RSS FeedCredit rating agencies as courts of international finance
As I am writing this, President Obama announced a deal to avoid default on US government debt. If lawyers think in terms of courts, then what would be the legal consequences of the US default? While the legal issues of government’s failure to pay its debt to domestic lenders are unique and complex, the default in respect of foreign nation-state lenders such as China is probably even more interesting. There are no courts of international jurisdiction that can declare the US bankrupt, administer its assets, or enforce their judgment. The US is an independent country subject no one’s will despite the international law. But since the international law is a legal system, there must be some consequences for the US. One such factor is international rating agencies. You could hardly hear about the debt crisis in the US without learning that its excellent credit rating would likely suffer as a result. Apparently, private international rating agencies are filling some of the void in the international legal system that courts usually occupy within nation-states.
The three most important international credit rating agencies are Standard & Poor’s (S&P), Moody’s, and Fitch Group. S&P and Moody’s are American, and Fitch Group is controlled by a French corporation.
The biggest difference between credit rating agencies and courts is that rating agencies do not adjudicate disputes. But under the surface this difference is not so important. We can view events affecting credit ratings as disputes between the debtor and the lending community. Such events include defaults, budget deficits, and so on. The lending community wants some objective basis, for example, to charge a different interest rate as a result of one of the events above. And the debtor government wants to minimize its borrowing cost. Often these interests would come into conflict giving rise to the need for a third party to establish an objective basis for new lending terms. It sounds awfully like adjudication.
In theory, credit ratings are such independent, impartial, and objective assessments of the most optimal relationship between lenders and a borrower in accordance with generally accepted rules. Credit ratings basically result from applications of such rules and principles to a given debtor.
In practice, credit agencies are hardly accountable to anyone. They are for-profit, private organizations whose decisions are final and are not subject to review. The ratings’ impact is fast and powerful, and it usually directly affects interest rates available to the borrower. There is a good overview of other criticism of rating agencies on Wikipedia.
When countries, which desire to keep as much of their independence as possible, fail to establish formal and binding international governance and adjudication bodies, private organizations fill the legal void. It’s not necessarily a bad or a good thing, but it’s important to recognize the legal and enforcement role that these organizations play. Their existence also supports the view that international law exists.
Pulat Yunusov is a Toronto litigation lawyer.
(Post sponsored by AdviceScene)
My Fourth Year of Law School
From the October 2009 issue of Amicus Curiae
Many law students find law school to be so painful that few can understand or relate when I say I actually enjoy the ordeal. They would probably understand even less if I told them that I enjoy it so much that I actually subjected myself to an extra semester of it voluntarily, and not for an LLM.
This is the story of my 2L summer.
I had the opportunity to work for a local law firm during my first year and through my first summer. I had a pleasant enough experience, but I learned all that I could as a law student in that context. For my next summer I decided to do something different.
Most of my time this summer was dedicated to consulting and writing projects. My work projects took me to several locations, including Calgary and B.C. While on the West Coast, I also managed to catch a federal political convention.
Some of my friends outside of law already joke that I do law school on the side. I figured I could probably pick up some legal experience this summer while I was running around. I checked out some summer law abroad programs, and registered for ABA-approved courses at UofT, Bar Ilan in Israel, and Universidad Autonoma de Guadalajara in Mexico.
Before you get any smart ideas, keep in mind that Western doesn’t accept summer transfer credits, even though many other Canadian law schools do. I’m not saying that they should, but if they did I would have graduated before my January term even began. Yes, it was a pretty intense summer.
The trip to Israel had some personal reasons behind it, in addition to my other activities. During my last trip there about 10 years ago I stayed in (primarily Arab) East Jerusalem and the Territories. I enjoyed a rather privileged lifestyle in the primarily Jewish West Jerusalem, staying in Golan resorts overlooking the Galilee, driving through the Negev desert, floating
in the Dead Sea, and swimming on the beaches of Tel Aviv. The tensions within a very complicated country were highlighted with a visit to the assassination site of Yitzak Rabin.
My last summer destination was Mexico. After an unexpected stop in Monterrey when someone decided to have a baby mid-flight, I arrived at my destination in Guadalajara. I soaked up a lot of local culture during my stay including assorted local crafts, Mexican ballet (sans any sign of tutus), Lucha Libra wrestling, and horseback riding along Lake Chapala.
But it seems that politics and law is inescapable no matter where you go. Prime Minister Harper, President Obama, and President Calderon were in town for the North American Leaders’ Summit. Calderon was even staying a few doors down from me at my five-star hotel. One of the major issues on the agenda for them was the North American Free Trade Agreement (NAFTA), which was becoming increasingly contentious to citizens of all countries during the current economic turbulence.
So what exactly did I study while I was running around the world? Most law abroad programs focus on international legal issues, for obvious reasons, so there were courses on the International Criminal Court, environmental law, international economics and NAFTA, cyberspace law and human rights. But I also got some specialized training in Jewish law, holocaust law, and national security issues that I probably would not get anywhere else.
Some of the faculty I studied with included world-renowned rabbis, someone who worked on the Rome Statute through an NGO, and even the infamous Kenneth Starr from the Clinton-Lewinsky case. Starr held a special session to discuss his role in Proposition 8, the same-sex bill that was shot down in California last year.
There is one key lesson unrelated to my summer courses that I would like to impart and share with others. In the summer of your second year you will typically be applying for your articling position. I was extremely fortunate that it worked out for me, but I would not recommend taking your interview call on a Tel Aviv beach, actually doing the interview on a Mexican cell phone, and skipping the law firm reception entirely to tour a Spanish cathedral.
You’ll have a hard time making an impression and competing with candidates who actually bothered to be in the country to interview in person.
And no matter how many excuses you make, or how many times you show them this article, they’re just not going to buy that someone voluntarily subjected themselves to additional law school that they won’t get credit for.
Israeli Prof Thinks Boycott Only Way to Save Country
Prof. Neve Gordon of Ben-Gurion University, a third-generation Israeli who suffered severe war wounds resulting in physical disabilities, has come out with a strange proposition. The only way that Israel can save itself from what he considers its destructive path is by pressure from the outside world:
I am convinced that outside pressure is the only answer. Over the last three decades, Jewish settlers in the occupied territories have dramatically increased their numbers. The myth of the united Jerusalem has led to the creation of an apartheid city where Palestinians aren’t citizens and lack basic services. The Israeli peace camp has gradually dwindled so that today it is almost nonexistent, and Israeli politics are moving more and more to the extreme right.
It is therefore clear to me that the only way to counter the apartheid trend in Israel is through massive international pressure. The words and condemnations from the Obama administration and the European Union have yielded no results, not even a settlement freeze, let alone a decision to withdraw from the occupied territories.
I consequently have decided to support the Boycott, Divestment and Sanctions movement that was launched by Palestinian activists in July 2005 and has since garnered widespread support around the globe. The objective is to ensure that Israel respects its obligations under international law and that Palestinians are granted the right to self-determination.
Of course his use of the adjective, “apartheid state,” is not without controversy, and has resulted in charges of being anti-Israeli. His response? You just don’t agree with what I say.
However, earlier this year he opposed an international boycott, prefering pressure within Israel and the importance of the Israeli people in making a decision.
Why a shift on this issue?
I say this because Israel has reached a historic crossroads, and times of crisis call for dramatic measures. I say this as a Jew who has chosen to raise his children in Israel, who has been a member of the Israeli peace camp for almost 30 years and who is deeply anxious about the country’s future.
North American Leaders’ Summit Kicks Off in Mexico
Over the next couple days Prime Minister Harper, President Obama, and President Calderon are meeting in Guadalajara [From Arabic, وادي الحجارة , "rocky riverbed"], Mexico for the North American Leaders’ Summit.
The meeting is part of the Security and Prosperity Partnership of North America, which seeks to address trade and security issues among the NAFTA partners.
From my vantage point in Guadalajara, the not-so-secret service with earpieces are overshadowed by the armed soldiers in camouflage (literally) hiding in the bushes outside my door. President Calderon is staying in my hotel (“No, yo no trabajo aquí. Soy una estadía aquí.”), just a few dozen meters from me.
There’s good reason for the security, with anti-NAFTA protesters greeting their arrival. Some organizations are even hosting parallel sessions highlighting the failures of NAFTA. The major grievances include corn and bean imports that have hurt Mexican farmers, and the ongoing trade-war over Mexican truck drivers.
What Doesn’t Work in Afghanistan
And what still won’t work.
Is the AIG Bonus Scandal a Mere Distraction?
For an excellent primer on the financial crisis, watch the video below:
The Obama administration is currently seeking all legal means to prevent AIG from using federal bailout money to pay $165 million in contractual bonuses to its executives.
Today’s opinion column in the Wall Street Journal called the bonuses scandal a distraction:
[Obama] and the rest of the political class thus neatly deflected attention from the larger outrage, which is the five-month Beltway cover-up over who benefited most from the AIG bailout.
I certainly agree that the “larger outrage” is just that.
But the bonus scandal is not just a distraction. It’s not just a politically-motivated attempt to throw some water on the rage that burns inside taxpayers’ hearts.
It has a great deal of value beyond saving the federal coffers $165 million (which, admittedly, is not a lot of money in the grand scheme of things).
The real value in nullifying the bonuses is the message that it sends.
* * *
Alan Greenspan recently admitted that he had made a “mistake” in believing that banks, operating in their own self-interest, would never create such a poisonous economy that they would themselves collapse. Greenspan called the mistake:
“a flaw in [my] model … that defines how the world works.
…
I still do not fully understand why it happened.”
Well I have a pretty simple theory.
Greenspan’s mistake was failing to recognize that there is no such thing as corporate self-interest. It’s an illusory concept.
When it comes down to it, the corporation is run by a board of directors, each of whom acts in their own personal self-interest.
That personal self-interest can generally be summed up as: making as much money as possible as quickly as possible.
When these personal interests overlap with what we perceive as the “interests” of the corporation, we are fine and dandy. The corporation makes money and the shareholders make money. The system flourishes. The economy grows.
The system becomes poisonous when the board of directors is willing to sacrifice the corporation for short-term gain. That’s precisely what happened here.
It’s not that the “banks” would never allow “themselves” to collapse. There is no “themselves.” There are just the individual directors that were perfectly willing to allow the banks and insurance companies to collapse if it meant a quick dollar in their pockets.
They milked and milked their golden calf for all the money it could give. When finally the milk ran out, they dispatched it to the slaughterhouse. This despite the fact that shareholders were relying on that cow. So were insurance policyholders. But these people never factored into the executives’ self-interest equations.
* * *
Some argue that to deny contractually-obligated bonuses would be a mistake. They say that doing so would cause these executives to leave their posts for greener pastures. In short, it would mean that talented individuals would find other jobs at precisely the time when we need the best people at the helm.
And it’s true. These people do have remarkable talent.
But they also have few – if any – scruples when it comes to using that talent.
They have demonstrated their astonishing ability – and willingness – to take legally dubious and ethically debaucherous steps to enrich themselves, personally, at the expense of the companies they work for and the economy as a whole.
At best, these men and women have shown reckless disregard for their shareholders. They have failed in their fiduciary duty of loyalty to millions of hardworking Americans (and Canadians) who hold stock in their company.
They have shown a duty of loyalty to one thing only: their own wallets.
Are these the people we want to keep at their posts?
* * *
This brings me full circle to my original point. There’s more to the denial of these bonuses than just distraction. It’s a warning message.
Under our old system, these directors had nothing to lose. They knew that they would earn huge bonuses while the bubble was expanding. They made millions. And they knew that in the near future, when the bubble was set to burst, they would STILL get their contractually obligated bonuses.
And now AIG wants to fulfill that depraved fantasy.
Retroactively canceling the bonuses (e.g. through legislation) would send the message that acting in personal self-interest without regard for the corporation’s interests – let alone the wider economy’s interests – will get you nothing in the end.
That’s probably precisely the message we want to send to the next generation of corporate executives.
Omar Khadr’s Guanatanamo Trial Suspended!
It’s over!
For now, anyway.
Staying true to his promise, Barack Obama has made it one of his first official acts as President to request a suspension of the military tribunal process in Guantanamo.
Omar Khadr is the first beneficiary of the directive. His “trial” was suspended this morning.
The suspension will last for 120 days so that the government can explore alternatives.
The legal maneuver appears designed to provide the Obama administration time to refashion the prosecution system and potentially treat detainees as criminal defendants in federal court or have them face war-crimes charges in military courts-martial. It is also possible that the administration could re-form and relocate the military commissions before resuming trials.
…
President Obama has acknowledged in recent interviews that shutting the facility is likely to be prolonged and complex. And the administration now faces a number of potentially daunting challenges to following through on the president’s campaign promise. Obama is expected to sign an executive order soon that will lay out in detail his plan to empty the facility.
(source: Washington Post)
The military tribunal process has been roundly criticized by human rights groups, lawyers and lay people alike as a violation of the rule of law.
In his inaugural address, Obama spoke these inspiring words, which I leave you with:
Recall that earlier generations faced down fascism and communism not just with missiles and tanks, but with the sturdy alliances and enduring convictions. They understood that our power alone cannot protect us, nor does it entitle us to do as we please. Instead, they knew that our power grows through its prudent use; our security emanates from the justness of our cause, the force of our example, the tempering qualities of humility and restraint.
We are the keepers of this legacy. Guided by these principles once more, we can meet those new threats that demand even greater effort – even greater cooperation and understanding between nations.
Law Students Demand Repatriation of Omar Khadr
Hundreds of law students from across the country have added their names to the growing list of people calling for the repatriation and fair trial of Omar Khadr, as well as the closure of the Guantanamo Bay detention facility where he is currently held.
Canadian law students created the Omar Khadr Project last fall, pursuing the goal of repatriation and fair treatment for Omar Khadr. The organization is composed of law students and young lawyers from across the country who believe that respect for human rights is a fundamental Canadian value.
In May 2008, the Supreme Court of Canada unanimously found that the conditions under which Omar Khadr was being detained “constituted a clear violation of fundamental human rights protected by international law” (Canada (Justice) v. Khadr, 2008 SCC 28, at para 24.)
The Court found that Canada’s participation in Khadr’s case breached our own obligations under the Canadian Charter of Rights and Freedoms and the Geneva Conventions.
Below is a press release (abridged) sent to us by the Omar Khadr Project discussing the strategies that the group has been pursuing.
Canadian Law Students Take Actions Calling on Harper, Obama to Ensure Repatriation of Omar Khadr, Closure of Guantanamo Bay
This week, the Omar Khadr Project launches a series of actions calling on Prime Minister Stephen Harper and President-elect Barack Obama to ensure Khadr’s repatriation as a key step in the closure of the illegal Guantanamo Bay detention centre.
It is expected that one of President-elect Obama’s first executive actions will be to begin shutting down Guantanamo Bay. But, “the looming questions for Omar Khadr,” explains Project member Kate Oja, “are whether the new President will act in time to stop Omar’s deeply flawed ‘trial’, and whether Prime Minister Harper will agree to bring Omar back to Canada.”
This week, the Omar Khadr Project joins with groups across Canada, the U.S. and beyond to put pressure on both Canadian and American governments to act quickly in the spirit of justice. We are launching 4 actions:
- Hundreds of law and articling students signed a petition calling on the Canadian government to repatriate Omar Khadr and protect his human rights. The petition will be officially presented to Parliament once it resumes.
- A letter was written to President-elect Obama to draw his attention to the urgency and injustice of Khadr’s case.
- As a Christmas present, and in honour of the 60th anniversary of the UN Declaration on Human Rights, the Omar Khadr Project sent Prime Minister Harper, the Minister of Foreign Affairs and the Minister of Justice copies of a children’s picture book on basic human rights, emphasizing sections on fair trial rights and the rights of the child.
- On Saturday 17 January 2009, a rally is being held outside the U.S. Consulate in Toronto, along with Amnesty International, the Coalition to Repatriate Omar Khadr, and other
supporters.
Omar Khadr, a Canadian citizen detained at age 15, remains the only national of a Western country to be held at Guantanamo. His trial before the internationally-condemned military commission system is scheduled to begin on January 26th, just 6 days after Obama’s inauguration.
Note: Law students interested in assisting Khadr’s legal defence team can contact us for more information.
