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Regulation by Deal: The Government's Response to the Financial Crisis

81 Pages Posted: 25 Nov 2008 Last revised: 21 Dec 2011

Steven Davidoff Solomon

University of California, Berkeley - School of Law; University of California, Berkeley - Berkeley Center for Law, Business and the Economy

David T. Zaring

University of Pennsylvania - Legal Studies Department

Date Written: November 24, 2008

Abstract

How should we understand the federal government's response to the financial crisis? The government's team, largely staffed by investment bankers, pushed the limits of its statutory authority to authorize an ad hoc series of deals designed to mitigate that crisis. It then decided to seek comprehensive legislation that, as it turned out, paved the way for more deals. The result has not been particularly coherent, but it has married transactional practice to administrative law. In fact, we think that regulation by deal provides an organizing principle, albeit a loose one, to the government's response to the financial crisis. Dealmakers use contract to avoid some legal constraints, and often prefer to focus on arms-length negotiation, rather than regulatory authorization, as the source of legitimacy for their actions, though the law does provide a structure to their deals. They also do not always take the long view or place value on consistency, instead preferring to complete the latest deal at hand and move to the next transaction. In this paper, we offer a first look at the history of the financial crisis from the fall of Bear Stearns up to, and including, the initial implementation of the Economic Emergency Stability Act of 2008. We analyze in depth each deal the government concluded, and how it justified those deals within the constraints of the law, using its authority to sometimes stretch but never truly break that law. We consider what the government's response so far means for transactional and administrative law scholarship, as well as some of the broader implications of crisis governance by deal.

Suggested Citation

Davidoff Solomon, Steven and Zaring, David T., Regulation by Deal: The Government's Response to the Financial Crisis (November 24, 2008). Available at SSRN: https://ssrn.com/abstract=1306342 or http://dx.doi.org/10.2139/ssrn.1306342

Steven Davidoff Solomon (Contact Author)

University of California, Berkeley - School of Law ( email )

215 Boalt Hall
Berkeley, CA 94720-7200
United States

University of California, Berkeley - Berkeley Center for Law, Business and the Economy ( email )

Berkeley, CA 94720-7200

David T. Zaring

University of Pennsylvania - Legal Studies Department ( email )

3730 Walnut Street
Suite 600
Philadelphia, PA 19104-6365
United States

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