Author Archives: Michael Froomkin

Stanley Langbein Explains the Why the FDIC is Not a Major Post-Debt Ceiling Worry

In an email he has kindly allowed me to quote, my banking expert colleague the FDIC issue as follows:

The FDIC is largely funded through premiums charged to the banks, and has backup authority to reach, essentially, the entire capital base of the depository institution industry. It also has authority to borrow from the Treasury, which it did in late 2008 (after TARP was past), and indeed it was an FDIC guarantee program, NOT the TARP, which mostly stabilized the industry — Goldman Sachs and Morgan Stanley, for instance, became and remained bank holding companies, not to access the TARP (which they were allowed to do without becoming BHCs), but to access the FDIC guarantee program. The FDIC still has outstanding debt to the Treasury from this episode.

For this reason, a failure to raise the debt ceiling is not likely to have any immediate effect on the FDIC’s funding sources. Presumably the matter would be resolved before the lack of Treasury funds would affect the FDIC’s insurance funds.

That being said, bank runs are caused by perceptions, not objective facts. If you can worry about this, I suppose there are at least 250,000 individuals who are less sophisticated, most of them far less so, who can worry too. I don’t know if this could cause a “run” on the banks, because in the envisioned circumstances I don’t think there would be any place to run.

But I don’t think Congress will refuse to raise the debt ceiling. The primary effect of this episode, however, will be to put a question in the back of everybody’s mind about government credit and government guarantees generally. That will affect confidence in FDIC insurance, I think, in the long if not the short run. So on some level I think you are right to worry about it.

Actually, I find that mostly reassuring….

Posted in Econ & Money | Comments Off on Stanley Langbein Explains the Why the FDIC is Not a Major Post-Debt Ceiling Worry

Cooley Law School Sues Lawyers and Internet Posters

The WSJ reports that Thomas M. Cooley Law School is suing a law firm, and also suing four pseudonymous Internet posters some or all of whom might be former students. This is the first such case I’ve ever heard of.

Cooley has issued a statement, and links to (1) the complaint against the law firm of Kurzon Strauss LLP and two lawyers in that firm, and also (2) the complaint against four John Doe Internet writers styling themselves “Rockstar05,” “Informant,” “Anonymous,” and “Ch Bruns.”.

Cooley claims in its statement that the law firm defamed it “by falsely claiming on Internet websites, social media, and email that Cooley, a nonprofit 501(c)(3) Michigan educational corporation, has defrauded students by misrepresenting its graduate employment placement rates, average starting salary figures, and student loan default rates.” These statements were, Cooley says, part of an attempt to recruit members of a planned class-action lawsuit against it. (There is already a pending class-action claim of this type against Thomas Jefferson Law School.)

The complaints against the four Internet posters aim at the author of the blog at http://thomas-cooley-law-school-scam.weebly.com/, two commentators on that blog, and one commentator on a post at the Huffington Post.

The first issue, however, will be whether Cooley can get subpoenas and expose the identities of the posters. The leading case on this subject is Dendrite Int’l, Inc. v John Doe, No. 3, et al., 342 N.J. Super. 134, 141–42 (App. Div. 2001):

The trial court must consider and decide those applications by striking a balance between the well-established First Amendment right to speak anonymously, and the right of the plaintiff to protect its proprietary interests and reputation through the assertion of recognizable claims based on the actionable conduct of the anonymous, fictitiously-named defendants.

. . . when such an application is made, the trial court should first require the plaintiff to undertake efforts to notify the anonymous posters that they are the subject of a subpoena or application for an order of disclosure, and withhold action to afford the fictitiously-named defendants a reasonable opportunity to file and serve opposition to the application . . .

The court shall also require the plaintiff to identify and set forth the exact statements purportedly made by each anonymous poster that plaintiff alleges constitutes actionable speech.

The complaint and all information provided to the court should be carefully reviewed to determine whether plaintiff has set forth a prima facie cause of action against the fictitiously-named anonymous defendants . . .

Finally, assuming the court concludes that the plaintiff has presented a prima facie cause of action, the court must balance the defendant’s First Amendment right of anonymous free speech against the strength of the prima facie case presented and the necessity for the disclosure of the anonymous defendant’s identity to allow the plaintiff to properly proceed.

It may be, however, that NY uses a standard that is less protective of anonymous internet speech than Dendrite.

Posted in Law School, Law: Free Speech, Law: Internet Law | Comments Off on Cooley Law School Sues Lawyers and Internet Posters

The Spirit of Rube Goldberg

… is alive and well and taking photos in Canada.

httpv://www.youtube.com/watch?v=qKpxd8hzOcQ

Posted in Completely Different | 1 Comment

What Happens to the FDIC if the Debt Ceiling Is Not Raised?

If the US hits the debt ceiling, will there be a run on the banks?

And if there is, would the dept ceiling impose any limits on the FDIC’s ability to raise funds in the event of a bank failure?

The two questions seem the same to me: if there is confidence that the FDIC will have all the funds it needs, there will not be a run on the banks. But if there is any doubt, there will be, creating the very problem…

So, does anyone know if the FDIC would be limited or not?

Posted in Econ & Money | 11 Comments

Blogging: The Rules (per Jonathan Rauch)

My friend Jonathan Rauch discloses his plans.

While I’m blogging, I’m going to try to observe a few rules.

1) No second drafts. There isn’t time.

2) No reporting. There isn’t money.

3) Factuality is approximate.

4) Crabbiness is allowed.

I think he could be quite good at it.

Posted in Blogs | 2 Comments

Happy Shark Awareness Day

Today is Shark Awareness Day. Let me be the first to wish you joy on this happy occasion.

(Insert lawyer joke here — or in the comments.)

It is also Bastille Day.


Shark image copyright © 2006 Joe Lencioni, licensed via Creative Commons Attribution-NonCommercial-ShareAlike 2.5 License.

Posted in Completely Different | Comments Off on Happy Shark Awareness Day