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Abstract:
The Principles of Corporate Governance require that business conduct conform to the law. In recent years, news reports of business misconduct have cast doubt on a conclusion that conformity is the prevalent practice. This article explores the influence of law on business conduct by comparing the law's requirements and purposes with actual business conduct in the market. Specifically, it explores whether certain legal regimes are more effective than others in inducing greater commitment to legal compliance by corporate actors. The conclusion drawn is that the prevalent legal regime - a vague common law or legislative mandate - is typically associated with corporate conduct that evades or ignores the law's mandate or its underlying purpose.

corporate behavior, Corporate Governance

Abstract:
This article explores business conduct in the securities industry in light of behavioral tendencies uncovered by researchers in the fields of psychology and organizational behavior. The thesis is that the nature of legal regimes imposed in the securities industry encourage rather than discourage unethical decisions. The American Law Institute's Principles of Corporate Governance require a corporation to comply with legal mandates regardless of the adverse effects compliance may have on profits. Moreover, the comments to the Principles of Corporate Governance make it clear that corporations must not only seek technical compliance with the law but should base their decisions on the goal of serving the policies and purposes behind the particular legal mandate. Legal conduct is thus differentiated from ethical conduct with the latter encompassing the commitment to a law's underlying purpose.

Yet the securities industry's actual conduct has not reflected such a commitment. Instead legal mandates are evaded and, at times, ignored. This paper begins with an examination of recent examples of such unethical conduct, including a discussion of possibly fraudulent conduct on the part of industry securities analysts. It then explores why such conduct is deemed to be reasonable under the legal regime faced by the industry. First securities law mandates are vague. Such vagueness leads to the behavioral tendency of denial - denial that a violation has occurred and denial of responsibility for possible adverse effects (e.g. losses suffered by investors). It also leads to the tendency to invoke cost-benefit evaluations in deciding on a course of conduct. However, for many profitable ventures cost-benefit evaluations do not favor commitment to the law's purpose, i.e. do not favor commitment to ethical conduct. Second, courts have imposed numerous prerequisites to the imposition of any sanction, e.g. proof of scienter and causation, that are very difficult and at times nearly impossible to satisfy. This leads to a tendency toward technical compliance with and even evasion of the law's mandate. Corporate behavioral tendencies are explored by examining industry practices and reactions to accusations of wrongdoing.

Abstract:
Who is to blame for the large mortgage market losses borne by consumers, communities, the financial services industry and others? This paper explores government's responsibility. It explores whether the decision to deregulate the mortgage market to a degree that permitted both unsafe and unfair mortgage practices was the decision of Congress or the federal regulatory agencies. Part one of this paper explores Congress' viewpoint toward deregulation of the mortgage market. It differentiates two types of deregulation: (a) lifting of statutory requirements and substituting regulatory constraints, and (b) lifting of all government mandates and substituting a preference for market forces to police abusive practices. This paper examines Congress' actions and motivations over a thirty year period and initially concludes that Congress embraced the former view and not the latter. This view was consistently embraced in the period 1982 to 1994 to address unsafe banking practices and unfair banking practices. Unfortunately, Congress then provided mixed signals regarding its deregulation viewpoint in legislative enactments in 1994 when faced with unfair banking practices. This permitted regulatory agencies to continue to pursue a deregulatory agenda even when faced with evidence of abusive lending practices.

Part two of this paper explores the viewpoint of the federal regulatory agencies toward deregulation of the mortgage market. It examines the actions and viewpoints of the federal banking regulators in the last three decades. Two conclusions emerge. First, the agencies preferred a free market approach and implemented such an approach whenever statutes provided the discretion to do so. Second, the regulatory agencies embraced a decision making model that relied on predictions of net societal benefits as the determinant of a decision to intervene in the mortgage markets. Such a viewpoint led the agencies to typically shun government intervention. That decision led to equity stripping for over a decade, especially in low-income communities, more equity stripping in recent years as lax lending practices led to defaults and foreclosures, and even more in the coming year as foreclosures multiply.

Abstract:
Should courts defer to the preemption decisions of federal agencies? The Supreme Court has not settled the controversy generated by this issue, and Circuit Courts have divided on the question. The focus in past case law and in the literature has been on agency versus judicial expertise. This article examines another aspect of the question - agency bias. It presents a case study of the actions of the Comptroller of the Currency (OCC) in the 1992-2005 period and compares that agency's stance to that of the FDIC. The conclusion drawn is that the OCC has not served as an unbiased forum for resolving disputes over preemption. Instead it has exhibited an overly aggressive viewpoint - ignoring the evolution of Supreme Court doctrine, ignoring legislative history and embracing the interests of the banking industry while minimizing the interests of consumers and state governments. Heightened judicial review of agency decisions tainted by self-interest is necessary.

Abstract:
This Article explores agency power to preempt state consumer protection legislation. It presents a case study of preemption based on an aggressive posture toward non-acquiescence on the part of the Comptroller of the Currency. The non-acquiescence documented is not only to the uniform decisions of the circuit courts, but also to the United States Supreme Court's statements of the law governing conflict preemption in the field of banking law. The case study also documents agency non-acquiescence to the stated intent of Congress, whenever available in a statute's legislative history. This aggressive posture toward non-acquiescence is a troubling assertion of executive power because of the lack of effective judicial review. The Article documents that under the Chevron deferential standard of review, executive power to broadly set aside state law will not be effectively restrained. The conclusion is that heightened judicial review is justified at least when an agency exhibits that it has not acted as an unbiased forum for the claims of affected industry members, consumers and state governments.

Consumer protection, preemption, agency nonacquiescence, banking law, Chevron deference

Abstract:
This article explores actual market outcomes in a deregulated mortgage market to ascertain if market discipline can be relied upon to ensure safe and sound loan products. In part one of this article the bank regulators' decisions to deregulate the mortgage market are set forth. In part two the outcomes generated by such a legal environment are presented. Such outcomes reveal steadily increasing availability and acceptance of risky loan products, resulting in equity stripping due to subsequent defaults. In part three of the article an alternative regulatory approach is offered - one that imposes a minimum, required level of safety for all loan products.

Abstract:
This article examines the failure of the current regulatory structure to adequately protect consumers against risks in a home mortgage lending market characterized by complexity and limited transparency. It explores the reliance of bank regulators, particularly the Federal Reserve Board, on market discipline to control risks and the failure of market discipline. It also explores the Federal Reserve’s view that market intervention is only justified based on net societal benefits. This is a viewpoint that prevented regulatory intervention until the financial sector was in crisis, and a viewpoint that is at odds with the view of the Congress. This article urges a rejection of the net societal benefits standard as the determinant of regulatory intervention in the mortgage market.