Confusing a Butt with a Face

Take a look at this funny story about a St. Louis teen in hot water for starting his own line of clothing in competition with North Face Apparel. The teen, Jimmy Winkelman, has marketed clothing under the name of "South Butt," making a whopping $4900 in annual revenue his first year. Despite the meager earnings of this 18 year old's company, North Face Apparel has threatened to sue. Albert Watkins, attorney for Winkelman, commented: “North Face has indicated as a matter of record that the public will somehow be confused by the South Butt product,” Watkins said. “There appears to be little recognition, if any, that the savvy of consumers precludes anyone from confusing a face with a butt.”

Jimmy and his friends even have a web site and a marketing video:

While I have no idea how the intellectual property issues will play out, I have utmost respect for the budding entrepreneur. You go Jimmy!

- JSM

Commercial Law Welcomes Brian McCall!

Commercial Law is pleased to announce that Professor Brian McCall from University of Oklahoma will be guest blogging with us. Brian's most recent papers The Achitechture of Law: Building Law on a Solid Foundation The Eternal and Natural Laws and Its Just Secured Credit: The Natural Case Law in Defense of Some Forms of Secured Credit (Indiana Law Review), Learning From Our History: Evaluating the Modern Housing Finance Market in Light of Ancient Principles of Justice (South Carolina Law Review) all employ a historical look at the law and finance.

We look forward to having Brian's historical viewpoint.

Communication From Academic Faculty Who Teach Courses Related to Consumer Law and Banking Law

Seventy-three professors issued a joint letter supporting the creation of a Consumer Financial Protection Agency at the federal level. We are strong supporters of the importance of this legislation in that consumer transactions lack the transparency that is necessary for honest and fair financial products, including, a wide variety of debt instruments (i.e., mortgages, credit cards), payment devices such as debit cards, and banking fees in general. The letter supports the passage of H.R. 3126, introduced by Rep. Barney Frank (D), creating the oversight agency. Some of the impediments to governmental oversight have included the dispersion of regulatory authority over a number of federal agencies none of whom has consumer issues as the primary mission, emerging financial products and technology that raise new regulatory issues, and industry opposition. We will certainly follow the progress of this legislation (and related legislation such as the Consumer Overdraft Fair Practices Act) and the industry response (see, Big Banks Alter Debit Overcharge Rules).

The press release:

FOR RELEASE ON SEPT. 29, 2009 AT 10:00 AM:
Consumer and Banking Scholars Show Support for the Consumer Financial Protection Act
Hempstead and Jamaica, NY – On September 30, 2009, the House Financial Services Committee, chaired by Representative Barney Frank, will hold hearings on H. 3126, titled “the Consumer Financial Protection Act” which would create an independent Consumer Financial Protection Agency. Today more than seventy law scholars who teach in fields related to consumer law and banking law have signed a detailed Statement of Support demonstrating their strong views about the importance of this legislation.

The faculty endorsing the Statement of Support include leading scholars who teach in fields related to consumer law and banking law who teach at many of the nation’s leading American law schools—in states including Alabama, Arizona, California, Connecticut, Florida, Georgia, Illinois, Indiana, Iowa, Maryland, Massachusetts, Minnesota, Missouri, Nebraska, New Jersey, New York, Nevada, North Carolina, Ohio, Oregon, Pennsylvania, South Carolina, Tennessee, Texas, Utah, Washington, Wisconsin, and Wyoming as well as Washington, D.C. The signatories have no economic stake in the passage of this legislation.

The Statement concludes that on balance, the existing regulatory structure places “a higher value on protecting the interest of financial product vendors who promote complex debt instruments using aggressive sales practices, than on protecting the interests of consumers in transparent, safe, and fair financial products.” The body of the Statement is 8 pages long, single-spaced. It refers specifically to dozens of scholarly articles and studies demonstrating that at critical moments of consumer confusion and vulnerability,” the existing regulators “have been unwilling to expend resources to develop appropriate rules and guidelines and to police mortgage and credit instruments.” The Statement urges passage of H. 3126 because “consolidated authority and a dedicated consumer-oriented mission would be likely to improve public confidence in the safety and efficiency of the vast consumer financial products marketplace.” It further provides an analysis of desirable aspects of the legislation and points to extensive scholarship supporting the need for a new approach to handling consumer financial regulation.

For further information please contact the signatories of the Statement at their home institutions or:

Norman I. Silber
Professor of Law
Hofstra Law School
516-463-5866
norman.i.silber@hofstra.edu
law.hofstra.edu

Jeff Sovern
Professor of Law
St. John's University School of Law
718-990-6429
sovernj@stjohns.edu
law.stjohns.edu

- JSM

- JJK

Big Banks Alter Debit Overcharge Rules

Presumably trying to get out in front of proposed legislation that would require banks to ask their customers if they want to "opt in" to debit card overdraft protection, JP Morgan Chase and Bank of American recently announced that they would be altering their overdraft policies. Both banks will stop charging overdraft fees for very small amounts (less than $5 for Chase and $10 for BofA) and will soon provide their customers with the option to opt out of overdraft protection so that a purchase would not be authorized if it would put the cardholder into an overdraft position. Both banks also plan to limit the number of overdraft charges that may be imposed in a single day, and Chase will also drop a controversial method of calculating overdrafts.

According to the N.Y. Times, both banks described their actions as responsive to their customers. “We made the decision that we had to help customers now and help those most stretched by the economy,” said Brian T. Moynihan, president of Bank of America’s consumer and small-business banking operations. “They found themselves getting hit by too many fees, and they said, ‘Help us out.’ ” There is little doubt, however, that threatened legislation has played a role. According to Michael Moebs, an economic advisor for many banks and credit unions, the banks understandably oppose this legislation because many of them collect more in overdraft fees than they earn in profits. Moebs argues that many banks would not be able to replace the revenue soon enough to stay in business.

So, have Chase and BofA, done enough to forestall legislation? While the changes they plan to implement are certainly a step in the right direction, they hardly eliminate many concerns.

For example, the exception for small overdrafts may only protect the cardholder if they deposit sufficient funds to cover the overdraft before making additional charges. But if the cardholder is not notified of the overdraft situation, how often will that happen?

The limits on the number of overdraft fees also hardly eliminate the seeming unconscionability of the arrangement. As an initial matter, they will apply only to purchase at stores, not ATM withdrawals. Second, the amount of fees will continue to bear no reasonable relationship to amount of the overdraft. Bank of America is limiting its cards to no more than four overdraft fees per day. But the fee remains $35 per overcharge, regardless of the amount. So, a customer that makes four purchases over the limit that total just $11 or $12 dollars would pay $140 in fees. The result at Chase is only marginally better. It will impose a limit of three fees per day, but they would total $89 on three overcharges that could amount to as little as $5.01. As Brad Tuttle wrote on the Time website, "[s]o the poor saps who are dumb enough to spend more than they have in their accounts—and who do so more than three or four times a day—are thrown a bone." I would add, a very small bone at that.

I have not seen any justification for these fee levels. Surely, a bank providing overdraft protection should be entitled to a reasonable return on the money it effectively lends to its customer as well as a reimbursement for the incremental administrative fees it incurs because a charge results in an overdraft. These fees appear to exceed the bounds of reason by several orders of magnitude. And surely, the banks would produce the data necessary to justify them if it existed.

Even the proposed new opt out provisions are less than they seem. They will require the customer to forgo overdraft protection for check writing as well as debit card use, a risky proposition given that many vendors charge their own penalty fees for bounced checks.

One doubts that these steps will satisfy the concerns of those in Congress who have proposed legislation to limit overdraft fees.

PayPal Account Hacked!

While working in my office this week I received an email "receipt" from Paypal reporting a $10.00 payment to Skype (an online phone service). I've not used my Paypal account in some time, so my first thought was that this was a fake Paypal email. After all, it is commonly known that Paypal is regularly fighting the fake emails that are sent out hoping that the recipient will click on the embedded links. See, How Do I Report Paypal Fraud or a Paypal Scam. Nevertheless, I logged into my Paypal account to make sure (opening a new browser and entering the web address manually). There it was, a $10 payment to Skype on my Paypal account. The email I received was not a fake one from Paypal. It really was a receipt for a $10.00 charge.

Now, I do have a Skype account that I used when travelling abroad (worked great in Moscow), but it is not active at this time with any on-going subscriptions. Moreover, I never used Paypal to pay Skype in any event. I logged into the Skype account to verify nothing was active, which was still the case. Apparently, there have been some complaints that consumers are unable to cancel Skype once they open an account (see Skype forum).

Since the problem did not appear to be with Skype, I called Paypal. Although it took two customer service reps to get to the bottom of the problem, it turns out someone had logged into my Paypal account four times that day and authorized the transaction to Skype. Kudos to Paypal for agreeing to reverse the charge quickly and sent me an email within 24 hours "resolving" the case in my favor and saying that the charge will be reversed within five days on my American Express card.

Luckily for me, I do not have my bank account connected through Paypal. Paypal does, though, encourage users to connect bank accounts. As a payments professor I can easily imagine the havoc a Paypal hacker can create by draining a user's checking account, leaving the user waiting as long as ten days for a provisional recredit (Federal Reserve Consumer Handbook to Credit Protection Laws: Electronic Funds Transfers). So, consumers should exercise caution with all payment devices that are connected to their checking accounts in case of fraud, including both debit cards and services like Paypal.

A final interesting question is why did the thief choose $10 and why Skype? The $10 amount is not as likely to get noticed or to encourage authorities to make the chase. Skype is a European company which also might make catching thieves more tricky. But, since it deals in phone services, the thief probably either used the $10 asset before being caught or resold it to someone else. All of which contribute to the success of the hacker in these instances. What else can be done in these cases? It seems that the best solution is preventing the hacking in the first place through better security. Not sure how the hacker managed to get into my Paypal account, but there appear to be web sites that claim they can instruct you how to do it. Just another wild day in modern payment systems.

-JSM

Securities Regulation and the Global Economic Crisis: What Does the Future Hold?

For those in the NY area, Seton Hall has an upcoming symposium entitled "Securities Regulation and the Global Economic Crisis: What Does the Future Hold?", and will take place on Friday, October 30, 2009, at Seton Hall University School of Law in Newark, NJ. The event is free and open to all. Plus Seton Hall is offering six (6) New York CLE credits for full-day attendance. Further information about the Symposium, a list of presenters, and a link to register can be found at http://law.shu.edu/lawreviewsymposium.

- JSM

From the World of Law Reviews: Game Theory and Law Review Submissions

As the height of the law review submission season is coming to a close, I thought I would observe an interesting approach by a law review editorial board and some other general observations.

Law Reviews Gaming it Up. The editors at the University of Cincinnati Law Review, who will ultimately publish my piece on fixtures Groping Along between Things Real and things personal, engaged in a nice piece of behavioral prediction in making the offer to publish. In the offer letter the editors offered two choices: (1) I could expedite with anyone over the next two days; or (2) I could expedite with only the top 30 law reviews over the next 10 days. This strategy is genius from the law review editor standpoint. First, its highly likely that the reviews most likely to take the piece out from under Cincinnati are those ranked between 31 and 51. The strategy by Cincinnati reduces to almost near absurdity the time frame for journals to respond. On the

other hand, if they are likely to lose an article to a top 30 journal, then 10 days will likely not be needed for that decision to reveal itself. This is the kind of law review gamesmanship that I like and support! Has anyone else seen an offer like this before?

Lex Opus is a good secondary alternative to Bepress's Expresso. In some ways, the system operates just a smoothly. Another feature that I liked was Lex Opus allows law reviews to view the work sua sponte and make the author an offer -- I received one offer that was not unattractive. That seems to me to be a pretty good idea and, though I imagine that such offers are rarely accepted, it is still a nice feature. But the best feature is its cost -- its free.
Peer Review of General Law Review Articles. Brian Leiter this morning posted a link to PRSM -- A consortium of law reviews engaging peer review processes. Journals that have signed on to the consortium include The South Carolina Law Review, The Mississippi Law Journal, Stanford Law Review, and the Wake Forest Law Review. It will be curious to see if this is successful.

Marc (MLR)

Bernanke Believes Recession "Over"

Happily, Bernanke stated today at the Brookings Institute that he believes that the growth we are seeing in the economy suggests that the recession is technically over. Unfortunately, the unemployment rate, currently around 9.7%, will be slow to come down. This will leave many still struggling with the pace of a slower recovery. This is good news, for sure. Since last fall we were bracing for another "Great Depression," pehaps we can be contented with simply riding out slow economic growth. And, of course, Bernanke emphasized yet again the need for regulatory overhaul of some type. Perhaps the more times we hear this, the more likely it might be that action will follow. Let's hope.

- JSM

Obama on Financial Rescue and Recovery: market regulation and the "false choice"

In case you missed it, President Obama spoke this morning on the financial crisis and recovery efforts (see Obama Remarks on Financial Rescue). In terms of regulatory overhaul, President Obama remarked that it is a "false choice" to believe that entrepreneurism and innovation are sacrificed by regulation. Something President Obama has stressed is "common sense" rules of the road. People's memories seem to falter once a crisis begins to pass. After all, government intervention seems to work, so why burden business with onerous regulations? For my part, I believe the United States has been lucky in its ability to slow the financial crisis and begin rebuilding. Recovery, though, may turn out to be much slower than we might hope (see Recovery Slower). As we've said here before (see War of Wealth), this country has been down the road of bank failures and financial crisis before. President Obama and Chairman Bernanke (see Bernanke Sees Progress) are telling us that something substantial needs to change. With competing issues like health care and impending flu concerns, will we heed the warnings that are Obama, Bernanke and others have delivered? Or, will we continue on with business as usual? Hmm, the markets are up today (see Bloomberg) .

- JSM

Who's the Bull, and Who's the Matador Here?

Photo by pasotraspaso

This one wasn't hard to predict: credit card issuing banks are already making lemons out of lemondate with the new regulations aimed at curbing abuses. Business Week reports (no link available) that issuers are expecting new fee income (especially from cardholders who pay off their balances in full every month or don't use their cards very often) to more than make up for the losses caused by the new regs. Prohibit them from raising rates without 45 days' notice, and they all switch to variable rates (jumping throung one huge loophole in the regs). Prohibit marketing to college students "near" campus, and they set up tables two blocks away, say near a fraternity or sorority house. For those of us teaching commercial law and regulation, consumer protection, and administrative law, this is one more chapter in the saga of regulators' introducing rules that both fail to curb the real abuses, as well as increasing the abusive potential of the work-arounds put in place by the industry. When are we going to learn?

Not Reading a Contract is No Defense: Even in Italian

Many of you are probably snickering just reading the title. Seems obvious enough to most. Nevertheless, it seems from time to time even a business party to a contract will claim they did not read the contract. Such was situation in the recent case of Amit Israeli v. Dott. Gallina S.r.l. Dario Gallina and David Gallina (W.D. Wis. 2009). Not a simple case of not reading, but not a surprising outcome. Israeli, a U.S. citizen, contracted with Gallina, an Italian concern, to sell Gallina plastics in the United States according to a price list that Gallina provided. The operating agreement was in English, but the price list was only in Italian. While the operating agreement specified that the law of Wisconsin applied, the price list stated that disputes would be resolved exclusively in the Court of Turin. Israeli, who did not speak Italian and did not ask for a translation, initialled the price list anyways. When a dispute developed about the price charged for shipments and Israeli brought suit in Wisconsin, Gallina argued that the Court of Turin should resolve the dispute. The CISG, which applied to the transaction since the parties were both doing business in contracting states, does not address issues of "validity" of specific contract provisions. See Article 4.

Israeli claimed unconscionability should prevent the application of the forum clause since: (1) he did not read the price list and (2) it was in Italian, which he could not read, even if he tried. The court, agreeing that there was some procedural unconscionability, rule that the forum selection clause was not substantively unconscionable. Not only was Israeli's claim that he did not read the contract a "nonstarter," his claim that the price list was in Italian was also a loser:

Equally unpersuasive is plaintiff's argument that the forum selection
clause was written in a foreign language. "[Plaintiff] makes much of
the fact that the written order form is entirely in Italian and that [Plaintiff]
. . . neither spoke nor read Italian. This fact is of no assistance
to [Plaintiff's] position. We find it nothing short of astounding
that an individual, purportedly experience in commercial matters, would sign a
contract in a foreign language and expect not to be bound simply because he
could not comprehend its terms. We find nothing in the CISG that might
counsel this type of reckless behavior and nothing that signals any retreat
from the proposition that parties who sign contracts will be bound by them
regardless of whether they have read them or understood them.

Id. (quoting MCC-Marble Ceramic Center, Inc. v. Ceramica Nuova D'Agostino, 144 F.3d 1384, 1389 n.9 (1998)).

This outcome holds no surprise to me. Quite simply, the party who chooses to do business in a language that they do not understand bears the risk of having done so. Israeli did not speak Italian and did not arrange for a translation. As such, he bore the risk of having done so. While this is not a case where both parties subjectively understood they chose to resolve all disputes in Turin, Italy, the forum selection clause is easily allocated to Israel who could have avoided the misunderstanding. Off to Turin, Italy he should go!

- JSM

New Honnold & Flechtner Treatise

For all fans of the CISG, the latest version of Uniform Law for International Sales under the 1980 United Nations Convention 4th revised edition by Honnold and Flechtner. From the abstract:

Now ratified by 73 countries from every geographical region, representing every stage of economic development and every major legal and economic system, the United Nations Convention on Contracts of the International Sales of Goods (CISG) has changed the way international sales contracts are drafted and resulting disputes settled. In the decade since the Third Edition of Professor John Honnold’s classic commentary, there has been vast growth in the number of decisions from tribunals around the world which have applied the CISG, an explosion of new scholarly analyses of the Convention, and remarkable developments in the research infrastructure that permits access to those materials. These developments have raised many new issues, and have deepened our understanding of (or, in some instances, effectively resolved) old ones. The remarkable progress of this epoch-making uniform international law calls for an updated edition of Professor Honnold’s treatise.

— JSM

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.

Does the way we transfer money indicate a turn in the economy?

Since 1987, the volume of transactions on FEDWIRE have consistently exceeded the volume of transactions on CHIPS. This is not necessarily unexpected. FEDWIRE handles, according to the Comptroller's Handbook one-third of its volume as federal funds transactions and one-fourth of its activities as securities transactions. Another significant source of transfers are those between Federal Reserve Banks, which would naturally include certain mortgage funds. Naturally, the volume of these transactions probably should be higher. On the other hand, CHIPS primarily deals with foreign-exchange transactions (nearly 1/2 of the dollar value. Another 1/3 of the dollar value is Eurodollar placements.

See Chart showing Number of Transfers

However, over time, the value of these transactions has changed. Consider that in 1987, the amount transferred on Fedwire was slightly higher than that transferred via Chips.

See Chart showing Amount of Transfers

From 1987 until 1998, the amount of money transferred via Chips exceeded that on Fedwire by a maximum of 28.51% difference in 1994. Beginning in 1995, however, the amount of money transferred on Fedwire began inching closer to that on Chips, and in 1998 exceeded the amount of money transferred on Chips. After 1998, the amount of money transferred on Fedwire has exponentially grown reaching a high in 2008 of a 32.61% differential; the only two years in which the growth pattern was not consistent was 2006 and 2007, and even then, the differentials were the third highest differential (2006) and the seventh highest (2007) of the years between 1988-2008.

See Chart showing Differential of amounts

As we look at the numbers, I can't help but notice the date similarities to the current economic crisis. For example, consider the following graph provided by Planet Money on the economic crisis charting debt from 1999-2008:

From 2000 to 2003, government borrowing steadily rose, followed by a short decline through 2008, when it suddenly spiked. During that same period, Business lending acted inversely: declining from 2000 to 2003; rising from 2003 to 2007; and suddenly nose-diving in 2008. In fact, in their post titled Charting Debt, the planet money guys point out that early in 2008, Americans simply stopped borrowing.

In another chart, in their post titled Chart: Inflation, not the flu, we see other similarities:

Between 2004 and 2007, we see a drastic drop in inflation. However, beginning again in 2008 and through 2009, we see a drastic rise.

This is what I am wondering. Can we make conclusions about the future of our economy by the way we transfer money now. That is, are the types of transactions reflected on Fedwire and Chips the types of transactions that give us a barometer of the economy. Moreover, is there a healthy balance of reciprocal relationship between the two -- does a substantial amount of transference on one wire service lead to high chances of inflation and higher government spending, with lower consumer activity. A few unknowns in this quest:

1. Are there funds that in certain years appear on Chips that in the last few years have appeared on Fedwire because of the type of transaction. One category of these transactions might be if foreign investment shifted from currency exchange to securities. If so, this might suggest that the way we invest foreign money does matter for the way the economy functions.

2. Are there institutional issues that have resulted in the changes and can we segregate the institutional issues from the non-institutional issues in the rise and drop of value transactions between the two wire services. For example, we know that the institutional controls for lending were significantly more lax between 2000 and 2007. This might explain a high proportion of funds on Fedwire during that period of time.

I am curious for other thoughts -- institutional or economic that might show a correlation between the current economy and the future economy.

Marc (MLR)