Editor: David Reiss
Brooklyn Law School

February 18, 2015

Wednesday’s Academic Roundup

By Shea Cunningham

February 18, 2015 | Permalink | No Comments

February 17, 2015

Segregation in the 21st Century

By David Reiss

NYU’s Furman Center has posted a research brief, Race and Neighborhoods in the 21st Century. The brief is is based on a longer paper, Race and Neighborhoods in the 21st Century: What Does Segregation Mean Today? (One of the co-authors of the longer paper, Katherine M. O’Regan, is currently Assistant Secretary for Policy Development and Research at HUD.) The brief opens,

In a recent study, NYU Furman Center researchers set out to describe current patterns of residential racial segregation in the United States and analyze their implications for racial and ethnic disparities in neighborhood environments. We show that 21st Century housing segregation patterns are not that different from those of the last century. Although segregation levels between blacks and whites have declined nationwide over the past several decades, they still remain quite high. Meanwhile, Hispanic and Asian segregation levels have remained relatively unchanged. Further, our findings show that the neighborhood environments of blacks and Hispanics remain very different from those of whites and these gaps are amplified in more segregated metropolitan areas. Black and Hispanic households continue to live among more disadvantaged neighbors, to have access to lower performing schools, and to be exposed to more violent crime. (1)

And the brief concludes,

Black and Hispanics continued to live among more disadvantaged neighbors even after controlling for racial differences in poverty, to have access to lower performing schools, and to be exposed to higher levels of violent crime. Further, these differences are amplified in more segregated metropolitan areas. Segregation in the 21st century, in other words, continues to result not only in separate but also in decidedly unequal communities. (5)

This conclusion makes clear that segregation is not merely the result of poverty. It is important to understand how segregation persists even though the legal support of segregation has been dismantled. Richard Brooks and Carol Rose’s work in this area is a good start for those who are interested.

February 17, 2015 | Permalink | No Comments

Tuesday’s Regulatory & Legislative Round-Up

By Serenna McCloud

February 17, 2015 | Permalink | No Comments

February 16, 2015

Washington’s Farewell

By David Reiss

President Washington had this to say in his farewell address:

The unity of government which constitutes you one people is also now dear to you. It is justly so, for it is a main pillar in the edifice of your real independence, the support of your tranquility at home, your peace abroad; of your safety; of your prosperity; of that very liberty which you so highly prize. But as it is easy to foresee that, from different causes and from different quarters, much pains will be taken, many artifices employed to weaken in your minds the conviction of this truth; as this is the point in your political fortress against which the batteries of internal and external enemies will be most constantly and actively (though often covertly and insidiously) directed, it is of infinite moment that you should properly estimate the immense value of your national union to your collective and individual happiness; that you should cherish a cordial, habitual, and immovable attachment to it; accustoming yourselves to think and speak of it as of the palladium of your political safety and prosperity; watching for its preservation with jealous anxiety; discountenancing whatever may suggest even a suspicion that it can in any event be abandoned; and indignantly frowning upon the first dawning of every attempt to alienate any portion of our country from the rest, or to enfeeble the sacred ties which now link together the various parts.

We should heed these words as much today as in Washington’s own time. And while they should guide us in many areas, I would focus on what they mean in the context of housing finance reform.

Democrats and Republicans have not found common ground on the future of Fannie Mae and Freddie Mac. And yet the nation is likely to be made worse off by leaving them in limbo for so long, with a variety of crises lurking just over the horizon. I hope Congress can hear Washington’s advice to his fellow citizens and commit to placing the reform of these two gargantuan financial institutions at the top of its agenda for the coming year. Seems like a good way to truly commemorate his contribution to our country.

February 16, 2015 | Permalink | No Comments

Monday’s Adjudication Roundup

By Shea Cunningham

February 16, 2015 | Permalink | No Comments

Reiss on $1.5B S&P Settlement

By David Reiss

Westlaw Journal Derivatives quoted me in S&P Settles Fraud Suits for $1.5 Billion. The story reads in part,

Standard & Poor’s has agreed to pay $1.5 billion to settle lawsuits filed by the U.S. Department of Justice, 19 states and a pension fund that accused the ratings agency of damaging the economy by inflating credit ratings in the years leading up to the 2008 financial crisis.

According to a statement issued Feb. 3 by S&P, a subsidiary of McGraw-Hill Cos, the ratings agency will pay $687.5 million each to the DOJ and the states. It also will pay $125 million to settle a lawsuit filed by California Public Employees’ Retirement System. Cal. Pub. Employees’ Ret. Sys. Moody’s Corp. et al., No. CGC-09-490241, complaint filed (Cal. Super. Ct., S.F. County July 9, 2009).

The parties filed a joint stipulation of dismissal with the U.S. District Court for the Central District of California on Feb. 4.

“After careful consideration, the company determined that entering into the settlement agreement is in the best interests of the company and its shareholders and is pleased to resolve these matters,” McGraw-Hill said in the statement.

S&P did not admit to any wrongdoing in agreeing to settle.

U.S. Attorney General Eric Holder announced the settlement for the Justice Department and states.

“On more than one occasion, the company’s leadership ignored senior analysts who warned that the company had given top ratings to financial products that were failing to perform as advertised,” he said in a statement.

*     *     *

David Reiss, a professor at Brooklyn Law School, also said the settlement closes an important chapter of the crisis.

“S&P would have faced a lot of unquantifiable risk if it had to admit wrongdoing in the settlement,” he said. “It is unclear that the Justice Department would have wanted to expose one of the three major rating agencies to such a risk because it could have destabilized the rating agency industry.”

Reiss added that the $1.5 billion settlement should have a deterrent effect.

”[It] likely gives ratings analysts some firm ground to stand on if they are pressured to lower their standards by others in their organizations,” he said. (1, 18-19)

The article also has a sidebar that reads,

Ratings agencies had avoided liability for their actions for quite some time based on the theory that they were First Amendment actors who dealt in opinions.

Recent cases have held that the rating agencies can be held liable for some of their ratings notwithstanding the First Amendment. United States v. McGraw-Hill Cos. et al., No. 13-CV-0779, 2013 WL 3762259 (C.D. Cal. July 16, 2013) and Federal Home Loan Bank of Boston v. Ally Financial Inc. et al., No. 11-10952, 2013 WL 5466631 (D. Mass. Sept. 30, 2013).

For instance, if the rating agency did not follow its own rating procedures, it could be held liable for fraud.

David Reiss, Brooklyn Law School (18)

February 13, 2015 | Permalink | No Comments