Should New Financial Products Be Tested And Approved By A Government Agency Before They Are Marketed?

As explained in today's New York Times, that's what law professor Eric Posner and economist E. Glen Weyl propose in this paper. Would we have averted the financial meltdown if a government regulator had pre-tested credit default swaps? Weyl seems to think so:

We tried an experiment with a very radical form of deregulation that has very little basis in sound economic science. What we’re advocating is to do the best we can to put the genie back in the bottle.

The authors say that their new pre-screening agency is at least as important as the FDA:

The potential dangers of financial instruments, they argue, “seem at least as extreme as the dangers of medicines.” They contend that new instruments should be approved by a “financial products agency” that would test them for social utility. Ideally, products deemed too costly to society over all — those that serve only to increase speculation, for example — would be rejected, the two professors say. “It is not the main purpose of our proposal to protect consumers and other unsophisticated investors from shady practices or their own ignorance,” they wrote. “Our goal is rather to deter financial speculation because it is welfare-reducing and contributes to systemic risk.”

Here's the abstract from the Posner-Weyl article:

The financial crisis of 2008 was caused in part by speculative investment in complex derivatives. In enacting the Dodd-Frank Act, Congress sought to address the problem of speculative investment, but merely transferred that authority to various agencies, which have not yet found a solution. We propose that when firms invent new financial products, they be forbidden to sell them until they receive approval from a government agency designed along the lines of the FDA, which screens pharmaceutical innovations. The agency would approve financial products if they satisfy a test for social utility that focuses on whether the product will likely be used more often for hedging than for speculation. Other factors may be addressed if the answer is ambiguous. This approach would revive and make quantitatively precise the common-law insurable interest doctrine, which helped control financial speculation before deregulation in the 1990s.

What Will States Do If The Supreme Court Scraps the ACA?

According to this article in today's LA Times, California legislators appear ready to enact some aspects of the federal health reform legislation on a state-wide basis if the Supreme Court invalidates it. The article explains that, for instance, the Affordable Care Act's expanded insurance coverage for children would probably be enacted in California, but that the ACA's significant Medicaid expansion for poor people probably would not because the federal dollars needed to fund it would be gone. (A need to fund Medicaid expansion on the state level assumes that the Supreme Court invalidates the whole ACA, or that the Supreme Court holds the Medicaid expansion itself unconstitutional.)

Consumer Protection Personnel Moves

The Senate finally confirmed Thomas Curry as the new Comptroller of the Currency, head of the Office of the Comptroller of the Currency.  It will be interesting to see if the OCC swings more to protecting consumers than banks under Curry's leadership.  In addition, the Senate confirmed FTC chair Jon Leibowitz for a second term (the confirmation is as an FTC commissioner, not the FTC chair; the president designates the chair from among the commissioners) and Maureen Ohlhausen as an FTC commissioner.

Two Bloomberg Pieces on Disclosure Issues

Robert H. Gertner of Chicago's Booth School of Business has a particularly interesting piece, Consumer Protection Bureau Can Teach Financial Self-Help, on the limits of disclosures, the need for financial counselors, and how to make such counseling better and more accessible.  Here's an excerpt:

The only regulatory regime that has a chance of making substantial progress is one that helps the market-based solution for advice work better. Structuring disclosure regulation to make advice markets more efficient rather than to make disclosure more understandable to consumers should be a goal. For example, my Chicago Booth colleague Richard Thaler has recommended requiring standard machine-readable disclosure of all financial terms to reduce the costs of comparisons across offerings. In a world of individualized offerings, the savings could be huge.

A second policy is for the government to develop an effective certification program for consumer financial advisers. In addition to knowledge requirements, the government would require that advisers have no financial incentives to prefer some products to others. Rather than teaching financial literacy, outreach programs could focus on educating consumers on the need for a competent, unbiased, certified financial adviser.

In another piece, Bloomberg reports Senators Introduce Bill for Counseling on Private Student Loans.

 

Eating any red meat may be bad for you

As the LA Times explains, "[e]ating red meat — any amount and any type — appears to significantly increase the risk of premature death, according to a long-range study that examined the eating habits and health of more than 110,000 adults for more than 20 years." Read the full study in the Archives of Internal Medicine.

Accountability and the CFPB

The Republicans who opposed CFPB director's confirmation claimed that he would not be accountable.  Well, he testified today before the House Financial Services Committee.  Here's a quote:

Before I became Director, I promised members of Congress in both chambers and on both sides of the aisle that I would be accountable to you for how the Consumer Bureau carries out the laws you enact. I said that I would always welcome your thoughts about our work. I stand by that commitment. I am pleased to be here with you today to tell you about our work and to answer your questions.

The people who work at the Consumer Bureau are always happy to discuss our work with the Congress. This is the 15th time that we have testified before either the House or the Senate.

When a Bureau that is less than a year old has testified 15 times, does that sound like it's making an effort to be accountable?

The Affordable Care Act and the Slippery Slope

We can't lower the drinking age to 18 even if we think that's sensible because, if we do, then we'll have to lower the drinking age to 10. And we can't possibly do that! As every successful law school student quickly learns, the answer to a slippery slope argument is that, no, logic does not always demand that we slip all the way down the slope. Actually, we can draw a line here or there and then try to defend that line as reasonable or necessary. Slippery slope arguments are not irrebuttable, and if you think they are, you will lose a lot of arguments.

But as law professor Geoffrey Stone explains in this insightful article, in analogizing the Affordable Care Act's individual insurance mandate to the forced purchase of, say, broccoli, some Supreme Court justices seem to think they're on a slope so slippery that there's no way to stop.

Major League Soccer Should Reform Its Copyright Takedown Procedures to Safeguard Fair Use

by Paul Alan Levy

Following up my post yesterday about an abusive DMCA takedown notice from Major League Soccer, I have been in touch with the soccer fan whose YouTube clip was removed and, on his behalf, sent MLS an explanation of what we think they are doing wrong and what they ought to do to make the matter right:  not just withdraw the takedown in question here, but fix their takedown procedures so that fair use receives proper consideration.

UPDATE

MLS has rescinded the takedown, but in response to inquiries from Soccer America they seem to be inviting more trouble.  Don't they have IP counsel on staff to warn them what the law is?  Very sad.

NEW UPDATE:

A guide to fair use in the posting of soccer videos can be found here.

 

The Health Care "Mandate" Oral Argument Compressed

For those of you who don't have a couple hours to spare, Tejinder Singh has edited down the audio from yesterday's Supreme Court argument on the Affordable Care Act's individual mandate to its essentials.

Major League Soccer's misuse of copyright law to suppress criticism

by Paul Alan Levy

After protecting consumers’ right to online free speech, my second biggest passion is soccer.  So the latest DMCA takedown controversy comes right up my alley.

Yesterday I enjoyed posting a link to friends calling attention to a tiny You Tube clip, little more than 20 seconds, showing a Colin Clark, a player for Major League Soccer team Houston Dynamo calling a ball boy at the Seattle Sounders stadium a “faggot” because he did not deliver the ball directly into the player’s hands, but rather tossed the ball onto the ground for the player to pick up.  The video was widely publicized, and Clark issued an apology.  Meanwhile, the video occasioned a discussion among soccer fans, who compared the comment to recent controversies in Europe over racist comments directed toward players by other players or by fans or said that the league should take disciplinary action, questioned whether the ball boy had deliberately slowed the game down (Houston was losing at the time) and whether teams need to train their ball boys (or ball girls) better so that such incidents do not recur.  All in all, a healthy discussion, but one which, perhaps, did not reflect well either on Clark or on MLS.

My own comment in posting the link was, unfortunately, rather prescient: 

•     Waiting to see MLS take prompt, strong action over player directing anti-gay slur at ballboy. And I don't mean a DMCA take-down to suppress the news.

As of today, the link had been taken down pursuant to an MLS copyright complaint. 

No doubt the clip was taken from a copyrighted telecast, but there can also be no doubt that this was fair use – a 20 second clip from a 90 minute game (plus introduction, ending and the like). And how can viewers appreciate the commentary and make their own judgments about its soundness, not to speak of commenting themselves), without seeing exactly what the ball boy did and how Clark reacted?

Major League Soccer should be ashamed.  It should also have thopught about the possibilty that the takedown itself might bring more attention to the criticisms.    Indeed, here is a slightly longer clip, which has not yet been taken down, so you can judge for yourself.

UPDATE:

A fan's guide to fair use in posting soccer video clips (or, indeed, videos from any game) is posted here.