Islamic Banking Surges

ASSETS held by the world's 100 biggest Islamic banks grew 66 per cent in 2008 from the previous year despite the financial turmoil that clobbered mainstream lenders, a report said on Friday. The top 100 Islamic banks held assets totalling US$580 billion (S$836 billion) last year, up from US$350 billion in 2007, according to an annual report by The Asian Banker, a magazine for financial professionals.

A financial storm sparked by a crisis in the US housing market swept across the world late last year. Its impact spilled over into the general economy and sent several countries into recession. Prominent US investment bank Lehman Brothers collapsed into bankruptcy, while several other major Western banks suffered massive losses.

'Despite the financial turmoil in late 2008 that crippled so many large Western institutions, Islamic banks have continued to grow in prominence and size,' the magazine said in a press statement. Emmanuel Daniel, the magazine's president and chief executive, added: 'Islamic finance has seen an incredible surge in popularity, based on stronger regulatory regimes and a better international understanding of its dynamics.'

Obama Sticks with Bernanke

Not surprising, but President Obama reappointed Federal Reserve Chair Ben Bernanke to another term yesterday (see Obama to Nominate Bernanke). Although Bernanke is a Republican, his style of aggressive action seems to pair well with the White House. Change at this point would have been usual as the economic indicators are showing some positive signs. Even though there will be questions at his confirmation, there is no reason to expect too much trouble.

- JSM

Bernanke Sees Progress on Economic Recovery

Reasons for cheer on the economy? While Chairman Bernanke speaks more often theses days then we might see in growth times, the markets were up on Friday after his speech at the Federal Reserve Bank of Kansas City's Annual Economic Symposium, Jackson Hole, Wyoming (text of speech). Bernanke reported both on the toll of the economic crisis and the gains made since. Bernanke clearly credits government intervention worldwide for easing the panic that hit the markets last October. Bernanke does believe that the world is "beginning to emerge" from the financial crisis, though he does not specify how long recovery might take. Bernanke does believe, however, that positive growth will return in the "near term." Just a bit of positive flavor seems to be enough to help the markets these days.

Is this just Bernanke or is there something more? Unemployment claims are still high with most states seeing their jobless claims rising last month (see Jobless Claims Post Increase). And, the deficit over the next ten years is expected to be 2 trillion more than expected (see Deficit Expected to Widen). While none of this is positive, the numbers for sales of existing homes was up 7.2% from June (see Housing Lifts Recovery Hopes). Despite the mixed news, the housing market has played a big role in the financial crisis, so good news in that sector is important. Just simply that buyers are back purchasing homes.

No matter how mixed or hopeful an assessment of the current economic state we might cast, we might heed Bernanke's warning (one he has given already):

"Looking forward, we must urgently address structural weaknesses in the financial system, in particular in the regulatory framework, to ensure that the enormous costs of the past two years will not be borne again."

The temptation to fight the current economic crisis through government programs like Cash for Clunkers and home buyer tax credits should not give way to a failure to address the problems that led us to the crisis. Not surprisingly, we seem to be spending much time on cure right now. What about prevention of future problems (See Is Financial Regulation Overhaul Stumbling? and Doubts Slow Financial Regulation Overhaul)? The coming months will tell whether the politicians can come to some arrangements for overhauling financial regulation. It is easy to have doubts when we are contemplating curtailing the authority of some governmental agencies (Office of Thrift Supervision)and enhancing others (Federal Reserve). Will a stronger Federal Reserve be the best vehicle to protect consumer rights, for instance? I have my doubts about how this will resolve.

Financial regulation changes may ultimately appear less comprehensive and more piecemeal. There is language floating currently to tackle the derivatives that went unregulated (see New Milestone). The Supreme Court is going to hear a case on executive pay. What's in this for consumers? One of the controversial cornerstones to the overhaul is the creation of a Consumer Financial Protection Agency. President Obama's argument that protections are needed as part of a financial overhaul package are persuasive, as consumers clearly played a role in the crisis.

Over the coming months we will see more pieces to the financial regulation puzzle. I would like to see some changes in consumer rights. The current framework makes it difficult for initiatives to move forward as it may require action of several federal agencies (see How your $4 Cup of Coffee Can Cost You $35 or More). To the extent we want to blame consumers for their role in the real estate and credit crisis in particular, it is easy to argue that transparency in financial services dealings with consumers would be enhanced with a single watchdog agency.

-JSM

NY Times Takes on Debit Card Overdraft Fees

Was it a coincidence that the same day the first of the new credit card regulations went into effect, the N.Y. Times lead editorial called out the banks for charging high overdraft fees, one of the same issues addressed in the new credit card legislation? (For those unfamiliar with the Credit Card Act here's a guide.) Probably not. This issue has been banging around for more than two years. Several sources have published horror stories in recent weeks about banks permiting customers to compete transactions with debit cards and then imposing overdraft fees that are grossly disproportionate to the overage. It is bad enough to be charged a $25 fee for going over ones credit limit when making a $200 credit card purchase. But a $35 fee for a $2 cup of coffee bought with a debit card somehow seems even more offensive. The Times described a college student who bought $16.55 in school supplies and coffee through several separate debit card purchases and was charged over $200 in fees. Another report described a $35 overdraft fee when a store made an 8 cent adjustment to a prior charge after an account had been closed. The new credit card act requires that cardholders opt in to any system paying over the limit charges while imposing a fee and limits over-the-limit fees to one per billing cycle. Consumer groups have argued that the same opt-in procedures should be required for both credit and debit. The N.Y. Times argues that banks should be required to develop the technology to allow consumers to choose whether to overdraft their accounts on a purchase by purchase basis.

Coverage Visitor at Tulane, Spring 2010

Posted on behalf of Mark Wessman, Tulane Law School:

Because of the sudden and tragic death of our colleague, Brooke Overby, Tulane Law School is seeking a coverage visitor for the spring 2010 semester. Our most pressing need is for someone who can teach Contracts II, which, at Tulane, is an Article 2 Sales course taught to first-year students. The second course is negotiable, but would ideally be either Real Estate Transactions or Payment Systems (in that order of preference). Self-nominations are welcome, but, as it is late, so are suggestions of others who might be available.

Please reply directly to Prof. Wessman at his contact information listed below.

Mark B. Wessman
Thomas J. Andre Professor of Law
Tulane Law School
6329 Freret Street
New Orleans, LA 70118
Phone: (504) 865-5989
FAX: (504) 862-8815
mwessman@tulane.edu

Ruminations on Blueberries and the Code

As some of you know, I am visiting this year at University of Oregon School of Law in Eugene, Oregon. Classes start next week, but today my two young sons and I were out at the Greene Hill Aire Blueberry Farms picking locally grown blueberries. My youngest son ate more than he contributed, but we did mange to fill up a bucket. At the bottom of the hill, we gave the farm owners $15.00 in exchange for the blueberries (now in a plastic bag). So, I spent some time today baking blueberry muffins, blueberry crisp and a blueberry pie is now in the oven! Being the contract and UCC nerd that I am, though, my thoughts went happily to the code. Well, class does start next week after all! There are sure to be hypotheticals about the blueberries in my student's future.

Of course, blueberries are a good in that they are movable. While I am sure the farmer-owners never thought about Article 2, it applies nevertheless. That is, after all, why I like it so much. The simplicity of something that fills in for all that would never be said in on a u-pick blueberry farm. No contracts, no receipts, and no paper at all. Sure, there will be a student who might suggest that I took my sons there for entertainment, rather than for the purchase of blueberries. But, I did do all this baking and some freezing (and fully intended to at the time of purchase). Some students might also inquire about whether the farmers are merchants and whether it matters. Of course, Article 2 applies anyway, but students sometimes get caught up on the merchant nuance in terms of deciding which law applies. The merchant classification does matter when it comes to warranties on the blueberries (i.e. merchantability).

Happy thoughts to all UCCers contemplating new hypos for Fall 2009. Time to pull the pie out of the oven!

-JSM

Brooke Overby, 1960-2009

I just received word that our fellow blogger, and my fellow AALS Commercial and Related Consumer Law executive committee member, Brooke Overby died suddenly yesterday evening in Fort Walton Beach, Florida. (Thanks to Brooke's colleague Mark Wessman for passing along the news.) I'll provide more details when they become available.

UPDATE: Elizabeth Nowicki, Brooke's colleague at Tulane, posted her personal tribute on the Concurring Opinions blog. It has attracted additional remembrances from some of Brooke's former professors, classmates, students, other Tulane colleagues, and fellow commercial law professors and scholars.

UPDATE: Tulane Law School posted this memorial today (Aug. 12th). The school is planning a service on Sept. 10th.