Law on Rice

I have the perfect yin and yang this semester: I’m studying financial institution law in the mornings, bankruptcy in the afternoons.

Right now, I’m going over my notes for the night. The notes leave me with the lingering sensation that I have a lot to learn about banking.

We’re starting with an exploration of the development of the centralized money system in America. The celebrity Fed chiefs we’re getting used to (think Greenspan, think Bernanke) would be completely unrecognizable to our founders and to almost everyone who lived in the 19th Century.

And it’s a far cry from the world we were in today in class. We were mired in the wildcat banking era of 1836 to, say, 1863.

And I’m torn.

On the one hand, I’m a strong capitalist and I’m deeply suspicious of regulation. On the other, I instinctively feel that banking is a little different from other free enterprise. Maybe because it seems at once germane and exotic. Maybe it’s because I believe what I’ve told: no other business has the power to print money like banks can (oh sure, issuing stock bear some resemblance, but not much). If that’s true, then proponents of strong regulation have a powerful argument: the free enterprise system doesn’t usually inspire the kind of confidence we need. We’ll never trust banks to run around the park with their leash off. They might run away.

The wildcat banking era was a bare knuckled capitalist approach to banking complete with a jurisdictional race to the bottom as states tried figure out who could regulate the least. And it failed spectacularly according to my readings. But does that mean it will always fail? Does that mean we have all been foreclosed from arguing against the Fed? Am I wasting time even thinking about it?

I have a lot to learn.

I tried to sign up for more bankruptcy credits. Unfortunately, the school ran out of credits to offer, but one week in and I’ve already realized studying bankruptcy means more than studying the Bankruptcy Code. Much more.

It’s no less than the study of leverage.

To study leverage is much more than to study the work of passionless pinstriped suited pencil pushers. To study leverage is to study a rough and tumble world where “self-help” consists of reality shows and the world where collateral gets sunk by English submarines from time to time.

It’s an ancient study. It’s a study of humans’ trust, of violations of that trust, and the delicate balance we’ve spent thousands of years tweaking… the balance of power between debtor and creditor.

This is going to be fun.

I tried to log into ECF today, and I got this notice:

It requires us to comply with redaction rules, especially Rule 9037. You have to check it every single time you log in. That will probably remind most users the first few times they do it. By the 500th login however, I expect they’ll forget what it says.

Today, we talked about state law collection techniques. You know: levies, garnishments, contractual liens. The topics are, as you know, simultaneously ancient, primal, and opaque.

I believe that today the FDIC is voting on whether and how private equity should own banks.

Why not?

I know this isn’t a bankruptcy topic, stricty speaking.

However, banks are among the most important creditors on the landscape so I hope you’ll bear with me this semester while I explore the topic.

In addition to taking the bankruptcy course, I signed up for the clinical program.

The first class was last night.

I think it’s going to be a great addition to my experience working for a bankrupcty lawyer. The attorney teching the clinic is really passionate about bankruptcy’s ability to help people and she’s deeply interested in how lawyers interact with clients. I think it’s going to be really useful.

Even though our one assignment is to study the effect of discharge, she said the automatic stay is considered to be among the most potent legal tools ever created.

When people fall behind on their mortgages, they are far less likely to catch up than before. Read the rest here.

Says the article:

Job losses have left some borrowers unable to make payments. In addition, Mr. Slump said, some who could continue to make payments probably are no longer willing to. That may be because the values of their homes have fallen below their loan balances and they see little hope of ever recovering their investments.

And this too:

What’s more, because of widespread backlogs and delays in the foreclosure process, people who quit paying may be able to stay in their homes for more than a year before being evicted.

All of this reminds me a lot of my first bankruptcy class today. We explored the leverage that creditors have. We thought about whether a debtor was more likely to pay a car loan or a gym membership. A home mortgage or a car payment. During class I had a kind of half-formed thought that this article helps me complete. If home values are plummeting and people don’t have any equity in their houses, the only leverage that the banks have is that debtors will want to keep a roof over their heads and to protect their credit. So if their credit is already shot and they can go live with mom and dad rent free, do the banks have any leverage at all?

I’m having lunch at my favorite teriyaki place after my first class of financial institutions and the law.

My professor also sits on the board of State Farm and has years of experience in banking. Some of the students also have banking background.

In talking about the financial crises, I asked if part of the problem was that there’s just too much cheap money sloshing around the system. He said lots of people want to blame Greenspan, but the Chinese were also pumping a lot of money into the economy.

It’s going to be a great class!

It’s late on the night before the first day of the last semester of school, so I won’t say much. All I want to report is a brief summary of what I’ve learned in reading for bankruptcy and financial instutitions.

As for bankruptcy, the big lesson was “leverage.” That is, the relationship between debtors and creditors is all about one side exercising leverage. A security interest creates a lot of leverage for the creditor. The credit reporting tools create yet more leverage. But on the other hand, Congress (and state legislatures) have shifted the balance of leverage through things like the Fair Debt Collection Practices Act or the Fair Credit Reporting Act.

As for financial institutions, I learned how important “financial intermediation” is to a dyanmic economy like ours. Indeed, I even learned what “money” means.

It’s going to be a great semester!

I’m doing some research on what the legal requirements are to withdraw from a chapter 7 case.

What’s surprising to me is how few cases there are on the subject in the Ninth Circuit. Generally, Model Rule 1.16 governs attorney withdrawal. Oddly however, there are only three cases in the Ninth Circuit citing to Rule 1.16 from cases arising out of bankruptcy courts. Maybe the rules related to attorney withdrawal in bankruptcy predate Rule 1.16, but still… I’m kind of surprised.

UPDATE: I managed to find some motions that some successful motions in Western Washington. Given the complexity and importance of getting this right, I’m thinking about making this one of the first “how-tos.”