Harvard Business Law Review (HBLR)

The Harvard Business Law Review (HBLR) aims to be the premier journal covering the laws of business organization and capital markets. HBLR will publish articles from professors, practitioners, and policymakers on corporate law and governance, securities and capital markets law, financial regulation and financial institutions, law and finance, financial distress and bankruptcy, and related subjects.

Politics & Economics

VOLUME 12 • ISSUE 1 • PRINT

BETTER RULES FOR WORSE ECONOMIES: EFFICIENT LEGAL RULES OVER THE BUSINESS CYCLE

Yair Listokin and Peter Bassine

This article argues:

  1. The economic effects of many legal rules change over the business cycle.
  2. Most legal rules do not change over the business cycle.
  3. The time-invariant legal rule chosen tends to be the rule that performs best in ordinary economic conditions.
  4. The efficient time-invariant legal rule considers both performance in ordinary economic conditions and performance in recessions.
  5. Because recessions cause extraordinary harms, a rule’s performance in recessions deserves a surprising amount of weight when calculating the best time-invariant legal rule.
  6. The pursuit of efficiency in law and economics needs to change accordingly.
VOLUME 10 • COLUMNS

TRUTH

Max Stul Oppenheimer1Professor, University of Baltimore School of Law; B.S., Princeton University; J.D., Harvard Law School.

The internet has spawned two major policy debates: the extent and control of protection of personal data privacy, and the impact and control of interference in public policy, most notably elections. On the one hand, there is a concern that social media privacy controls are deficient and that personal data is being shared without informed consent, while the increased speed and reduced costs of data processing has enabled aggregating fragments of personal information into detailed personal dossiers. On the other hand, there is a concern that lack of information about sources of information in social media fosters propagation of false information that can influence elections.

VOLUME 10 • COLUMNS

CYBERSECURITY PROVISIONS IN TRADE AGREEMENTS: THE STATE OF THE ART

Chimène I. Keitner & Harry L. Clark

Virtually without exception, conducting business across borders today means being connected to the Internet. The U.S.-Mexico-Canada Trade Agreement (USMCA), which is awaiting implementation by Congress, would become the first operative United States free trade agreement to include a chapter devoted to “digital trade.”2Office of the U.S. Trade Representative, Agreement between the United States of America, the United Mexican States, and Canada, Nov. 30, 2018; see Roy Blunt, USMCA: Where Things Stand, Senate Republican Pol’y Comm. (Mar. 26, 2019), https://www.rpc.senate.gov/policy-papers/usmca-where-things-stand. The USMCA provisions on digital trade build on the electronic commerce chapter in the Trans-Pacific Partnership (TPP, now CPTPP)—a multilateral trade agreement that the Obama Administration negotiated, but the Trump Administration rejected.3See, e.g., Anupam Chander, The Coming North American Digital Trade Zone, Council on Foreign Rel. (Oct. 8, 2018), https://www.cfr.org/blog/coming-north-american-digital-trade-zone (observing that “the TPP is dead, long live the TPP”). As the United States continues to negotiate the conditions for its bilateral trade relationships, cybersecurity concerns are likely to feature in the discussions.

VOLUME 6 • COLUMNS

KING HENRY II AND THE GLOBAL FINANCIAL CRISIS

James W. Giddens

A significant portion of the failure that fueled the 2008 financial crisis has been attributed to a systemic lapse in senior executive oversight at the major financial institutions. Notwithstanding this failure, these executives have not been held personal liable for their “King Henry moments,” instances where senior executives have allegedly been aware of, or turned a blind eye to, questionable acts that occurred on their watch—often for the executives’ own personal benefit. This Article outlines the current state of the law governing senior executive liability, summarizes recent headline events in the financial industry, and provides a series of recommendations for proportionate reforms to correct current incentive imbalances in the financial industry.

VOLUME 3 • ISSUE 1 • PRINT

THE COMMERCIAL REAL ESTATE BUBBLE

Adam J. Levitin and Susan M. Wachter
Two parallel real estate bubbles emerged in the United States between 2004 and 2008, one in residential real estate, the other in commercial real estate. The residential real estate bubble has received a great deal of popular, scholarly, and policy attention. The commercial real estate bubble, in contrast, has largely been ignored.
VOLUME 3 • ISSUE 2 • PRINT

THE NON-EXPERT AGENCY: USING THE SEC TO REGULATE PARTISAN POLITICS

Bradley A. Smith and Allen Dickerson

Over the past 15 years advocates of campaign finance reform, frustrated by the structure and design of the Federal Election Commission (FEC), have at- tempted to offload the duties of campaign finance regulation to other federal agencies, most notably the Internal Revenue Service (IRS) but also the Federal Communications Commission (FCC). Recently, these efforts have expanded to include the Securities and Exchange Commission (SEC).

VOLUME 2 • ISSUE 2 • PRINT

QUIXOTIC REGULATION: SECTION 23A OF THE FEDERAL RESERVE ACT AND CONTAINMENT OF THE FEDERAL SAFETY NET SUBSIDY

Randy Benjenk

Section 23A of the Federal Reserve Act imposes quantitative and qualitative limits on certain transactions between depository institutions and their non-depository affiliates. The Board of Governors of the Federal Reserve states that a purpose of Section 23A, along with Section 23B of the Federal Reserve Act, which mandates that depositories conduct affiliate transactions on arm’s length terms, is to prevent any subsidy given to depositories by the federal safety net from leaking to their non-depository affiliates. Yet Section 23A does not stop subsidy from leaking to non-depository affiliates through mispriced transactions; Section 23B does this by mandating that depositories receive adequate compensation in affiliate transactions. Most importantly, neither Section 23A nor Section 23B can prevent subsidy from leaking through dividend transactions to non-depository affiliates or to shareholders. Thus, in this Note, I question the usefulness of restrictions on affiliate transactions and of restrictions on affiliations generally, concluding that the goal of containing subsidy should take a backseat to the goal of preventing subsidy from accruing to depository institutions in the first place.

VOLUME 2 • ISSUE 1 • PRINT

OLD SINS AND LONG SHADOWS

Lee C. Buchheit

Old sins cast long shadows. In the world of sovereign debt, so apparently do new ones. It used to be that the period of time that elapsed between a serious policy mistake and the punishment for that transgression was generous—at least long enough to allow the erring politicians to exit with a valedictory speech along the lines of “just remember that everything was okay when I left.” Moralists must surely be pleased that one of the byproducts of modern financial integration is the speed with which fiscal policy mistakes are punished by the terrible, swift sword of market sentiment. Take the first deadly sin of fiscal policy: the decision to cover chronic budget deficits through borrowing, as opposed to the politically less popular measures of taxation or curtailment of public services. Once upon a time politicians could peddle deficits-don’t-matter fairy tales for decades before the day of reckoning arrived in the form of sovereign downgrades, higher borrowing costs, and constrained market access. That period is now measured in years, occasionally (and embarrassingly) overtaking the very politicians who had spun the cotton candy in the first place.

VOLUME 2 • ISSUE 1 • PRINT

CORPORATE GOVERNANCE, POLITICS, AND THE SEC

Edward F. Greene

Publicly held corporations typically solicit votes or consents by proxy from their shareholders with respect to any proposed action requiring shareholder approval. This solicitation process involves the SEC because of its statutory role in overseeing disclosure in a company’s proxy statement.1 During this process, the SEC acts as a gatekeeper that decides under its rules whether shareholders’ proposals must be included in a company’s proxy statement at the company’s expense.

VOLUME 2 • ISSUE 1 • PRINT

BRAZIL AND RUSSIA DURING THE FINANCIAL CRISIS: A TALE OF TWO COMMODITY EXPORTERS

Gaurav Toshniwal
Brazil and Russia were similarly placed on the eve of the recent financial crisis. Both countries were large middle-income commodity exporters with a shared history of vulnerability to financial contagion. Aided by the long commodities boom, both countries were thriving. They had accumulated large foreign exchange reserves, paid down their external public debt, and experienced rapid economic growth; it was the best of times. The collapse of Lehman Brothers and the ensuing global financial panic changed this rosy picture. The crisis quickly spread to Brazil and Russia. Financial markets in both countries dropped precipitously, their respective currencies came under speculative attack, and their strong public sector financial positions deteriorated quickly; it was soon the worst of times. Nevertheless, Brazil’s economic performance proved far more robust than Russia’s during the crisis because of the country’s relatively superior financial and macroeconomic regulation, as well as its deft crisis management. Compared to Russia, Brazil came out of the crisis with relatively stronger economic growth, more robust stock market performance, and greater policy flexibility.
VOLUME 2 • COLUMNS

ECONOMIC CRISES AND EMERGENCY POWERS IN EUROPE

Ragnhildur Helgadóttir

This article discusses the state reactions to financial crises from the point of view of domestic constitutional law and the main international obligations of European countries. State reactions in such circumstances have been very different, and so have the legal questions they raise. This article will describe the legal framework that applies to state action in such circumstances. Part 3 will briefly describe how Iceland reacted to its crisis in October 2008 and how courts and international organizations have dealt with its reactions.

VOLUME 1 • COLUMNS

UNDERSTANDING THE COMMERCIAL REAL ESTATE DEBT CRISIS

Tanya D. Marsh

The popular, if simplistic, understanding of the most recent economic crisis is that it was triggered by the bursting of an unprecedented residential real estate bubble. In this narrative, the bubble was caused by interrelated factors—the irrational beliefs of homeowners that property values would continue to rise and the aggressive lending practices, which focused on maximizing the size and volume of loan originations at the expense of prudent underwriting. Although we see signs of a slow recovery, the bubble’s collapse continues to have a destabilizing effect on every corner of our economy and society, from financial institutions struggling with “toxic assets” on their balance sheets, to community disruption caused by residential foreclosures.