Law on Rice

I admit it. I’m just a student. A simpleton. It wasn’t so long ago that I was walking along a road called Keating to go to Dobson High School in Mesa, Arizona. That’s right. The road was named after Charles Keating who built not only the neighborhood but engineered the savings and loan crisis of the late 1980s in the process.

I was a teenager when all that was taking place, so all I remember was that the neighbors wanted to change the name of the road and some people in Washington D.C. created something called the Resolution Trust Corporation.

I asked the question in class today: where’s the RTC now? What don’t we have the RTC II? The only answer I really got was, “this problem is too big.” How can that be? If the problem is 10 times bigger, is that too big? What about 100 times? Didn’t the RTC ultimately make money? If the FDIC is essentially sitting on tens of billions of dollars in failed bank assets, isn’t the FDIC the new RTC?

I’m confused.

“Welcome to WordPress. This is your first post. Edit or delete it, then start blogging!” This was the first post on my new, and hopefully final, home–michaelrice.com!!

This case was just published this morning from Judge Overstreet’s bankruptcy court in the Western District of Washington. In Scott, the debtors owed over $300,000 in student loans. That huge debt burden, even though they had a decent income between them, burdened them with monthly payments excessive enough to satisfy the Brunner factors. Read the opinion for yourself here.

…this is the link to the National Bankruptcy Review Commission. They made a number of proposals in 1997. While that’s a long time ago, many of the proposals seem to pop up in my readings today.

The link is here: http://govinfo.library.unt.edu/nbrc/reportcont.html

Despite all the Fed’s efforts, the broadest measure of the money supply indicated a drop of 2.2% for the last three months. What’s going on? Are banks still not lending?

This from a BusinessWeek article:

Paul Ashworth, senior U.S. economist for the economic consulting firm Capital Economics, says it’s “disconcerting” that in August the broadest measure of money fell at an annual rate of 2.2%. That rate comes from comparing the amount of money in the three-month period of June through August to the previous three months. This broadest money measure, known as M3, is no longer officially published by the Fed but is tracked by private forecasters. It includes cash, checking and savings accounts, certificates of deposit, savings and loan deposits, and money-market funds.

My financial institutions class is starting soon. We spend at least half the class talking about the money supply, so I’ll have to see what I can find out.

Here’s my chart of M1 and M2:

Tonight I heard that some dealers might be putting GPS chips in new cars so they’re easier to locate. No more hiding the car at your friend’s house, I guess. Curious, I did a little Googling. I found that there’s a lot more than that out there!

For example, a US News and World Report article lists no less than four modern repo marvels: some kind of magical tow truck that can extricate a parked in car; license plate scanning technology; an ignition disabling device tied to the borrower’s monthly (or semi monthly as the case may be) payments; and, last but not least, the infamous $200 SmartTrack GPS tracking device from Rocky Mountain Tracking.

Now that’s what I call leverage. The article is here.

I’m reading for my financial institutions class tonight. My professor has written an interesting piece on the Great Depression and Milton Keynes’ theory. I was a frustrated economics major for a while there in college, so I found all this very interesting. I also found that my best recollection of Keynesian policy was a bit naive. I simply thought Keynes told us that the government should “spend big” to prevent depression.

But in reading the theory a little more closely, Keynes said there must be a liquidity trap before the government goes on a spending binge. That is, consumers have to stop spending and start hoarding money such that no matter how much money the Fed pumps into the system nothing happens. It seems to me we are very close to that liquidity trap today (even though consumer spending was up just a breath last quarter). The Keynesian policy, as it is being explained to me now, means that the government should step in to do what consumers are not doing: spend. It should restore the normal spending cycle.

I think the liquidity trap here, kind of like the Great Depression, comes from the fact that consumers were so highly leveraged that now they are little repulsed by it all. But I think there is a difference too: I think the lenders are repulsed (perhaps because of the government’s action) at their lending practices and are keeping money out of the system because of their reluctance.

But does this mean that the government could help the problem by not only spending, but guaranteeing private loans? That wouldn’t be all that popular days, I know! But it would help with the “where’s my bailout” sentiment floating around out there.

My apologies to you if this is a really amateur exposition of the situation, but I though it was interesting enough to write up.

By the way, you can find the original book on, of all things, Marxists.org here.

So, it turns out that I have to dig up my old 1L books on civil procedure.

To me, the question in Espinosa v. United Student Aid Funds, Inc. is whether the creditor is entitled to heightened due process. Yes, I know. The creditors are entitled to the adversary proceeding under bankruptcy law and procedure, but does that mean that they are allowed to challenge a confirmed plan?

Are creditors allowed to challenge the confirmed plan when a plan confirmation is deemed final judgment? If they are, then what does it mean for final judgment jurisprudence?

Should the plan’s confirmation be something other than final judgment?

I have to write an outline for Monday, so I’ve clearly got my work cut out for me.

There’s a story about an elderly bank robber in San Diego on the LA Times blog right now. I first saw the story a few days ago. At that time, it was just a surveillance picture of what looked to be a very old man walking with a cane into a bank to rob it. It seemed kind of innocent at the time. Sort of like, “Look how cute, that old guy is robbing a bank!”

Now it turns out that it wasn’t all that innocent at all. Not only did he walk out with a lot of money on a really serious threat, but he was doing it because of a seriously high interest rate on his mortgage.

He could have just filed a chapter 13 to stop the foreclosure and possibly have been able to catch up. At 17% interest though, I don’t know… Maybe if he had filed, the mortgage company would have negotiated. Now he needs a very different kind of lawyer.

How depressing. The story is here.

I think that people who believe that securitization caused the financial crisis (even just in part) just haven’t thought the problem through.

Playing the financial crisis blame game is getting a little old, I know. But I’m taking a class that explores the crisis in great depth, so I feel like I need to talk about it to you.

Securitization is just a way to spread risk. They are simply securities, just like an investment in an oil and gas exploration project, or a share of Google. Critics disagree. They say, generally, that investors didn’t know the risks of the underlying mortgages.

That may be true. But I submit the following argument for your consideration: an investment in a pool of mortgages is far less complex than an investment in, say, Google. For example, do you really know how Google will continue to make money in the future? Do you know if their technology will stay competitive for the next ten years? I don’t. What is that fancy search algorithm anyway?

By contrast, I know that a pool of mortgages really consists of just a few types of risks: the mortgage won’t perform, the value of the collateral will drop, or interest rates will increase. Those risks are a whole lot simpler to understand than trying to gauge whether the latest patent infringement suit will bring Google to its knees.

Because securitized debt should be simple, the problem has more to do with the buyers of the debt. They should have known the risks.

And if they did their due diligence and didn’t know the risks, then I believe the problems with securitization have more to do with failure by the issuers to disclose, outright fraud, and blind greed. Those things have nothing to do with the rightness or wrongness of a financial instrument.