Even before our current crisis, many lawyers and laypersons -- myself included -- had an itch about corporate governance reform.  The rise of the Institutional Investor -- international behemoths with huge ownership shares and profit stakes but not a whole lot of interest in anything long-term or, indeed, preserving the company and its payroll or the community around it -- were crippling corporate boards that wanted to do good (or at least refrain from doing evil) while pushing for the quickest corporate profits.  Ironically, some of these huge investors with huge voting power had every incentive to see good companies destroyed by virtue of their short positions.  Quarterly profit swings means share price upticks, which means outsourcing instead of investing at home, looking for the three-month buck rather than 30-year stability.  Certainly, some institutional investors -- employee pension funds, for one -- are sympathetic, and deserve investments that pay.  But others -- and you know them, because they used to hold your 401ks -- didn't even try to hide their tunnel vision.  As lawyers, we saw evidence of this every day, and made a living off it it, because those investors would file lawsuits day in and day out, arguing corporate misfeasance because directors didn't turn a quick enough buck.  Rarely would we see a lawsuit that actually showcased true corporate malfeasance -- AIG, Disney, etc.  The rest of the grindmill, well, it was just another form of extortion.

So when the crisis hit, some of us were hoping for a silver lining.  That finally, FINALLY, we would get a grip on handling these global, multinational institutional investors, and learn how to handle them vis a vis running our companies.

Looks like it's not to be.  Nevermind that none of Obama's domestic plans deal directly with institutional ivnestors and their power over corporate boards.  The administration is apparently determined to block everyone else's efforts.  From public citizen's eyes on trade:

Instead of the UN summit remedying the problems of the G-20 approach, reports indicate that rich countries have worked behind the scenes to ensure the UN summit does not focus on the role of existing global economic governance structures in causing the crisis nor issue a call for reforms to these institutions and policies. In a candid speech this weekend, the elected president of the UN General Assembly, Nicaraguan priest Miguel D'Escoto noted: "...despite the growing need for major changes, many Member States, particularly those in the North, increasingly resist reforms of the IMF and the World Bank, hoping that things will return to business as usual. And they have also made it very clear that they do not want a serious global conversation to take place at the United Nations."

well, whatever.  more money for the corporate litigators.

 

It was in a legal writing class 7 years ago when an earth-mother-triathlete-come-adjunct-law-professor introduced me to the tactical necessity of kissing rocks:

When kayaking through whitewater, and upon the discovery of a big honking rock in way, one must bear down and turn into the obstacle in order to avoid it.  By embracing the obstacle, or, indeed, confronting it head-on early in proceedings, you can manage your way around it.  waiting too long or doing too little...you're sure to crack your head, get stuck, drown, or at least dislocate a shoulder. 

This technique, naturally-bleached blonde opined, is urgently necessary when presenting any kind of legal argument.  there are going to be bugs in your case.  So address it early, briefly, honestly, and give people the chance to forget about it.

I am hoping that the dems, when whining about cost of health care reform, are just kissing rocks.

There's been a bit of a  hullabaloo about banning clove cigarettes (and not menthols!) because those pesky cloves come mostly from Indonesia.  Some argue (including repugs in Congress) that such a ban has a disproportionate impact on foreigners and, therefore, much be protectionist and in violation of our WTO commitments.

The general rule of Free Trade is that governments must treat "like" (similar) products the same way, no matter where they come from.  However, regulators can get away with trade-restrictive regulation that impacts "like" products differently (e.g., those pesky environmental laws) so long as the interest being protected is compelling enough and so long as the regulation is applied evenly across the board.  If you don't implement evenly, it's likely to be (according to the WTO) protectionism in an envrionmental-protection costume.  As an example: under the GATT, you *can* slap a quota on indonesian tuna if indonesian fisherman don't adequately protect dolphins -- even though the indonesian tuna is "like" American dolphin-safe tuna. 

However, if you ban fossil fuel product x because it has toxic chemical y, and y only comes from canada, but you DONT ban toxic chemical z (which is just as toxic as y) which comes from the US, the WTO is likely going to find that you're implementing illegal protectionism. 

Okay, fine.  So hypocrisy is not tolerated by GATT or NAFTA.  But we seem to get tripped up on those incremental measures that *do* have a disproportionate impact on a foreign industry but, had we the time and polictical momentum, would be bigger, better and more widely applied -- and then would smell less like protectionism.  We can't, for example, ban all fossil fuel vehicles all at once, but maybe we can ban luxury cars that use too much fuel.  Well, let's say all those luxury cars come from Germany.  You can't really say that this is protectionist--it's just a first step that happens to have a disparate impact.

Or so the argument goes.  I would suggest a change in the treaty language that allows for this slipperyness in domestic politics. 

My day job is the sort of job populated by floundering ex-Biglaw-types and pays by-the-hour-with-no-benefits (and you thought such employment could only be spyed loitering around McDonalds and Wal-Mart!) and feels more like a grindhouse than a law practice (a term, I had thought, that implies the involvment of some kind of art and expertise). 

I look around my office and I feel both shame and pity.  And not just for the dying, cancerous plaintiffs that we accidentally step on while we throw elbows at the dasterdly incomeptent, lazy and slippery plaintiff lawyers while exploring the nuances of practicing as little law as possible and minimizing overhead (non-billable) expenses while NOT commiting malpractice.  Yes, insurance companies screw over their lawyers, too. 

At my day job, there are two kinds of older men I interact with on a daily basis --  all other men of a certain age are, well, men that happen to be a certain age (or just aren't old enough yet).  Okay, three: "too cranky and important to acknowledge your existence, you silly female peon."  I can't tell if the "female" part is important there.  Anyway, here's my genus-species:

Type 1: Exhibits shameless flirtation, mixed in with some half decent advice on why the job sucks and how to avoid the worst of it, while planning the thirteenth vacation for the year with wife of 30 years; engenders in young female professional both discomfort because of outrageously non-pc statements and affection for the genuine support and encouragement; embraces the fact he can't win, being old, white, and male.  Tells the "gals" they're beautiful as he stops by for chit chat and the usual water cooler fare while at the same time asks for somewhat intelligent input on work-related subjects.  Definite tendency to hang out around the younger female crowd.  But all members of such crowd are part-timers with outside lives and thus necessarily more interesting than their overstressed bill-80-hours-a-week male counterparts.

Type 2: unintentionally sexist ("but you guys are so much BETTER at typing and organization"), the kind that calls young female coworker's name from down the hall, crooks finger at her ("come dog!"), to ask her (politely) to check his emails for him when he's not in office, and why not make a few photocopies (so much for the law degree) while she's at it.  When (perceived?) unintentional sexism is bluntly identified to him (after a particularly bad day), this species feels the need to thereafter, forevermore constantly describe his (alleged*) friendly acquaintence with a plethora of smart accomplished women (including the aggrieved female in question, as a cherry) along with the occasional vivid verbal illustration of his former habitation in hippy-friendly part of philadelphia and involvement in civil rights marches 40 years ago.   Note, incidentally, his lack of interaction (willing or otherwise) with any junior male associates.  Gives young professional female decently interesting work, and compliments her on good work, but is too scatterbrained (or dumb? or lazy? or important) to actually look at such work, requiring instead  endless correction and verbal explanation.  Makes young female feel like priceless hungarian porcelain teapot that cracked and got glued back together with a few missing pieces, yet still must serve hot beverage with a smile.

See, I need to know which I am allowed to be mad at.  Because if I talk to the men I know, type 1 is disgusting and type 2 is misunderstood and unjustly maligned.  But No. 2 definitely makes me angrier. As the reader likely perceives.

And why, if we have "two ends of the hallway" here, one being female, and the other male, and both are equally and perpectually terrifying, brusque, and frustrated, is the female one "scary"? Or is it just me, and she really is just scarier?  I think she is louder, at least.  and the reason I  haven't been fired after blowing a gasket.  she blows more.

 

* I am an attorney, after all.  No apologies.

In the context of explaining the importance of actually staffing, and performing some sort of industry in, offshore offices in order to avoid the less forgiving parts of the tax code, my ever-so-beloved pontificating adjunct professor cried out in exasperation:

"Why would anyone want to limit H1-B visas??? Why would we ever want to tell the smartest people in the world they're not welcome??? would you *rather* companies offshore their R&D operations???" 

Okay, I was good, and sat on my hands and managed to roll my eyes without making eye contact. 

But if I was stupid brave, I would have said this:

First: as if any US multinational would establish an overseas office to avoid dealing with the visa issue.  Um, it's about tax...and the fact they may actually be doing business overseas.  This vivacious 2-years-from-centennial old tart of an adjunct night school law professor and bill gates are the only people I've ever heard of complaining about not being able to hire enough smart people because of our immigration laws.  Needless to say, valid arguments exist justifying the assertion that both sources are slightly out of touch with reality.

Second.  Obviously this guy's never heard of, for example, Ed Rendell hiring deloitte and touche who of course never donated to any of his campaigns to contract out at $400 an hour indians from India (who get paid $20 an hour) to write software program manuals (when they don't speak english) for various state agencies when, of course, there aren't any really smart kids graduating from Penn State with degrees in computer science who DO speak english and can't find a job  willing, smart Americans to do the work. You know, because no one can read those manuals anyway, even if there were written in legible english.  

I know I'm preaching to the choir here, and I'm sorry to be another verbal vitriol playback artist, but I can't help but wonder: if even the smartest, most educated of the opposition is so...off track...how can we possibly hope for better in the future?

I hear a lot of panic-infused grumblings from economic-savvy types about the imminent demise of the US treasury bond as China's the world's stable-investment of choice and how the heck are we going to afford our meager overly generous welfare state -- nevermind economic stimulus -- if the federal government can't even take out a loan.  Well, the 2-second panic in the foreign currency exchange markets the other day after *some* "journalist" paraphrased Mr. Geithner as supporting China's call for a new global currency spurred me to do a little unpaid research.  turns out, China's saber-ratting isn't all that fearsome.  Important part of china central bank's policy statement highlighted below:

III. The reform should be guided by a grand vision and begin with specific deliverables. It should be a gradual process that yields win-win results for all

 

The reestablishment of a new and widely accepted reserve currency with a stable valuation benchmark may take a long time. The creation of an international currency unit, based on the Keynesian proposal [to base a global currency on the value of 30 or so commodities], is a bold initiative that requires extraordinary political vision and courage. In the short run, the international community, particularly the IMF, should at least recognize and face up to the risks resulting from the existing system, conduct regular monitoring and assessment and issue timely early warnings.

 

Special consideration should be given to giving the SDR [this is special drawing rights for lesser developed countries from the IMF, and therefore currently doesn't have any substantial impact on the rest of the world] a greater role. The SDR has the features and potential to act as a super-sovereign reserve currency. Moreover, an increase in SDR allocation would help the Fund address its resources problem and the difficulties in the voice and representation reform. Therefore, efforts should be made to push forward a SDR allocation. This will require political cooperation among member countries. Specifically, the Fourth Amendment to the Articles of Agreement and relevant resolution on SDR allocation proposed in 1997 should be approved as soon as possible so that members joined the Fund after 1981 could also share the benefits of the SDR. On the basis of this, considerations could be given to further increase SDR allocation.

you can find the rest at: http://www.pbc.gov.cn/english//detail.asp?col=6500&ID=178

it's not that long, and honestly, not that crazy. 

I've got this professor -- the kind that's been retired for 20 years, was born a century ago, and rather than spending time at home with wife and family celebrating his lucrative job earning a ton of money helping big multinationals evade taxes legally such a long and successful career in order to pontificate on the virtues of laissez faire capitalism teach law students sadly ignorant of the basics of economics and finance  -- who's driving me nuts enough to vent online to strangers under cover of relative anonymity. 

Okay, I'm no huey L, and I've spend enough time in corporate america to at least listen to both sides.  Often I find myself in some strange netherworld where the liberals look at me like I'm something stuck on the bottom of their shoe when I, e.g., take five minutes to explain that a lot times, asbestos defendants *aren't* actually guilty in this day of age...but I get the "oh *wack*-o" stare from the biz friendly coworkers when I talk about how maybe drug legalization isn't a bad thing and how could we possibly think slavery's social reverberations have possible gone away forever.   But this old dude is KILLING ME.

He's got his panties in a twist for fear the obama administration's going to eliminate corporate tax deferral.  and then US multinationals will be "forced" to pay US tax rates on ALL their income and therefore they will not be competitive (this of course is given in absolute terms) and america will go down the toilet.  I mean, to the extent it hasn't already.  no offense, thailand. 

here's a primer (and I have said old guy to thank): US multinationals with subsidiaries (separate legal entities, but owned and controlled by US corporations) overseas don't generally pay tax on the income of the sub until the subsidiary issues dividends back to the US corporation.  this is called tax deferral. 

so basically treasury gives US multinationals an interest free loan in the amount of their tax liability on foreign income. But back in the 60s the kennedy administration was resolved to make sure they paid at least part of their fair share, and created Subpart F -- a fond nickname for an exception and a loophole to the exception and an exception to the loophole to the exception to tax deferral.  Basically, it's this: US multinationals have to pay US tax immediately on foreign income that can easily be moved around.  Ie, such income doesn't require, oh, an office with workers actually working or a factory actually making.  Real industry, not "I get paid for doing nothing" income.  You know, the kind that gets all those preferable tax rates.  But I digress.

So basically, passive income gets taxed right away--it doesn't get deferred til it comes on home through the form of corporate dividends.  This is designed, for example, so people dont move their trust fund to, oh, caymen or bermuda, solely to avoid income tax.  "real" honest to goodness business income located overseas because, uh, there's a market and workers there -- that still gets deferral.

So why is this cat so upset??? why the doom and gloom??? he drank the kool aid for 60 years, so I guess I forgive him, even though he calls me "sweetie."  still, when you're only response is: "Japan's the only other country in the world who taxes its citizens on their foreign income," well, that sounds a little like kindergarten-style deflection to me. 

And here's another question.  why does everyone worry about the corporations remaining competitive when *I* dont get tax breaks.  and isn't it *my* available cash that buys the crap at wal-mart that allows wal-mart to make money and be productive and create more jobs (somewhere, at least)???? since when does wal-mart make better use of a buck than I do??? (okay, I know I didn't *need* that second pair of red pumps, but the point still stands).

has anyone ever actually done a study on the effect of country x vs country y tax rates, along with the PLETHORA of other variables that determine where a business wants to locate (governance issues, access to capital markets, labor force, natural resources, etc) such that we should actually start taking the "my taxes...sniff...are too *high*" argument seriously?

I've spent a couple days digesting Delaware's court of chancery opinions on the AIG and Citi cases.  AIG dealt with allegedly criminal behavior by the notorious hank greenberg; citi dealt with risk mismanagement dealing with subprime mortgage derivatives.

Yesterday, the USTR released its annual report.  I have to admit, I was hoping for an agenda that played more than the typical lip service the US has played in the past to environmental and labor concerns.  You can read the report here:

ww.ustr.gov/assets/Document_Library/Reports_Publications/2009/

2009_Trade_Policy_Agenda/asset_upload_file810_15401.pdf

Many of you may remember that Clinton managed to cajole the unions and environmentalists into swallowing NAFTA by promising that Mexico would begin enforcing the laws already on its books, pre-NAFTA -- laws that, for all intents and purposes, are more stringent than those in the U.S.  The problem with Mexico, it turned out, was with making sure people actually *obeyed* those laws.  Mexico's executive branch was...reluctant...to actual flex any of its police power muscle when it came to labor and the environment.

The Clinton administration, seeing a brilliant opportunity to hoodwink the opposition, made sure NAFTA had a collateral agreement whereby the NAFTA parties agreed to "cooperate and communicate" when it came to enforcement of each others' environmental and labor laws, setting up a petition system so that abuses could be followed up by domestic labor and environmental ministries.  Needless to say, it was mere baby teeth: for the most part, all the NAFTA parties were required to do was to "publish" the wrongs of the wrongdoers, hoping to shame them into compliance. (note: in very discrete circumstances, a NAFTA tribunal can enforce violations of certain types of wrongdoing, e.g., violations of free trade, minimum wage, and child labor laws (but not collective bargaining or dicrimination)--but only if one country's government was willing to sue that of another country.  Which almost never happens, as such governments are fearful of trade retaliations)  So anyway, you can guess how successful Clinton's Compromise was with improving labor and environmental standards.

And Obama's anticipated nominee to the USTR, Ron Kirk, doesn't appear to want to change much.  But who can blame him, given the current economic environment.  Still, if we're going to hell in a handbasket anyway...

I'm slogging through this treatise on international tax (I can't believe I not only paid $3k for the class, but also $300 for the text) and I've got CNN on to distract the half of my brain that's generally rebelling whenever I do homework.  And Rush is delivering his "first international address" courtesy of CPAC.  'Course, they broadcast Rush in his entirety, as opposed to anything actually important.  blah blah bootstraps, blah blah success earns punishment, same old same old.  The usual exploitation of angst and anger of the working white who struggle every day, only to see the benes going to the strange black urban people all over their TV sets.

http://www.nytimes.com/2009/02/28/business/28nocera.html?_r=1&8dpc

Delaware's court of chancery had a chance to sock-it-to Citi's board for failing to avoid the stampede into the mortgage-backed securities market (and derivatives thereof).  At least, to allow aggrieved shareholders to continue their lawsuit against them.  Not to be.

The other day, the Court decided that the shareholders failed to meet the "demand requirement" of pleading--a rule saying that they've got to allege specific facts in their complaint showing that the board maliciously (wrongfully and with bad faith) failed to take action to stop such investments.  They needed to plead more than mere negligence -- the failure to stop their employees from investing in such securities had to be what amounts to criminal recklessness.  This, the shareholder plaintiffs could not do.

Well, at least the Court is allowing the shareholders go forward on the corporate waste (executive pay) argument.

Oh well.  Better luck next time.  but this does not bode well for exacting the public vengeance so many desire.  Or filling the banks' coffers with directors' savings accounts.  Remember, we the taxpayers are now citi's largest shareholders.  And you just lost your lawsuit.

You can read the opinion here:  http://www.delawarelitigation.com/2009/02/articles/chancery-court-updates/
chancery-court-dismisses-shareholder-claims-against-citigroup-for-failure-to-monitor-subprime-
risks-but-allows-waste-claim-for-ceo-pay/

After reading Paul Krugman's recent blog entry regarding the shrills and hacks on CNBC screaming about how increased government spending would scare away private investment, I decided that I might try to figure out what the heck was really going on (thus justifying my inclination to take Krugman at his word all the time).  Thanks to wiki, here's a reason to think these economists just don't know *what* the heck they're talking about.  Here's the entry, my comments in caps:

If increased borrowing leads to higher interest rates by creating a greater demand for money and loanable funds and hence a higher "price" (ceteris paribus), the private sector, which is sensitive to interest rates will likely reduce investment due to a lower rate of return [BUT IF INTEREST RATES ARE ALREADY AT ZERO, AS IN A LIQUITIY CRISIS, THIS WON'T MATTER]. This is the investment that is crowded out. The weakening of fixed investment and other interest-sensitive expenditure counteracts to varying extents the expansionary effect of government deficits. More importantly, a fall in fixed investment by business can hurt long-term economic growth of the supply side, i.e., the growth of potential output.

However, this crowding-out effect is moderated by the fact that government spending expands the market for private-sector products through the multiplier and thus stimulates - or "crowds in" - fixed investment (via the "accelerator effect") [CREATING DEMAND THAT WOULDN'T OTHERWISE EXIST DURING A CREDIT CRISIS]. This accelerator effect is most important when business suffers from unused industrial capacity, i.e., during a serious recession or a depression.

Crowding out can, in principle, be avoided if the deficit is financed by simply printing money, but this carries concerns of accelerating inflation.

Crowding out of another sort (often referred to as international crowding out) may occur due to the prevalence of floating exchange rates, as demonstrated by the Mundell-Fleming model. Government borrowing leads to higher interest rates, which attract inflows of money on the capital account from foreign financial markets into the domestic currency (i.e., into assets denominated in that currency) [BUT IN OUR SITUATION, ISN'T IT THE CASE THAT THERE ISN'T ANYTHING OUT THERE UNDER THAN THE SUN, OTHER THAN US NOTES, THAT PEOPLE ARE WILLING TO BUY???]. Under floating exchange rates, that leads to appreciation of the exchange rate and thus the "crowding out" of domestic exports (which become more expensive to those using foreign currency). This counteracts the demand-promoting effects of government deficits but has no obvious negative effect on long-term economic growth.

In the United States during the late 1990s, another kind of crowding out of exports occurred: large increases in private fixed investment and consumer spending encouraged high interest rates, a high dollar exchange rate, and hurt exports.

Crowding out is most serious when an economy is already at potential output or full employment. Then the government's expansionary fiscal policy encourages increased prices, which lead to an increased demand for money. This in turn leads to higher interest rates (ceteris paribus) and crowds out interest-sensitive spending. At potential output, businesses are in no need of markets, so that there is no room for an accelerator effect. More directly, if the economy stays at full employment gross domestic product, any increase in government purchases shifts resources away the private sector. This phenomenon is sometimes called "real" crowding out.

The negative effects on long-term economic growth that occur when private fixed investment are crowded out can be moderated if the government uses its deficit to finance productive investment in education, basic research, and the like. The situation is made worse, of course, if the government wastes borrowed money.

Thanks to Professor Heller* for pointing this out:

On a whim I vegetated in front of CSPAN for part of the afternoon, moderately interested in the cabinet confirmation hearings that were being re-broadcast.  On the (moderately) hot/ pleasantly warmed seat: Steven Chu, Obama's pick for DoE sec'y.

He seems like a smart guy, articulate, and appropriately wonkish.  I was bothered, however, by his answers to a few questions.

On drilling in Alaska: it's a go, as a part of our new energy plan (or maybe he was just placating the Senator from Alaska)
On "clean coal": significant resources will be invested to make it cleaner (especially as all those other horrible dirty countries will be using coal anyway, we may as well make sure it's clean (and sell the technology while we're at it))
On ethanol: do you even have to ask