Legislation and Legitimation: Congress and Insider Trading in the 1980s

Orthodox corporate law and economics holds that American corporate and securities regulation has evolved inexorably toward economic efficiency. That position is difficult to square with the fact that regulation is the product of government actors and institutions. Indeed, the rational behavior assumptions of law and economics suggest that those actors and institutions would tend to place their own self-interest ahead of economic efficiency. This Article provides anecdotal evidence of such self interest at work. Based on an analysis of legislative history-primarily congressional hearings-this Article argues that Congress had little interest in the economic policy effect of insider trading legislation in the 1980s. Rather, those laws were motivated primarily by a desire to legitimate the existing political and economic order. The policy and doctrinal grounds for prohibiting insider trading are unclear. Yet Congress devoted a great amount of attention to increasing the penalties for insider trading in the 1980s. Meanwhile, more serious economic issues went unaddressed What explains this odd focus? Congress routinely explains corporate and securities legislation as motivated by a need to bolster investor confidence and protect the capital formation process. In the 1980s, legislators argued that insider trading scandals were undermining investor confidence. That argument is unconvincing, however, because those scandals were contemporaneous with unprecedented stock prices. An alternative explanation for the 1980s legislation is that Congress sought political legitimacy: not investor confidence\u27 in the markets, but voter confidence in the political-economic system. Our government has a symbiotic relationship with a capitalist system under which the power of business and finance sometimes rivals that of the state. This arrangement is acceptable to most voters during prosperous times but can undermine the legitimacy of the political-economic system in times of perceived economic crisis. Government crafts its responses to such crises to protect its legitimacy. The process of self-legitimation does not consist merely of responding to exogenous preferences of constituents. It also includes attempts to mold constituents\u27 preferences to be more consistent with the self-interest and problem-solving abilities of Congress

The Modern Corporation and Campaign Finance: Incorporating Corporate Governance Analysis into First Amendment Jurisprudence

This Article argues that the First Amendment analysis of corporate campaign finance regulations, such as those in Senate Bill 27, should recognize the institutional peculiarities of business corporations. Courts have sometimes treated business corporations as if they were identical to individuals for constitutional purposes. But political spending by corporations should be distinguished from the political spending of individuals (and from that by labor unions and nonprofit organizations). Despite the tendency to treat corporations like individuals, courts have at other times upheld special restrictions on corporations based on the naked assertion that states have special power to regulate corporations. The First Amendment analysis of corporate campaign finance regulation should be firmly grounded on corporate institutional characteristics and avoid the tendency toward conclusory reasoning

Natural Is Not in It: Disaster, Race, and the Built Environment

Reviewing After the Storm: Black Intellectuals Explore the Meaning of Hurricane Katrina edited by David Dante Troutt. New York: New Press. 2006. Editor David Troutt has assembled a fascinating and wide-ranging collection of essays on the Katrina disaster. The contributing authors, primarily (though not exclusively) law professors, put the disaster into a larger context of American law and politics. While the authors\u27 concerns and opinions are diverse, the interaction between human choice and the natural is a consistent theme running through the background of the book