Social media firms should face fines for hate speech failures, urge UK MPs


Social media giants Facebook, YouTube and Twitter have once again been accused of taking a “laissez-faire approach” to moderating hate speech content on their platforms.

This follows a stepping up of political rhetoric against social platforms in recent months in the UK, following a terror attack in London in March — after which Home Secretary Amber Rudd called for tech firms to do more to help block the spread of terrorist content online.

In a highly critical report looking at the spread of hate, abuse and extremism on Facebook, YouTube and Twitter, a UK parliamentary committee has suggested the government looks at imposing fines on social media forms for content moderation failures.

It’s also calling for a review of existing legislation to ensure clarity about how the law applies in this area.

“Social media companies currently face almost no penalties for failing to remove illegal content. There are too many examples of social media companies being made aware of illegal material yet failing to remove it, or to do so in a timely way. We recommend that the government consult on a system of escalating sanctions to include meaningful fines for social media companies which fail to remove illegal content within a strict timeframe,” the committee writes in the report.

Last month, the German government backed a draft law which includes proposals to fine social media firms up to €50 million if they fail to remove illegal hate speech within 24 hours after a complaint is made.

A Europe Union-wide Code of Conduct on swiftly removing hate speech, which was agreed between the Commission and social media giants a year ago, does not include any financial penalties for failure — but there are signs some European governments are becoming convinced of the need to legislate to force social media companies to improve their content moderation practices.

The UK Home Affairs committee report describes it as “shockingly easy” to find examples of material intended to stir up hatred against ethnic minorities on all three of the social media platforms it looked at for the report.

It urges social media companies to introduce “clear and well-funded arrangements for proactively identifying and removing illegal content — particularly dangerous terrorist content or material related to online child abuse”, calling for similar co-operation and investment to combat extremist content as the tech giants have already put into collaborating to tackle the spread of child abuse imagery online.

The committee’s investigation, which started in July last year following the murder of a UK MP by a far right extremist, was intended to be more wide-ranging. However, because the work was cut short by the UK government calling an early general election the committee says it has published specific findings on how social media companies are addressing hate crime and illegal content online — having taken evidence for this from Facebook, Google and Twitter.

“It is very clear to us from the evidence we have received that nowhere near enough is being done. The biggest and richest social media companies are shamefully far from taking sufficient action to tackle illegal and dangerous content, to implement proper community standards or to keep their users safe. Given their immense size, resources and global reach, it is completely irresponsible of them to fail to abide by the law, and to keep their users and others safe,” it writes.

“If social media companies are capable of using technology immediately to remove material that breaches copyright, they should be capable of using similar content to stop extremists re-posting or sharing illegal material under a different name. We believe that the government should now assess whether the continued publication of illegal material and the failure to take reasonable steps to identify or remove it is in breach of the law, and how the law and enforcement mechanisms should be strengthened in this area.”

The committee flags multiple examples where it says extremist content was reported to the tech giants but these reports were not acted on adequately — calling out Google, especially, for “weakness and delays” in response to reports it made of illegal neo-Nazi propaganda on YouTube.

It also notes the three companies refused to tell it exactly how many people they employ to moderate content, and exactly how much they spend on content moderation.

The report makes especially uncomfortable reading for Google with the committee directly accusing it of profiting from hatred — arguing it has allowed YouTube to be “a platform from which extremists have generated revenue”, and pointing to the recent spate of advertisers pulling their marketing content from the platform after it was shown being displayed alongside extremist videos. Google responded to the high-profile backlash from advertisers by pulling ads from certain types of content.

“Social media companies rely on their users to report extremist and hateful content for review by moderators. They are, in effect, outsourcing the vast bulk of their safeguarding responsibilities at zero expense. We believe that it is unacceptable that social media companies are not taking greater responsibility for identifying illegal content themselves,” the committee writes.

“If social media companies are capable of using technology immediately to remove material that breaches copyright, they should be capable of using similar content to stop extremists re-posting or sharing illegal material under a different name. We believe that the government should now assess whether the continued publication of illegal material and the failure to take reasonable steps to identify or remove it is in breach of the law, and how the law and enforcement mechanisms should be strengthened in this area.”

The committee suggests social media firms should have to contribute to the cost to the taxpayer of policing their platforms — pointing to how football teams are required to pay for policing in their stadiums and the immediate surrounding areas under UK law as an equivalent model.

It is also calling for social media firms to publish quarterly reports on their safeguarding efforts, including —

  • analysis of the number of reports received on prohibited content
  • how the companies responded to reports
  • what action is being taken to eliminate such content in the future

“It is in everyone’s interest, including the social media companies themselves, to find ways to reduce pernicious and illegal material,” the committee writes. “Transparent performance reports, published regularly, would be an effective method to drive up standards radically and we hope it would also encourage competition between platforms to find innovative solutions to these persistent problems. If they refuse to do so, we recommend that the government consult on requiring them to do so.”

The report, which is replete with pointed adjectives like “shocking”, “shameful”, “irresponsible” and “unacceptable”, follows several critical media reports in the UK which highlighted examples of moderation failures on social media platforms, and showed extremist and paedophilic content continuing to be spread on social media platforms.

Responding to the committee’s report, a YouTube spokesperson told us: “We take this issue very seriously. We’ve recently tightened our advertising policies and enforcement; made algorithmic updates; and are expanding our partnerships with specialist organisations working in this field. We’ll continue to work hard to tackle these challenging and complex problems”.

In a statement, Simon Milner, director of policy at Facebook, added:  “Nothing is more important to us than people’s safety on Facebook. That is why we have quick and easy ways for people to report content, so that we can review, and if necessary remove, it from our platform. We agree with the Committee that there is more we can do to disrupt people wanting to spread hate and extremism online. That’s why we are working closely with partners, including experts at Kings College, London, and at the Institute for Strategic Dialogue, to help us improve the effectiveness of our approach. We look forward to engaging with the new Government and parliament on these important issues after the election.”

Nick Pickles, Twitter’s UK head of public policy, provided this statement: “Our Rules clearly stipulate that we do not tolerate hateful conduct and abuse on Twitter. As well as taking action on accounts when they’re reported to us by users, we’ve significantly expanded the scale of our efforts across a number of key areas. From introducing a range of brand new tools to combat abuse, to expanding and retraining our support teams, we’re moving at pace and tracking our progress in real-time. We’re also investing heavily in our technology in order to remove accounts who deliberately misuse our platform for the sole purpose of abusing or harassing others. It’s important to note this is an ongoing process as we listen to the direct feedback of our users and move quickly in the pursuit of our mission to improve Twitter for everyone.”

The committee says it hopes the report will inform the early decisions of the next government — with the UK general election due to take place on June 8 — and feed into “immediate work” by the three social platforms to be more pro-active about tackling extremist content.

Commenting on the publication of the report yesterday, Home Secretary Amber Rudd told the BBC she expected to see “early and effective action” from the tech giants.

Featured Image: Twin Design/Shutterstock

Go to Source

[Monitor] Big four business groups’ revenue take more than half of top 30 firms



Of the top 30 conglomerates by assets, revenue generated by the four on the top of the list accounted for 56 percent of the total last year, according to the Fair Trade Commission.

The large business groups on the FTC’s antitrust watch list generated 1,116 trillion won won in the year ending September 2016, 9.1 trillion won less than a year earlier.

Under the fair trade law, affiliates of large conglomerates with assets exceeding 10 trillion won are banned from making equity investments among themselves or offering loan guarantees to each other.

Go to Source

Nod for draft law regulating practice of real estate brokerage

The Advisory Council yesterday approved a draft law regulating the practice of real estate which proposes permission for foreign real estate brokerage firms to open branches in Qatar with the partnership of citizens.

As per the commercial law, the foreign brokerage firms will be set up based on the partnership of 49 percent (foreign) and 51 percent (Qatari). The local firms will utilise the international experiences of foreign firms and the foreign firms will also promote the local projects in the international markets, therefore it is proposed to allow them to open the business in the country, the Council noted.

The Council has also recommended to form a committee for real estate brokerage affairs out of the Ministry of Justice. 

The legal affairs committee of the Council held three sessions to discuss the draft law. The third session was attended by Minister of Justice, H E Dr Hassan bin Lahdan Saqr Al Mohannadi. 

The brokerage firm should not have any connection with government institutions dealing with real estate markets. A contract format will be made to allow the broker to take power of attorney from the owners to sale the property.

The proposed law stipulated a maximum three months in jail and a fine QR100,000 or one of them for doing brokerage practice without licence. The expatriate violators will be deported after serving the sentence.

Related News

arrow
Read More

Opportunities rise in construction sector

 29 Apr 2017 – 21:43

The outlook for construction companies in the GCC will improve in 2017, according to the latest industry research report from Middle East business intelligence service MEED. The report said the region still offers significant opportunities for construction companies despite the slowdown in project spending.



Go to Source

College of Law to graduate 240 students May 14

CHICAGO – DePaul University College of Law will hold its commencement ceremony May 14, when an estimated 240 students will receive their Juris Doctors or Master of Laws degrees. Paulette Brown, immediate past president of the American Bar Association, will address the graduating class and receive an honorary degree of Doctor of Humane Letters.

The Rev. Dennis H. Holtschneider, C.M., president of DePaul, will confer the degrees in a ceremony scheduled to begin at 1:30 p.m. at the Rosemont Theater, 5400 N. River Road, Rosemont. Those unable to attend may watch a live stream of the event at http://bit.ly/DePaulGrad2017.

Among the Class of 2017 is Corey Celt, who will address his fellow students at commencement. Celt served as Student Bar Association President at DePaul. He is from Commack, New York, and holds an undergraduate degree in journalism from Indiana University, Bloomington. Upon graduation, Celt will be studying for the New York Bar Exam and beginning a clerkship with the United States Department of Justice.

Paulette Brown brings visibility to women of color in law
Brown made history as the first woman of color to serve as president of the 400,000-member American Bar Association. As a young lawyer, Brown worked her way up to become the in-house counsel for several Fortune 500 companies, including National Steel Corporation, Prudential Insurance Company of America, Inc., and Buck Consultants. She later opened her own law firm, focusing on employment, civil rights and product liability law, and served as a municipal court judge.

In 2005, Brown joined Edwards & Angell – now Locke Lord LLP – as a partner. She remains there today and co-chairs the firm’s diversity and inclusion committee. In the midst of her professional success, she devotes time to bringing attention to diversity issues within the legal profession. Before serving her historic term as president of the ABA from 2015-16, Brown held a variety of influential positions within the association. She served on the Commission on Women in the Profession and co-authored ‘Visible Invisibility: Women of Color in Law Firms,’ which became a tool for law firm partners to help retain women of color and to steward their careers toward leadership levels within organizations.

Brown will be introduced by Jennifer Rosato Perea, dean of the college.

College of Law alumni top ‘Super Lawyers’ list in Illinois
Since its establishment in 1912, the College of Law has graduated more than 19,500 students. DePaul law graduates have gone on to become highly skilled, committed and vigorous leaders of the bar, bench and business industries. Alumni include numerous state and federal judges, three Chicago mayors and managing partners of dozens of major law firms.

DePaul has had the most alumni recognized by Illinois Super Lawyers for the past eight years. In the 2017 edition, 287 were listed, with 11 in the top 100, and two in the top 10.

Its rich history of quality education, access and diversity has long set the College of Law apart. DePaul was among the first law schools in Illinois to admit historically excluded groups including women and Jewish students.

The college is home to distinguished centers and institutes that are dedicated to teaching, research, advocacy, and public education and engagement across a wide range of disciplines. Distinctive educational opportunities for students include joint degrees, certificate programs and experiential learning taught by 35 full-time faculty members who are all accomplished attorneys.

Areas of concentration for the College of Law include business law and taxation; child and family law; criminal law; health law; intellectual property law and information technology; international and comparative law; and public interest law.

In its 2018 rankings, U.S. News and World Report places DePaul’s Health Law program in the top 15 in the nation, and the Intellectual Property program is in the top 25.

119th Commencement
This spring marks the 119th commencement for DePaul University. Ceremonies for DePaul’s nine other colleges and schools are scheduled for June 10 and 11. For additional information, including a list of speakers and honorary degree recipients, visit http://depaulne.ws/Speakers17.

An estimated 6,500 students will graduate this academic year. DePaul is the largest Catholic university in the United States and the largest private, nonprofit university in the Midwest, with some 23,110 students and a wide range of academic and professional programs.

DePaul was founded in Chicago in 1898 by the Congregation of the Mission (Vincentians), a Roman Catholic religious community dedicated to following the ideals of St. Vincent de Paul, the 17th century priest for whom the university is named. DePaul’s tradition of providing a quality education to students from a broad range of backgrounds, with particular attention to first-generation students, has resulted in one of the nation’s most diverse student bodies. More information is at www.depaul.edu.

###

MEDIA CONTACT:
Kristin Claes Mathews
[email protected]
312-362-7735​​

​​

DePaul University published this content on 01 May 2017 and is solely responsible for the information contained herein.
Distributed by Public, unedited and unaltered, on 01 May 2017 19:28:09 UTC.


Go to Source

One of Wales’ leading law firms has a new senior partner

Top 100 UK law firm Hugh James has a new senior partner in Matthew Tossell.

Mr Tossell takes over from Gareth Williams at the Cardiff-based firm, which also has an office in London.

Mr Williams has been a partner with the firm for 39 years and its senior partner for the last 12.

While he is retiring from the partnership, Mr Williams will continue to work in a consultancy capacity for the firm.

Mr Tossell will combine his current role as chief executive of Hugh James group company, Involegal LLP, with his senior partner responsibilities.

He will also oversee the firm’s move into a new HQ at the 2 Central Square office scheme in the centre of Cardiff.

The firm, which employs around 700, will move into its new HQ in the summer of 2018.

Joining the firm in 1983, Mr Tossell became a partner in the firm in 1987. He helped set up and develop the firm’s commercial property and social housing departments before creating a secured lending group servicing the banking sector across the UK.

He was appointed managing partner of the firm between 1999 and 2011 during which time he led the business through significant growth, seeing the firm consolidate its offices throughout south east Wales into a single Cardiff headquarters as well as launch Hugh James’s presence in London in 2007.

On stepping down as managing partner, he set up Involegal LLP, a specialist volume legal services provider to the financial services and corporate sectors.

Left to right the outgoing senior partner of Hugh James Gareth Williams with his successor Matthew Tossell. Image Huw John

Mr Tossell said: “I am of course both delighted and privileged to be appointed to this position at a very exciting time for the firm. I will be focused on driving forward our aggressive expansion plans in our target markets across the UK.

“It will be a challenge to follow in the footsteps of Gareth who has been an exceptional senior partner but it is one I am looking forward to meeting.”

Mr Williams said: “It has been a rare privilege to have spent so many happy years with Hugh James. Though naturally I have mixed emotions about stepping down from the partnership after such a long association, the time is right for me to do so.

“I am hugely proud of what we have achieved over the years, and I have no doubt at all that the firm will continue to flourish under the leadership of Matthew and managing partner Alun Jones both of whom are steeped in the traditions of Hugh James.

“It is a source of great pleasure for me that, as a consultant, I shall still have an opportunity to contribute to the firm’s continued growth.”

Mr Williams will continue in his roles as company secretary of the Welsh Rugby Union, chair of University of South Wales, non-executive director of Thomas Carroll Group and trustee of the Welsh Rugby Union Charitable Trust and of Prostate Cymru.

Go to Source

Financial Poise™ Announces “Environmental Law in an Hour,”…

Financial Poise™ Webinars and West LegalEdcenter are pleased to announce the May 3rd premiere of a new webinar “Environmental Law in an Hour,” the fourth episode of the One Hour Law School 1.0 series, designed for attorneys and business owners. Moderator Michael Brandess of Sugar Felsenthal Grais & Hammer joins panelists from firms including Levenfeld Pearlstein, Miller Canfield, and Fox Rothschild to provide an overview of the environmental law issues that affect business owners.

CHICAGO, IL (PRWEB) May 01, 2017

Looking for a bird’s eye understanding of the rudimentary principles of a complex area of law? Interested in a much needed refresher on an issue that has rapidly evolved in recent years? Short on time? This Financial Poise Webinar series explores the essential building blocks of important legal concepts facing business people.

The fourth episode of the series, Environmental Law in an Hour, (Register Here) airs on May 3rd at 2pm CST and features Moderator Michael Brandess of Sugar Felsenthal Grais & Hammer. He is joined by James D. Brusslan of Levenfeld Pearlstein LLC, Sharon Oras Morgan of Fox Rothschild LLP and Larry Falbe of Miller Canfield.

Environmental law is a specialized and technical area that only environmental law attorneys need to understand, right? Not so fast. A client buying a business or entering into a new lease needs to be at least aware of the basics, and these are just two examples. And things not conventionally thought of as “pollution” may very well be treated as such (think noise pollution, for example). The fact of the matter is that environmental laws exist at both the federal and state level and they pervade many aspects of business. This Financial Poise webinar is designed to help you understand and spot potential environmental law issues.

Each episode is delivered in Plain English understandable to business owners and executives without much background in these areas, yet is proven to be valuable to seasoned professionals. Each episode in the series brings you into engaging, sometimes humorous, conversations designed to entertain as it teaches. And, as with all Financial Poise Webinars, each episode in the series is designed to be viewed independently of the other episodes, so that participants will enhance their knowledge of this area whether they attend one, some, or all of the episodes.

ABOUT FINANCIAL POISE™:

Financial Poise™ (http://www.financialpoise.com ) provides unbiased news, continuing education, and intelligence to private business owners, executives, investors, and their trusted advisors. For more information contact Emily Goldin at egoldin(at)financialpoise(dot)com or 312-469-0135.


For the original version on PRWeb visit: http://www.prweb.com/releases/environmental-law/issue-business-owners/prweb14294253.htm

Go to Source

Firms warned on bias vs older job seekers

JOB FAIR Job seekers try their luck at the Labor Day Job and Business Fair held atQuezon City Hall, one of themany events tomark Labor Day onMonday. —NIÑO JESUSORBETA

JOB FAIR Job seekers try their luck at the Labor Day Job and Business Fair held at Quezon City Hall, one of the many events to mark Labor Day on Monday. —NIÑO JESUS ORBETA 

The Department of Labor and Employment (Dole) on Monday told employers not to discriminate against older job seekers, as the law prohibiting discrimination on the basis of age was now in effect.

Johnson Cañete, director of the Dole office in the National Capital Region, stressed the need to educate and make employers aware of Republic Act No. 10911, which was passed last year.

“The law is very new so it’s normal that not all may have been oriented. But we all know very well that there’s already a law,” Cañete told reporters.

ADVERTISEMENT

RA 10911

RA 10911 or the Anti-Age Discrimination in Employment Law prohibits employers from prescribing age for job applicants.

Cañete made the rounds of the nine job fairs conducted in Metro Manila on Monday, Labor Day.

The fairs were among 54 organized by the Dole, offering more than 200,000 jobs.

Among those who tried his luck at the job fair at Quezon City Hall was Benito Parman, a 60-year-old former migrant worker.

“I stayed at home for four years, cooking and selling [food]. Now I want to try working again so I can earn a little money to pay electricity bills,” Parman said.

Encouraged by the passage of RA 10911, Parman took a call center course sponsored by Mayor Herbert Bautista for Quezon City residents.

On Monday, he submitted applications to four companies that participated in the Quezon City job fair.

He said none of the four companies hired him on the spot, but all told him they would call him.

ADVERTISEMENT

Parman knew it was because of his age, and he lamented that employers remained biased against elderly job seekers despite the new employment age law.

He said, however, that he was not losing hope. “I’m praying to the Lord that I will be hired and I’ll have work again,” he said.

Job clinics

Monday’s job fairs were the first to be conducted since the passage of the age law.

The Dole issued the implementation rules for the new law in February.

At the job fair at Quezon City Hall, a handful of senior citizens other than Parman were observed visiting employers’ booths and inquiring about vacancies.

Cañete said one of the Dole’s programs was to mandate all regional offices to conduct job clinics among local governments and employers.

Among the issues discussed during the clinics, he said, are general labor standards, occupational safety, health and age discrimination in the workplace.

“We are imposing the law already. So the important thing is that the people who are affected can go to the Dole and inform us of these employers,” Cañete said, referring to the employment age law.

“It is now easier for us not to tell them that we now have this law that you cannot discriminate against people based on age,” he said.

Cañete said companies that would violate the employment age law faced sanctions, although they would be given an orientation on its enforcement.

More than 30,000 job seekers went to the 54 job fairs held on Labor Day.

Data from the Dole showed that 34,605 job seekers—17,752 of whom were women—registered for the fairs.

Fifty-one percent, or 17,783 of the applicants, were deemed qualified.

But only 1,658 were hired on the spot while 9,896 were near-hire applicants or those who were told they would be called.

This means that of the 17,783 qualified job applicants, only 9 percent, or 1,658, were hired on the spot.

Most of the job applicants (16,764) were looking for employment in the Philippines, while 4,331 were looking for overseas jobs.

Among the regions, Central Luzon had the highest number of job applicants, at 5,683, followed by Metro Manila, with 4,505.

Subscribe to INQUIRER PLUS to get access to The Philippine Daily Inquirer & other 70+ titles, share up to 5 gadgets, listen to the news, download as early as 4am & share articles on social media. Call 896 6000.

For feedback, complaints, or inquiries, contact us.

Go to Source

Time running out for VAT readiness, firms told

The introduction of value added tax in 2018 will generate new revenue streams for public sector spending in the UAE and other GCC states and align the regional markets globally, tax and legal experts said.

The adoption of VAT across the GCC region will be both exciting and challenging for the regional markets, said Hisham Farouk, CEO of Grant Thornton UAE.

“Not only will it generate new revenue streams for public sector spending, but also instill greater transparency in the economies of the region,” said Farouk.

Speaking at a conference on the implications of VAT on businesses in the UAE hosted by Emirates Institute for Banking and Financial Studies (EIBFS), Farouk said for the successful implementation, it is critical that a significant level of investment is made in awareness and education of all industries, specifically financial institutions. “EIBFS is taking some very proactive and necessary steps in providing this awareness to the financial community, and it is fundamental that this is continued by all.”

Pierre Arman, Market Development Lead for Tax and Accounting at Thomson Reuters, said time is running out for companies to ensure preparedness for the introduction of VAT in the GCC region in 2018. “From assessing the impact of VAT on their organisations through to the readiness of their IT landscape, there is a lot to be done in a very limited timeframe,” said Arman. “VAT awareness events are crucial for the business community to understand what considerations different industries need to take into account in a post-VAT world, especially a notoriously challenging industry such as financial services that is typically more complex to manage under VAT due to its special status,” he said. Justin Whitehouse, Managing Director and Indirect Tax and VAT leader at Deloitte Middle East, said: “Events such as the EIBFS conference on VAT serve as a great businesses need to take VAT seriously and use forums such as EIBFS to ensure they understand what they need to do, especially within such an important sector to the UAE economy.

“In the past few years, the UAE has taken visionary steps towards a non-oil-reliant economy with a focus on economic diversification and boosting non-oil revenues. Introducing VAT is another key initiative to enhance the resilience of the national economy,” he said.

An International Monetary Fund (IMF) analysis has shown that implementing VAT at the nominal rate of five per cent will contribute 2.7 per cent to the UAE’s non-oil GDP.

The one-day conference addressed a variety of topics including the economic impact of VAT, learning experiences from other countries that have implemented the tax, and new regulations affecting the financial sector and businesses in general. Across six lectures, the speakers explained the intricacies of the new taxation law with a focus on how it will influence the day-to-day operations of financial and business entities.

Since the VAT law is not yet out in the public domain, companies find it difficult to ascertain the impact of the new tax on their business and prepare for it accordingly. In addition, the limited time between passing the final law and the implementation date may also pose a challenge. Jamal Al Jassmi, General Manager of EIBFS, said the upcoming implementation of VAT in the countries of the GCC region represents a landmark tax reform, ushering in a new era in the world of public finances and providing a stable revenue base for the future.

“With the UAE economy maturing and diversifying away from oil dependency, this is the right time for such a step. However, businesses, especially small and medium-sized enterprises, have to adopt certain measures to prepare for the new tax so that January 2018 does not bring any unpleasant surprises,” said Al Jassmi.– issacjohn@khaleejtimes.com

Go to Source

This law could prevent the next financial crisis. Lawmakers want it gone.

Jim Millstein, founder of the financial advisory and investment firm Millstein & Co., was chief restructuring officer in the Treasury Department from 2009 to 2011. Jane Vris is a partner at Millstein & Co. and chairperson of the National Bankruptcy Conference. Jim Wigand is a partner at Millstein & Co. and former director of the Federal Deposit Insurance Corp.’s Office of Complex Financial Institutions. The views expressed here are solely those of the authors.

Pressure is building in Congress to repeal significant portions of President Barack Obama’s signature Dodd-Frank Act, signed into law after the financial crisis of 2008. In particular, critics are targeting a provision in the law known as “orderly liquidation authority,” which is designed to give the federal government the power to step in and prevent a systemwide collapse during financial emergencies.

The idea behind the law was to avoid a future Lehman Brothers — to give federal regulators the ability to liquidate a large financial holding company in an orderly way and thereby avoid triggering the kind of panic that occurred after the investment bank filed for bankruptcy in 2008.

Opponents see orderly liquidation authority as a mechanism to protect “too big to fail” banks. They argue that it encourages large financial institutions to take outsize risks with the knowledge that, if those risks lead to the firm’s failure, federal regulators will be there to bail them out.

This “moral hazard” argument, however, mistakes how this provision of Dodd-Frank is designed to work. Unlike with the financial bailouts implemented by the federal government in the wake of Lehman Brothers’ collapse, the statute requires firms in need of federal help to wipe out their shareholders, replace their management and force their creditors to take losses ahead of any funds the government may provide to facilitate the liquidation of the failed institution.

This is worth emphasizing: If the government were to lose money as a consequence of liquidating a large financial institution, the firm’s unsecured creditors would be wiped out and other banks in the system would have to pick up the tab to make sure the government were made whole.

The “safety net” under Dodd-Frank, therefore, is not a safety net for the failing firm’s shareholders, management or creditors. Rather, it is a safety net for the rest of us, intended to mitigate the harm that the failure of a large, deeply interconnected financial institution could inflict on the economy.

In creating a specialized regime to deal with the failure of large financial holding companies such as Lehman Brothers, Dodd-Frank filled a dangerous gap in the statutes governing the bankruptcy of financial institutions. Following the deregulation of the financial industry in 1980, huge financial conglomerates were assembled, bringing broker dealers, asset managers, depositories and insurance companies under the umbrella of a single holding company. Congress had previously created specialized bankruptcy law for each of the regulated entities within these complex conglomerates, but it never created a bankruptcy regime for holding companies until it passed Dodd-Frank.

Those who want to do away with Dodd-Frank’s liquidation authority would have us believe that a special chapter of the bankruptcy code could address the procedural problems that Lehman Brothers faced when it filed for bankruptcy. And while those procedural issues should be addressed, two important features of Dodd-Frank designed to protect the public are not addressed by the proposed revisions to the bankruptcy code.

First, federal financial regulators wouldn’t have the power to coordinate the commencement and conduct of bankruptcy proceedings for a failing financial holding company with regulators of its domestic and foreign subsidiaries. Second, without access to an established source of liquidity as provided under Dodd-Frank, the federal government could not forestall the kind of fire sale of assets and defaults on short-term debt that set off the widespread panic that the start of the Lehman Brothers bankruptcy triggered.

Repealing orderly liquidation authority in favor of a new chapter of the bankruptcy code would leave the stability of the financial system hostage to one large firm’s failure, without the important tools available under Dodd-Frank to contain the contagion its failure would certainly precipitate.

By all means, Congress should amend the bankruptcy code to give bankruptcy courts the tools needed to mitigate the kinds of problems revealed by Lehman Brothers’ bankruptcy proceedings. But we should retain orderly liquidation authority — just in case regulators need to break the glass to protect the financial system against the economic contagion that the bankruptcy of a large, deeply interconnected firm could provoke.

Go to Source