An FDA for financial innovation: Applying the insurable interest doctrine to twenty-first-century financial markets

Northwestern University Law Review

Volumn 107, Issue 3, 2013, Pages 1307-1358

  Posner, Eric A ^a   Glen Weyl, E ^b  

^a UNIVERSITY OF CHICAGO LAW SCHOOL   (United States)

^b UNIVERSITY OF CHICAGO   (United States)

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EID: 84879588792     PISSN: 00293571     EISSN: None     Source Type: Journal    
DOI: None     Document Type: Article

References (202)

1. As we discuss below, new financial products also have other harms (informational racing) and benefits (information and incentive provision), but we believe that for most new products the insurance-gambling tradeoff is most important. In previous drafts and in parts of the literature, what we call "insurance" is referred to as "hedging" and what we call "gambling" is referred to as "speculation" or "betting." These terms are essentially equivalent, but we refer to insurance and gambling as they make the nature of the activity clearest to the broadest audience.
2. In the economics literature, the idea was first formalized by Jack Hirshleifer and, in a form closer to that we consider, by Itzhak Gilboa, Dov Samet, and David Schmeidler.
3. Jack Hirshleifer, The Private and Social Value of Information and the Reward to Inventive Activity, 61 Am. Econ. Rev. 561 (1971)
4. Itzhak Gilboa B et al., Utilitarian Aggregation of Beliefs and Tastes, 112 J. Pol. Econ. 932 (2004).
5. However, the underlying idea is quite old, and can be found, for example, in debates about gambling and insurance in eighteenth-century Britain. See infra notes 62-63 and accompanying text.
6. Gillian Tett, Fool's Gold: How the Bold Dream of a Small Tribe at J.P. Morgan Was Corrupted by Wall Street Greed and Unleashed a Catastrophe 34-35 (2009).
7. Dodd-Frank Wall Street Reform and Consumer Protection Act, Pub. L. No. 111-203, 124 Stat. 1376 (2010) (codified as amended in scattered sections of 12, 15, 22, and 26 U.S.C.).
8. David Skeel, The New Financial Deal: Understanding the Dodd-Frank Act and Its (Unintended) Consequences (2011)
9. Saule T. Omarova, License to Deal: Mandatory Approval of Complex Financial Products, 90 Wash. U. L. Rev. 63, 77-78 (2012).
10. We use the term "derivatives" loosely to refer to a class of financial instruments whose value is derived from underlying assets, with a focus on recent financial innovations. The proper definition of derivatives is in dispute, and commentators and courts typically refer to a specific group of products (for example, options and swaps), although the term may encompass many other products such as insurance policies. For a useful discussion.
11. Timothy E. Lynch, Derivatives: A Twenty-First Century Understanding, 43 Loy. U. Chi. L.J. 1, 15-30 (2011).
12. After we circulated a draft of this paper on SSRN, we learned about a then-unpublished draft that independently proposes an FDA-like approach to financial regulation. See Omarova, supra note 5. Readers should consult this paper, as well. Our proposal also builds off an earlier unpublished draft and published op-ed piece written by one of us.
13. E. Glen Weyl, Is Arbitrage Socially Beneficial? (Oct. 2007) (unpublished manuscript) [hereinafter Weyl manuscript], available at http://home.uchicago.edu/ weyl/Second_Draft_Arbitrage.pdf
14. Glen Weyl, Financial Guidance from FDA, Bos. Globe, Dec. 3, 2008, at A19.
15. Joseph E. Stiglitz, Comm'n of Experts of the President of the UN Gen. Assembly on Reforms of the Int'l Monetary & Fin. Sys., Principles for a New Financial Architecture, available at http://www. un.org/ga/president/63/commission/newfinancialarchitecture.pdf
16. Sumit Agarwal et al., The Age of Reason: Financial Decisions over the Life Cycle and Implications for Regulation, Brookings Papers on Econ. Activity, Fall 2009, at 51
17. Gerald Epstein & James Crotty, Controlling Dangerous Financial Products Through a Financial Pre-Cautionary Principle, 72 Ekonomiaz 270 (2009)
18. Advocating exante regulation of financial products on the basis of a precautionary principle.
19. James Crotty & Gerald Epstein, A Financial Precautionary Principle: New Rules for Financial Product Safety (Wall St. Watch, Working Paper No. 1, 2009). These papers address issues beyond the scope of our Article and do not provide the same test that we propose.
20. Geoffrey Clark, Betting on Lives: The Culture of Life Insurance in England, 1695-1775 (1999).
21. Stefano G. Athanasoulis& Robert J. Shiller, World Income Components: Measuring and Exploiting Risk-Sharing Opportunities, 91 Am. Econ. Rev. 1031 (2001)
22. Alp Simsek, Speculation and Risk Sharing with New Financial Assets (Nat'l Bureau of Econ. Research, Working Paper No. 17,506, 2011)
23. Markus K. Brunnermeier et al., A Welfare Criterion for Models with Distorted Beliefs (Feb. 2012) (unpublished manuscript), available at http://papers.ssrn.com/abstract=2021600.
24. Erik F. Gerding, Credit Derivatives, Leverage, and Financial Regulation's Missing Macroeconomic Dimension, 8 Berkeley Bus. L.J. 29, 37-38 (2011)
25. Making a similar argument. For other related work in the legal literature.
26. Robert S. Bloink, Does the Dodd-Frank Wall Street Reform Act Rein In Credit Default Swaps? An EU Comparative Analysis, 89 Neb. L. Rev. 587, 632-633 (2011) (expressing cautious skepticism about regulation because of the benefits of financial products)
27. Stephen Choi, Regulating Investors Not Issuers: A Market-Based Proposal, 88 Calif. L. Rev. 279, 333-334 (2000) (proposing market-based regulation of securities markets)
28. Jill E. Fisch, Rethinking the Regulation of Securities Intermediaries, 158 U. Pa. L. Rev. 1961 (2010)
29. Brian J.M. Quinn, The Failure of Private Ordering and the Financial Crisis of 2008, 5 N.Y.U. J.L. & Bus. 549, 602-03 (2009) (proposing additional regulation of financial markets).
30. Xue Wang, Increased Disclosure Requirements and Corporate Governance Decisions: Evidence from Chief Financial Officers in the Pre- and Post-Sarbanes-Oxley Periods, 48 J. Acct. Res. 885 (2010)
31. John Y. Campbell et al., The Regulation of Consumer Financial Products: An Introductory Essay with Four Case Studies (Harvard Kennedy Sch., Working Paper RWP10-040, 2010), available at http://dash.harvard.edu/bitstream/handle/1/4450128/Madrian_TheRegulationof.pdf.
32. Oren Bar-Gill & Elizabeth Warren, Making Credit Safer, 157 U. Pa. L. Rev. 1 (2008)
33. Daniel Carpenter et al., Approval Regulation and Endogenous Consumer Confidence: Theory and Analogies to Licensing, Safety, and Financial Regulation, 4 Reg. & Governance 383 (2010).
34. Stout uses Hirshleifer's insight to argue that courts should not enforce financial contracts that are used for gambling.
35. Lynn A. Stout, Why the Law Hates Speculators: Regulation and Private Ordering in the Market for OTC Derivatives, 48 Duke L.J. 701 (1999)
36. Timothy E. Lynch, Gambling by Another Name; The Challenge of Purely Speculative Derivatives, 17 Stan. J.L. Bus. & Fin. 67 (2011) (discussing the relationship between gambling and derivatives markets)
37. Omarova, supra note 5, at 68-74 (addressing the problem of speculation).
38. Robert H. Jerry and Douglas R. Richmond, Understanding Insurance Law 275-82 (5th ed. 2012).
39. Irwin v. Williar, 110 U.S. 499, 510 (1884).
40. Stout, supra note 13, at 713-734.
41. Omarova, supra note 5, at 89.
42. Thomas Lee Hazen, Rational Investments, Speculation, or Gambling?-Derivative Securities and Financial Futures and Their Effect on the Underlying Capital Markets, 86 Nw. U. L. Rev. 987, 1029-31 (1992)
43. Laurin C. Ariail, Note, The Impact of Dodd-Frank on End-Users Hedging Commercial Risk in Over-the-Counter Derivatives Markets, 15 N.C. Banking Inst. 175, 196-197 (2011).
44. Consolidated Appropriations Act of 2001, Pub. L. No. 106-554, § 1(a)(5), 114 Stat. 2763, 2763 (enacting the Commodity Futures Modernization Act of 2000 (CFMA), H.R. 5660, 106th Cong.).
45. Thomas Lee Hazen, Filling a Regulatory Gap: It Is Time to Regulate Over-the-Counter Derivatives, 13 N.C. Banking Inst. 123, 128-129 (2009) (discussing history).
46. The Dodd-Frank Act repeals some provisions of the CFMA. For details, see Derivatives: Legal Practice and Strategies § 16.06 (Robert D. Aicher ed., Supp. 2011). Note.
47. Bank for Int'l Settlements, OTC Derivatives Market Activity in the Second Half of 2008, at 1 (2009), available at http://www.bis.org/publ/otc_hy0905.pdf
48. Press Release, Bank for Int'l Settlements, Slowdown of the Global OTC Derivatives Market in the Second Half of 2000, at 1 (May 16, 2001), available at http://www.bis.org/publ/otc_hy0105.pdf.
49. Many others have argued that financial products used for gambling purposes, like CDSs, can also create systemic risk, which creates an additional reason for regulating them.
50. Gerding, supra note 10, at 63-65.
51. Robert Cooter & Thomas Ulen, Law & Economics 44-46 (6th ed. 2012).
52. Gilboa et al., supra note 2; Weyl manuscript, supra note 7, at 4-5.
53. "Regulatory arbitrage consists of those financial transactions designed specifically to reduce costs or capture profit opportunities created by differential regulations or laws."
54. Frank Partnoy, Financial Derivatives and the Costs of Regulatory Arbitrage, 22 J. Corp. L. 211, 227 (1997).
55. See infra note 32 and accompanying text.
56. Richard Scott Carnell et al., The Law of Banking and Financial Institutions 252-253 (4th ed. 2009).
57. For a discussion, see Agarwal et al., supra note 7.
58. Werner F.M. De Bondt & Richard Thaler, Does the Stock Market Overreact?, 40 J. Fin. 793 (1985)
59. Werner F.M. De Bondt & Richard H. Thaler, Financial Decision-Making in Markets and Firms: A Behavioral Perspective, in 9 Handbooks in Operations Research and Management Science: Finance 385 (R.A. Jarrow et al. eds., 1995).
60. By "ordinary people," we mean to include even highly intelligent people, who frequently make the most elementary investing errors from the standpoint of financial theory.
61. James J. Choi et al., $100 Bills on the Sidewalk: Suboptimal Investment in 401(k) Plans, 93 Rev. Econ. & Stat. 748 (2011).
62. Simon Johnson & James Kwak, 13 Bankers: The Wall Street Takeover and the Next Financial Meltdown 138-140 (2010).
63. J. Bradford De Long et al., Noise Trader Risk in Financial Markets, 98 J. Pol. Econ. 703 (1990), and the many papers building off of this work.
64. However, as we will see below, we do not believe it is feasible to prevent all such transactions.
65. See Brunnermeier et al., supra note 9.
66. See infra notes 69-76.
67. Margin Call (Before the Door Pictures 2011).
68. Matt Dellinger, The Million-Dollar Millisecond, Popular Sci., May 2011, at 33.
69. Hirshleifer, supra note 2.
70. Michael Abramowicz, Predictocracy: Market Mechanisms for Public and Private Decision Making (2007)
71. Information Markets: A New Way of Making Decisions (Robert W. Hahn & Paul C. Tetlock eds., 2006).
72. Haibin Zhu, An Empirical Comparison of Credit Spreads Between the Bond Market and the Credit Default Swap Market (Bank for Int'l Settlements, Working Paper No. 160, 2004).
73. Hahn and Tetlock support prediction markets, but because of potential negative externalities including gambling, they advocate regulation by the CFTC.
74. Robert W. Hahn & Paul C. Tetlock, A New Approach for Regulating Information Markets, 29 J. Reg. Econ. 265, 269-272 (2006).
75. Stout proposes a similar general test but does not go into detail as to how it would be administered in practice. Ultimately, she argues that if courts refuse to enforce derivatives, in practice gambling would be restricted while insurance would continue because parties that insure tend to be repeat players who will voluntarily comply with contracts, while parties that gamble will not be.
76. Stout, supra note 13, at 778-80. We do not put similar emphasis on nonlegal market dynamics.
77. Of the sort performed in, for example, Simsek, supra note 9.
78. We draw on Athanasoulis & Shiller, supra note 9, and Simsek, supra note 9.
79. X could be some general event like a sovereign default on a bond or a specific event like a person's death.
80. This view has been suggested by Simsek, supra note 9, at 22.
81. Google books Ngram Viewer, http://books.google.com/ngrams (last visited May 21, 2013).
82. Ji Shen et al., Collateral-Motivated Financial Innovation (Aug. 8, 2012) (unpublished manuscript), available at http://ssrn.com/abstract=2014928.
83. Basel Comm. on Banking Supervision, Basel III: A Global Regulatory Framework for More Resilient Banks and Banking Systems (rev. ed. 2011), available at http://www.bis.org/ publ/bcbs189.pdf.
84. David VanHoose, Theories of Bank Behavior Under Capital Regulation, 31 J. Banking & Fin. 3680, 3695 (2007)
85. Shen et al., supra note 50, at 3.
86. For a general discussion of tax arbitrage involving derivatives.
87. David M. Schizer, Sticks and Snakes: Derivatives and Curtailing Aggressive Tax Planning, 73 S. Cal. L. Rev. 1339 (2000).
88. De Bondt & Thaler, Does the Stock Market Overreact?, supra note 30
89. Robert J. Shiller, Human Behavior and the Efficiency of the Financial System (Nat'l Bureau of Econ. Research, Working Paper No. 6375, 1998), available at http://www.nber.org/papers/w6375.pdf.
90. Donald MacKenzie, The Credit Crisis as a Problem in the Sociology of Knowledge, 116 Am. J. Soc. 1778 (2011)
91. Arguing that such gaming of the system played an important role in creating the poor allocation of risk that destabilized the financial system and resulted in the credit crisis.
92. Michael C. Jensen, Agency Costs of Free Cash Flow, Corporate Finance, and Takeovers, 76 Am. Econ. Rev. 323, 325-326 (1986).
93. Bengt Holmström & Jean Tirole, Market Liquidity and Performance Monitoring, 101 J. Pol. Econ. 678 (1993)
94. Darrell Duffie, Innovations in Credit Risk Transfer: Implications for Financial Stability (Bank for Int'l Settlements, Working Paper No. 255, 2008)
95. providing a framework for evaluating the incentive benefits of Collateralized Debt Obligations (CDOs). On the empirical side.
96. Emmanuel Saez, Using Elasticities to Derive Optimal Income Tax Rates, 68 Rev. Econ. Stud. 205 (2001)
97. providing analysis of optimal income taxation using empirical data and a contract theoretic model.
98. James Tobin, A Proposal for International Monetary Reform, 4 E. Econ. J. 153 (1978).
99. Abramowicz, supra note 41, at 9-11 (comparing prediction markets and polls for presidential elections).
100. The most famous prediction market was probably Intrade before it was shut down. Note.
101. Intrade, http://www.intrade.com (last visited May 21, 2013).
102. Assuming that the insured is altruistic, which is normally the motivation for purchasing life insurance as the buyer cannot directly enjoy the payout.
103. Clark, supra note 8, at 53.
104. We ignore traditional moral hazard concerns, namely, that life insurance policies of this type give insurance owners an incentive to murder the insured person.
105. Kenneth S. Abraham, Insurance Law and Regulation 83 (5th ed. 2010).
106. The law also recognizes insurable interests when there is a relationship of affection between the person whose life is insured and the beneficiary. Id. at 84. We suspect this is just a proxy for a financial interest.
107. Susan Lorde Martin, Corporate-Owned Life Insurance: Another Financial Scheme that Takes Advantage of Employees and Shareholders, 58 U. Miami L. Rev. 653, 665-667 (2004).
108. Anand G. Shetty, Mutual Funds, in 2 Encyclopedia of Business and Finance 530-532 (2d ed. 2007).
109. The borrower enjoys the upside of the investment, while the downside is limited by bankruptcy; thus, the borrower has a strong incentive to gamble with funds obtained from bank loans.
110. Paul Gompers & Josh Lerner, The Venture Capital Cycle (2d ed. 2004).
111. In fact, in our framework, these two benefits are just two sides of the insurance coin, but we treat them separately for emphasis and clarity.
112. William J. Baumol et al., The Economics of Mutual Fund Markets: Competition Versus Regulation 126-128 (1990).
113. Gary B. Gorton & George G. Pennacchi, Security Baskets and Index-Linked Securities, 66 J. Bus. 1, 24 (1993).
114. John C. Bogle, The Economic Role of the Investment Company 7-8 (Apr. 10, 1951) (unpublished A.B. thesis, Princeton University) (on file with the Northwestern University Law Review).
115. Burton G. Malkiel, A Random Walk Down Wall Street (rev. ed. 2011).
116. John C. Hull, Fundamentals of Futures and Options Markets 565 (7th Global ed. 2011) (defining credit default swap).
117. Stefano Giglio, Credit Default Swap Spreads and Systemic Financial Risk 7-8 (Nov. 2012) (unpublished manuscript), available at https://sites.google.com/site/stefanogiglio/research (follow the article hyperlink).
118. Bloink, supra note 10, at 631 (arguing that CDSs have positive information externalities in that they reveal the creditworthiness of debtors).
119. Jennie Bai, Thomas Philippon & Alexi Savov, Have Financial Markets Become More Informative? (Mar. 2012) (unpublished manuscript), available at http://papers.ssrn.com/abstract=2023889 (examining bond spreads going back to the 1970s). Spreads are simply the difference between the yield on the bonds and the yield on the Treasuries.
120. Roberto Blanco et al., An Empirical Analysis of the Dynamic Relation Between Investment- Grade Bonds and Credit-Default Swaps, 60 J. Fin. 2255 (2005).
121. Bai, Philippon & Savov, supra note 81.
122. Giglio, supra note 78.
123. Floyd Norris, Naked Truth on Default Swaps, N.Y. Times, May 21, 2010, at B1. For academic criticisms
124. Kristin N. Johnson,Things Fall Apart: Regulating the Credit Default Swap Commons, 82 U. Colo. L. Rev. 167, 202-206 (2011) (describing the costs of CDSs).
125. Amir Sadr, Interest Rate Swaps and Their Derivatives 25 (2009).
126. Brian Overby, The History of Options, in Options: Essential Concepts and Trading Strategies 1 (Options Inst. ed., 3d ed. 1999).
127. Fischer Black & Myron Scholes, The Pricing of Options and Corporate Liabilities, 81 J. Pol. Econ. 637 (1973)
128. Robert C. Merton, An Intertemporal Capital Asset Pricing Model, 41 Econometrica 867 (1973).
129. Lucian Arye Bebchuk & Jesse M. Fried, Executive Compensation as an Agency Problem, J. Econ. Persp., Summer 2003, at 71, 82
130. Kevin J. Murphy, Explaining Executive Compensation: Managerial Power Versus the Perceived Cost of Stock Options, 69 U. Chi. L. Rev. 847, 859-860 (2002).
131. Schizer, supra note 53, at 1391-92.
132. Partnoy, supra note 26, at 232.
133. Bebchuk & Fried, supra note 91, at 82-83.
134. Schizer, supra note 53.
135. This is our perception; we cannot provide a citation.
136. For a discussion of these and related derivatives, see, for example, Sadr, supra note 88.
137. Janet M. Tavakoli, Structured Finance and Collateralized Debt Obligations (2d ed. 2008).
138. Peter Carr & Roger Lee, Volatility Derivatives, 1 Ann. Rev. Fin. Econ. 319 (2009).
139. Anne-Sofie Reng Rasmussen, Index-Linked Bonds, Monetary Rev., 2d Quarter 2007, at 51, 51.
140. Nassim Nicholas Taleb, The Black Swan: The Impact of the Highly Improbable (2007).
141. For a critical discussion of how these securities came to be AAA rated,.
142. Roger Lowenstein, Triple-A Failure, N.Y. Times Mag., Apr. 27, 2008, at 36.
143. Schizer, supra note 53, at 1341-1342.
144. Robert J. Shiller, Macro Markets: Creating Institutions for Managing Society's Largest Economic Risks (1993).
145. Athanasoulis & Shiller, supra note 9, at 1031-1032.
146. Simsek, supra note 9, at 37-38.
147. Karl E. Case, Jr. et al., Index-Based Futures and Options Markets in Real Estate, J. Portfolio Mgmt., Winter 1993, at 83
148. Karl E. Case et al., Mortgage Default Risk and Real Estate Prices: The Use of Index-Based Futures and Options in Real Estate (Nat'l Bureau of Econ. Research, Working Paper No. 5078, 1995).
149. Edward L. Glaeser & Jesse M. Shapiro, The Benefits of the Home Mortgage Interest Deduction 24 (Harvard Inst. of Econ. Research, Discussion Paper No. 1979, 2002).
150. Benjamin J. Keys et al., Did Securitization Lead to Lax Screening? Evidence from Subprime Loans, 125 Q.J. Econ. 307, 353-356 (2010).
151. DeForest McDuff, Home Price Risk, Local Market Shocks, and Index Hedging, 45 J. Real Est. Fin. & Econ. 212, 213 (2012).
152. Robert J. Shiller, Irrational Exuberance (2d ed. 2005).
153. S&P Dow Jones Indicies, S&P/Case-Shiller Home Price Indices: Economic Indicators (2013), available at http://us.spindices.com/documents/factsheets/fs-sp-case-shiller-home-price-indices- ltr.pdf
154. S&P/Case-Shiller Home Price Index Futures, CME Group, http://www.cmegroup.com/trading/real-estate/residential/SandP-case-shiller-home-price-index.html (last visited May 21, 2013).
155. John Y. Campbell et al., Understanding Inflation-Indexed Bond Markets, Brookings Papers on Econ. Activity, Spring 2009, at 79.
156. Dennis W. Carlton, Futures Markets: Their Purpose, Their History, Their Growth, Their Successes and Failures, 4 J. Futures Markets 237, 245 (1984).
157. Hazen, supra note 18, at 990.
158. Adam Smith, An Inquiry into the Nature and Causes of the Wealth of Nations 35 (Edwin Cannan ed., Methuen & Co. 5th ed. 1930) (1776).
159. Life Assurance Act, 1774, 14 Geo. 3, c. 48 (Gr. Brit.).
160. Re: Credit Insurance Policy Issued to Financial Institution, State of N.Y. Ins. Dep't Informal Opinion (June 16, 2000), available at http://www.dfs.ny.gov/insurance/ogco2000/rg006161.htm. Note
161. For a number of practical criticisms that seem to turn on problems in enforcement.
162. Jacob Loshin, Note, Insurance Law's Hapless Busybody: A Case Against the Insurable Interest Requirement, 117 Yale L.J. 474 (2007).
163. Loshin's main point seems to be that the doctrine will cause insurers to issue excessive insurance because the doctrine excuses them from payout. However, by the same token, the doctrine should make insurance without an insurable interest exceedingly unattractive for buyers, thus reducing the demand for insurance without an insurable interest.
164. Nelson D. Schwartz & Eric Dash, Banks Bet Greece Defaults on Debt They Helped Hide, N.Y. Times, Feb. 25, 2010, at A1 (late edition)
165. Abigail Moses, Greece Credit-Default Swaps May Pay Out if Losses Exceed 21%, Bloomberg Businessweek (Oct. 12, 2011), http://www.businessweek.com/news/2011-10-12/greece-credit-default-swaps-may-pay-out-if-losses-exceed-21-.html.
166. David Mengle, The Economic Role of Speculation, ISDA Res. Notes, Issue 2, 2010, available at http://www.isda.org/researchnotes/pdf/SpeculationRN.pdf.
167. Stout, supra note 13; our view is similar to hers.
168. McDaniel v. Tullis, Craig & Co., 11 S.W.2d 203, 205 (Tex. Civ. App. 1928).
169. Roy Kreitner, Speculations of Contract, or How Contract Law Stopped Working and Learned to Love Risk, 100 Colum. L. Rev. 1096, 1100-1103 (2000).
170. Hazen, supra note 18.
171. Pat O'Malley, Moral Uncertainties: Contract Law and Distinctions Between Speculation, Gambling, and Insurance, in Risk and Morality 231 (Richard V. Ericson & Aaron Doyle eds., 2003).
172. Irwin v. Williar, 110 U.S. 499, 506 (1884) (allowing the jury to base its decision solely on the nature and circumstances of all of the parties' transactions).
173. For useful discussion of some of these issues, see Omarova, supra note 5, at 131-35.
174. Federal Food, Drug, and Cosmetic Act, Pub. L. No. 75-717, § 505, 52 Stat. 1040, 1052-53 (1938) (codified as amended at 21 U.S.C § 355 (2006)).
175. Hart-Scott-Rodino Antitrust Improvements Act of 1976, Pub. L. No. 94-435, § 201, 90 Stat. 1383, 1390 (codified as amended at 15 U.S.C. § 18a (2006)).
176. U.S. Dep't of Justice & Fed. Trade Comm'n, Horizontal Merger Guidelines (2010), available at http://www.justice.gov/atr/public/guidelines/hmg-2010.html.
177. Richard A. Epstein, Overdose: How Excessive Government Regulation Stifles Pharmaceutical Innovation (2006).
178. Joseph Farrell & Carl Shapiro, Horizontal Mergers: An Equilibrium Analysis, 80 Am. Econ. Rev. 107 (1990)
179. Gina M. Killian, Note, Bank Mergers and the Department of Justice's Horizontal Merger Guidelines: A Critique and Proposal, 69 Notre Dame L. Rev. 857 (1994).
180. John Y. Campbell & Luis M. Viceira, Strategic Asset Allocation 3-4 (2002).
181. Ryan K. Jessup et al., Feedback Produces Divergence from Prospect Theory in Descriptive Choice, 19 Psych. Sci. 1015 (2008)
182. Robert Wood & Albert Bandura, Impact of Conceptions of Ability on Self-Regulatory Mechanisms and Complex Decision Making, 56 J. Personality & Soc. Psych. 407 (1989).
183. Steven Shavell, Foundations of Economic Analysis of Law 398, 400 (2004).
184. Susan Thaul, Cong. Research Serv., RL32797, Drug Safety and Effectiveness: Issues and Action Options After FDA Approval 1-2 (2005).
185. IPD/IPF Trade Volume Report UK, IPD (Jan. 31, 2013), http://www.ipd.com/Portals/1/Derivatives%202013/Q4%202012%20Derivates%20trading%20volumes%20UK.pdf.
186. George J. Stigler, The Theory of Economic Regulation, 2 Bell J. Econ. & Mgmt. Sci.3 (1971).
187. Merton H. Miller, Do We Really Need More Regulation of Financial Derivatives? (U. Chi. Graduate Sch. of Bus., Selected Paper No. 75, 1994), available at http://www.chicagobooth.edu/~/media/254758677A0740A58EC34D1532EC5E0E.pdf.
188. Ben Protess, United in Disdain for Dodd-Frank, Wall Street Is Split on the Details, N.Y. Times DealBook (Oct. 5, 2011, 7:47 PM), http://dealbook.nytimes.com/2011/10/05/wall-st-united-in-disdain-for-dodd-frank-but-split-on-the-details.
189. Alireza M. Gharagozlou, Unregulable: Why Derivatives May Never Be Regulated, 4 Brook. J. Corp. Fin. & Com. L. 269 (2010) (discussing line-drawing problems for regulation of derivatives generally)
190. M. Todd Henderson, Credit Derivatives Are Not "Insurance," 16 Conn. Ins. L.J. 1, 23-26 (2009) (opposing treatment of CDSs as insurance for regulatory purposes because of line- drawing problems).
191. Ezra Klein, Harvard's Liberal-Arts Failure Is Wall Street's Gain: Ezra Klein, Bloomberg VIEW (Feb. 15, 2012, 7:00 PM), http://www.bloomberg.com/news/2012-02-16/harvard-liberal-arts-failure-is-wall-street-gain-commentary-by-ezra-klein.html.
192. Tett, supra note 3, at 10-12.
193. Articles cited supra note 11.
194. Paul Krugman, Taxing the Speculators, N.Y. Times, Nov. 27, 2009, at A39.
195. Omri Ben-Shahar & Carl E. Schneider, The Failure of Mandated Disclosure, 159 U. Pa. L. Rev. 647 (2011).
196. Cf. Henderson, supra note 149, at 32 (making the substitution argument to oppose treatment of CDSs as insurance for regulatory purposes).
197. Nicholas Barberis, A Model of Casino Gambling, 58 Mgmt. Sci. 35 (2012).
198. New Jersey, for example. See Press Release, N.J. Office of the Att'y Gen., Division of Gaming Enforcement Announces Increased Initiatives for Self-Exclusion During Problem Gambling Awareness Month in New Jersey (Mar. 5, 2013), available at http://nj.gov/oag/newsreleases13/pr20130305a.html.
199. In his fair analysis of the economic cases in favor of and against gambling, Eadington emphasizes that one of the main defenses of gambling is its entertainment value and not simply the consent of those involved.
200. William R. Eadington, The Economics of Casino Gambling, 13 J. Econ. Persp. 173, 186 (1999).
201. Larry W. Sonsini, Preparing the Registration Statement, in 2 Securities Law Technique ch.19 (A.A. Sommer, Jr. ed., 2012).
202. The CFTC recently used this power to ban an entrepreneur from selling political events contracts. See Press Release, U.S. Commodity Futures Trading Comm'n, CFTC Issues Order Prohibiting North American Derivatives Exchange's Political Event Derivatives Contracts (Apr. 2, 2012), available at http://www.cftc.gov/PressRoom/PressReleases/pr6224-12.