Climate Change Meets the Law of the Horse

The climate change policy debate has only recently turned its full attention to adaptation - how to address the impacts of climate change we have already begun to experience and that will likely increase over time. Legal scholars have in turn begun to explore how the many different fields of law will and should respond. During this nascent period, one overarching question has gone unexamined: how will the legal system as a whole organize around climate change adaptation? Will a new distinct field of climate change adaptation law and policy emerge, or will legal institutions simply work away at the problem through unrelated, duly self-contained fields, as in the famous Law of the Horse? This Article is the first to examine that question comprehensively, to move beyond thinking about the law and climate change adaptation to consider the law of climate change adaptation. Part I of the Article lays out our methodological premises and approach. Using a model we call Stationarity Assessment, Part I explores how legal fields are structured and sustained based on assumptions about the variability of natural, social, and economic conditions, and how disruptions to that regime of variability can lead to the emergence of new fields of law and policy. Case studies of environmental law and environmental justice demonstrate the model’s predictive power for the formation of new distinct legal regimes. Part II applies the Stationarity Assessment model to the topic of climate change adaptation, using a case study of a hypothetical coastal region and the potential for climate change impacts to disrupt relevant legal doctrines and institutions. We find that most fields of law appear capable of adapting effectively to climate change. In other words, without some active intervention, we expect the law and policy of climate change adaptation to follow the path of the Law of the Horse - a collection of fields independently adapting to climate change - rather than organically coalescing into a new distinct field. Part III explores why, notwithstanding this conclusion, it may still be desirable to seek a different trajectory. Focusing on the likelihood of systemic adaptation decisions with perverse, harmful results, we identify the potential benefits offered by intervening to shape a new and distinct field of climate change adaptation law and policy. Part IV then identifies the contours of such a field, exploring the distinct purposes of reducing vulnerability, ensuring resiliency, and safeguarding equity. These features provide the normative policy components for a law of climate change adaptation that would be more than just a Law of the Horse. This new field would not replace or supplant any existing field, however, as environmental law did with regard to nuisance law, and it would not be dominated by substantive doctrine. Rather, like the field of environmental justice, this new legal regime would serve as a holistic overlay across other fields to ensure more efficient, effective, and just climate change adaptation solutions

Too Big to Fail — U.S. Banks’ Regulatory Alchemy: Converting an Obscure Agency Footnote into an “At Will” Nullification of Dodd-Frank’s Regulation of the Multi-Trillion Dollar Financial Swaps Market

The multi-trillion-dollar market for, what was at that time wholly unregulated, over-the-counter derivatives (“swaps”) is widely viewed as a principal cause of the 2008 worldwide financial meltdown. The Dodd-Frank Act, signed into law on July 21, 2010, was expressly considered by Congress to be a remedy for this troublesome deregulatory problem. The legislation required the swaps market to comply with a host of business conduct and anti-competitive protections, including that the swaps market be fully transparent to U.S. financial regulators, collateralized, and capitalized. The statute also expressly provides that it would cover foreign subsidiaries of big U.S. financial institutions if their swaps trading could adversely impact the U.S. economy or represent the use of extraterritorial trades as an attempt to “evade” Dodd-Frank. In July 2013, the CFTC promulgated an 80-page, triple-columned, and single-spaced “guidance” implementing Dodd-Frank’s extraterritorial reach, i.e., that manner in which Dodd-Frank would apply to swaps transactions executed outside the United States. The key point of that guidance was that swaps trading within the “guaranteed” foreign subsidiaries of U.S. bank holding company swaps dealers were subject to all of Dodd-Frank’s swaps regulations wherever in the world those subsidiaries’ swaps were executed. At that time, the standardized industry swaps agreement contemplated that, inter alia, U.S. bank holding company swaps dealers’ foreign subsidiaries would be “guaranteed” by their corporate parent, as was true since 1992. In August 2013, without notifying the CFTC, the principal U.S. bank holding company swaps dealer trade association privately circulated to its members standard contractual language that would, for the first time, “deguarantee” their foreign subsidiaries. By relying only on the obscure footnote 563 of the CFTC guidance’s 662 footnotes, the trade association assured its swaps dealer members that the newly deguaranteed foreign subsidiaries could (if they so chose) no longer be subject to Dodd-Frank. As a result, it has been reported (and it also has been understood by many experts within the swaps industry) that a substantial portion of the U.S. swaps market has shifted from the large U.S. bank holding companies swaps dealers and their U.S. affiliates to their newly deguaranteed “foreign” subsidiaries, with the attendant claim by these huge big U.S. bank swaps dealers that Dodd-Frank swaps regulation would not apply to these transactions. The CFTC also soon discovered that these huge U.S. bank holding company swaps dealers were “arranging, negotiating, and executing” (“ANE”) these swaps in the United States with U.S. bank personnel and, only after execution in the U.S., were these swaps formally “assigned” to the U.S. banks’ newly “deguaranteed” foreign subsidiaries with the accompanying claim that these swaps, even though executed in the U.S., were not covered by Dodd-Frank. In October 2016, the CFTC proposed a rule that would have closed the “deguarantee” and “ANE” loopholes completely. However, because it usually takes at least a year to finalize a “proposed” rule, this proposed rule closing the loopholes in question was not finalized prior to the inauguration of President Trump. All indications are that it will never be finalized during a Trump Administration. Thus, in the shadow of the recent tenth anniversary of the Lehman failure, there is an understanding among many market regulators and swaps trading experts that large portions of the swaps market have moved from U.S. bank holding company swaps dealers and their U.S. affiliates to their newly deguaranteed foreign affiliates where Dodd- Frank swaps regulation is not being followed. However, what has not moved abroad is the very real obligation of the lender of last resort to rescue these U.S. swaps dealer bank holding companies if they fail because of poorly regulated swaps in their deguaranteed foreign subsidiaries, i.e., the U.S. taxpayer. While relief is unlikely to be forthcoming from the Trump Administration or the Republican-controlled Senate, some other means will have to be found to avert another multi-trillion-dollar bank bailout and/or a financial calamity caused by poorly regulated swaps on the books of big U.S. banks. This paper notes that the relevant statutory framework affords state attorneys general and state financial regulators the right to bring so-called “parens patriae” actions in federal district court to enforce, inter alia, Dodd- Frank on behalf of a state’s citizens. That kind of litigation to enforce the statute’s extraterritorial provisions is now badly needed