law against the Madoff feeder fund for inadequate due diligence. The complaint and all of the exhibits are available on the Securities Division's website. For those not up to reading the whole thing the New York Times offers "highlights."

April Fool's Day Blog Roundup 2

The Harvard Corporate Governance Blog also has a slew of good posts. Not all, alas, posted on April Fool's Day.

(1) Three Davis Polk memos about the Geithner regulatory reform outline and the resolution authority bill.

(2) Weil Gotshal's survey of sponsor-backed going private transactions.

(3) Wachtell Lipton's memo on the UK's new rules about disclosure of derivative transactions. I didn't understand it, maybe you'll have better luck.

April Fool's Day Blog Roundup 1

April Fool's Day produced an avalanche of great blog posts. The Corporate Counsel Blog has great posts about (1) the first whistleblower suit about executive compensation disclosure - against McDonald's! (2) an argument that if one hedges too aggressively it can be hard to say who's side one is on and (3) a funny rundown of fake, and/or insane SEC filings from the past.

The filing he's trying to remember is the F-1 registration filed by Apollo Publication Corp. in September of 2005. George Bush, Jimmy Carter and "Al Greenspan" are listed as directors. The business plan involves, "found[ing] An Imperial Of Earth (IOE) with One God Luo, One Language, One Culture, One History, One Law, One Standard, One Currency, One Postal, etc on One Land of Earth of Solo Solar System." The decision granting the SEC's petition to put an end to this insanity is almost as funny as the Apollo registration.