The Pernicious Art of Securities Regulation (reviewing Anglo-American Securities Regulation: Cultural and Political Roots, 1690-1860 by Stuart Banner) (original) (raw)
Reflections on Dual Regulation of Securities: A Case Against Preemption
SSRN Electronic Journal, 1984
Shortly after the turn of the century, a state legislator from the Midwest declared that "if securities legislation was not passed, financial pirates would sell citizens everything in his state but the blue sky."' These financial pirates were engaged in t he widespread sale of "pieces of paper" representing ownership in various corporate enterprises, 2 many of which were valueless or nonexistent.' The rural states, "having a large proportion of agriculturists not versed in ordinary business methods," had become "hunt ing ground[s]"
Ohio St. LJ, 1988
, now referred to as Black Monday, the Dow Jones Industrial Average dropped a previously unimaginable 508 points. On that Monday, $500 billion of paper wealth evaporated. For many, it inevitably brought to mind the collapse of the stock market in 19291 which preceded the Great Depression. The reaction of businessmen to the recent crisis, however, points to one of the many differences between these two historic events. "Unlike their predecessors in the 1920's, who did not think emergency Government measures could help, the ... businessmen of the 1980's are calling for Washington to intervene to stabilize the markets." ' 2 In addition, a Presidential task force studied the October crash and strongly recommended tougher governmental regulation of financial markets and the establishment of one federal "superagency" to oversee intermarket issues. 3 Today, increased regulation is seen by many as a panacea for the ills of the market. The economic crisis of the 1920s and '30s led to intensive efforts by the federal government to regulate business, ending years of a laissez-faire policy. Business historian Thomas K. McCraw of Harvard points out that the underpinnings of the economy in 1929 were in some ways stronger than they are today: New industries were taking hold and growing and the government was running a surplus. The depression that followed the crash came because the institutional and regulatory safety net that exists today was not in place to avoid a panic. 4 Key components of the regulatory safeguards put in place during the Depression were the Securities Act of 19335 (Securities Act) and the Securities Exchange Act of 19346 (Exchange Act), the legislation that had the greatest effect on the securities market. While much debate centers around the Securities Act and the Exchange Act (the Acts), one must realize that Congress enacted four additional statutes to regulate
The Federal Securities Code and its Effects on Existing United States Securities Regulation
University of Pennsylvania Journal of International Law, 1979
The proposed Federal Securities Code [1] is the extraordinary result often years of careful analysis and debate by the American Law Institute, the American Bar Association, and the Reporter for the Code, Professor Louis Loss of the Harvard Law School. It is a consolidation and simplification of six separate federal securities statutes [21, and is therefore the realization of a dream for lawyers, scholars and others who have worked with the federal securities laws and wished for a time when the acts might be simplified and integrated into one statute [3]. Whether or not the proposed legislation is in fact adopted, the quality of the work underlying it merits careful consideration of its treatment of the regulation of securities in the United States. This article discusses the need for, the movement toward, and the process of codification. Thereafter, it describes the structure of the Code and some of the important changes the Code would effect in the law. Finally, it examines the extraterritorial application of the Code.
The extralegal development of securities trading in seventeenth-century Amsterdam
The Quarterly Review of Economics and Finance, 2003
It is often argued that government rule enforcement is necessary for the development of a stock market . Work by , , however, suggests that repeated interaction and reputation can create incentives for contracts to be self-enforcing. This paper investigates these claims by examining the first stock market, the Amsterdam Bourse. At a time when many financial contracts were unenforceable in government courts the market developed surprisingly advanced trading instruments. Descriptions by seventeenth-century stockbroker, De la Vega [Confusion de Confusiones], indicate that a reputation mechanism enabled extralegal trading of relatively sophisticated contracts including short sales, forward contracts, and options.
THE POLITICS OF AMERICAN FINANCE AND THE BANKING ACT OF 1933
Industrial organization and corporate governance varies considerably across developed countries. The most measured comparisons are between the U.S., Germany, and Japan. One of the more notable differences in forms of corporate governance relate to the role of financial institutions. In Germany and Japan, large and powerful financial institutions play an active role in monitoring corporate decisions. These institutions, predominantly commercial or universal banks, accomplish this through seats on the Board of Directors as representatives of both creditor and shareholder interests. In the U.S. financial institutions are fragmented by legislation and regulation. Commercial and investment banks, trust companies, mutual funds, and pension funds are all severely constrained in their ability to monitor firm behavior. The general proposition of this paper is that the laws and regulations that have shaped American finance are rooted in the political process. More simply, politics has, to a significant extent and a variety of ways, shaped finance. A political theory of American finance has been advanced by Roe (1991) where he identifies legislation and regulations that have directly affected the activities of U.S. financial institutions. One of the most significant pieces of legislation, the Banking Act of 1933, or Glass-Steagall, is the case study analyzed in this paper. My intention is to show how politics has helped to shape finance through a legislative history of Glass-Steagall. The political process can be seen as a function of group interests played out through the political structure. This paper identifies and evaluates these group interests in shaping the different parts of the bill and also shows how unfolding historical events affected the final outcome of the legislation. By this analysis this study hopes to provide one link in the chain of a more comprehensive political theory of American finance with its implications for comparative corporate governance, industrial organization and economic performance.
The Emergence of the London Stock Exchange as a Self-Policing Club
In the early stock market in London there were substantial risks of non-payment and fraud. (Mortimer, 1801) According to Hobbesian theory, we would expect stock markets to develop only after government has implemented rules and regulations to eliminate these problems. The historical account, however, provides evidence that solutions to these problems did not come from the state. This article outlines the emergence of the London Stock Exchange, which was created by eighteenth century brokers who transformed coffeehouses into private clubs that created and enforced rules. Rather than relying on public regulation to enforce contracts and reduce fraud, brokers consciously found a way to solve their dilemmas by forming a selfpolicing club.
1990
Policy-making at the Securities and Exchange Commission has been the subject of intellectual criticism almost since the agency's birth in 1934. By and large, this has come in two sequential waves. The first, marked by the scholarship of Louis Loss,' reflected lawyers' classical obsession with precision and coherence. This movement sought to rationalize doctrine with what its proponents saw as the underlying aims and objectives articulated in the legislative sources and other historical "first principles." It criticized the Commission's rule-making, interpretive pronouncements and enforcement programs when (but only when) there was perceptible disharmony. 2 This first wave thus accepted the basic aims of securities regulation largely as a given. By contrast, the second wave of criticisminitiated largely by economists like George Stigler and George Benston in the 1960s, 3 and only later gaining substantial acceptance among legal academics 4-took direct issue with those aims. Challenging some of the most sacred assumptions of the law as administered by the SEC, such as the virtue of mandatory disclosure or the harmful nature of insider trading, this view claims that the Commission has substantially overregulated in areas such as disclosure policy, with excessive and paternalistic focus on * @ 1990 by Donald C. Langevoort, Professor of Law, Vanderbilt University School of Law. This essay is based on a lecture given at Washington and Lee University School of Law on March 23, 1990. Portions are taken from materials prepared for inclusion in J.