Complete volumes of the Washington Law Review, dating back to Volume 1, Issue 1 (June 1925),
are available in the Marian Gould Gallagher Law Library
.
Volume 84
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Issue 2
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May 2009
Code, Crash, and Open Source: The Outsourcing of Financial Regulation to Risk Models and the Global Financial Crisis
Erik F. Gerding
84 Wash. L. Rev. 127 (2009)
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Full Article
The widespread use of computer-based risk models in the financial industry during the last two decades enabled the marketing of more complex financial products to consumers, the growth of securitization and derivatives, and the development of sophisticated risk-management strategies by financial institutions. Over this same period, regulators increasingly delegated or outsourced vast responsibility for regulating risk in both consumer finance and financial markets to these privately owned industry models. Proprietary risk models of financial institutions thus came to serve as a “new financial code” that regulated transfers of risk among consumers, financial institutions, and investors.
The spectacular failure of financial-industry risk models in the current worldwide financial crisis underscores the dangers of regulatory outsourcing to the new financial code.
This Article explains how financial institutions used the “new financial code” to shift, spread, and price financial risk using the template of the stages of securitization of consumer-credit products, hedging through credit default swaps, and overall portfolio management.
This Article then examines several explanations for the failures of risk models, which contributed to the current crisis, including flaws in the design of risk models and agency costs associated with those models. It also outlines several lessons for regulatory outsourcing
from the current crisis, including the following:
- Bank regulators should scrap those provisions of Basel II that allow certain banks to set their own capital requirements according to their internal risk models;
- Regulators should promote “open source” in code (or the models) used to market financial products to consumers, price securitizations and derivatives, and manage financial-institution risk; and
- The failure of risk models used to price securitizations and derivatives reveals some of the comparative advantages of equity securities in spreading risk.
The Federal Circuit's Licensing Law Jurisprudence: Its Nature and Influence
Robert W. Gomulkiewicz
84 Wash. L. Rev. 199 (2009)
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Full Article
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The Federal Circuit serves as the central appellate court for U.S. patent law appeals. Outside of patent law, scholars have noted the Federal Circuit's distinct lack of influence on the law. Thus, unnoticed, the Federal Circuit has become one of the most influential actors in the creation of intellectual property licensing law. Its influence reaches across all areas of intellectual property, industries, and all federal circuits and state courts. But the Federal Circuit's influence on licensing law is more than just a matter of academic interest: licensing is critical to innovation in the information economy. Licenses underlie the creation and distribution of ideas, information, inventions, and works. Products as diverse as open source software and soybean seed rely on licensing.
The Federal Circuit's influence emerged out of failed attempts to create uniform statutory licensing law, which has left licensing law to develop as common law. Since its creation in 1982, the Federal Circuit has decided more cases involving licensing law than any other state or federal court. Many courts have looked to and followed the Federal Circuit's decisions. The Federal Circuit's general approach has been to uphold modern licensing models, which fosters both technological and business model innovation. This approach is consistent with the approach taken by most other courts, including the Supreme Court. At the urging of the U.S. Solicitor General and others, the Supreme Court probed the Federal Circuit's licensing law jurisprudence in a recent case, Quanta Computer, Inc. v. LG Electronics, Inc. While the Supreme Court reversed the Federal Circuit in a unanimous decision, upon close inspection, the reversal actually amounts to an affirmation of the Federal Circuit's core licensing-law jurisprudence.
Balancing Interests Under Washington's Statute Governing the Admissibility of Extraneous Sex-Offense Evidence
Blythe Chandler
84 Wash. L. Rev. 259 (2009)
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Full Article
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American courts traditionally exclude evidence that a defendant has committed crimes other than the crime with which the defendant is charged. This rule, with exceptions, is codified as Federal Rule of Evidence 404(b) and Washington Evidence Rule 404(b). However, courts and legislatures have increasingly adopted the view that evidence of other sex offenses should be admissible in sex-offense prosecutions. The Washington State Legislature recently adopted a statute, RCW 10.58.090, which governs the admissibility of evidence of other sex offenses. This Comment argues that Washington courts should use precedent applying Rule 404(b) as a guide in applying robust Rule 403 balancing under the new statute. This interpretation of the statute is consistent with its legislative history, preserves the traditional gate-keeping role of trial courts in evidence-admissibility determinations, and avoids a potential separation-of-powers question about which branch of government has ultimate authority over evidentiary rules in Washington.
Preempting State E-Verify Regulations: A Case Study of Arizona's Improper Legislation in the Field of “Immigrant-Related Employment Practices”
Rachel Feller
84 Wash. L. Rev. 289 (2009)
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Full Article
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In 1996, Congress established E-Verify, a program that allows employers to confirm the employment eligibility of new hires by using a federal electronic database. Although the federal government makes the program voluntary for employers, some states and municipalities have enacted legislation requiring the program's use to prevent the employment of undocumented workers. Some of these state laws have been challenged in federal court on the grounds that they are preempted by federal law, particularly the Immigration Reform and Control Act of 1986 (IRCA). Courts have divided on this issue. This Comment explains the boundaries of preemption in the context of E-Verify legislation by using Arizona's E-Verify law and the Ninth Circuit's decision in Chicanos por la Causa v. Napolitano as a case study. It argues that state E-Verify provisions may sanction employers for knowingly hiring undocumented workers only if the sanction is based on a federal finding that the employer violated IRCA. Specifically, this Comment argues that the Ninth Circuit erred by classifying Arizona's E-Verify statute as an employment law and by allowing Arizona to revoke business licenses based on a state judge's finding that the employer knowingly hired undocumented workers. This Comment argues that courts should recognize that Congress created and occupied a field of federal regulation: immigration-related employment practices.