Alpin J. Cameron Chair of Law
Bad credit? No problem! That is, unless you live in New York, Connecticut, or Vermont. In May 2015, a court made it a lot more difficult for people to get easy loans (at higher interest rates) in those states. The ruling was meant to protect borrowers from predatory lenders, but it wound up keeping many of them from getting loans at all, at least the legitimate kind. Fordham Law Professor Richard Squire, who studied the data with two colleagues and co-authored a paper on the subject (“What Happens When Loans Become Legally Void”), says the decision has forced more and more rejected loan seekers to turn to shadier sources for borrowed money.
“A ruling like this pushes people to the shadows,” says Squire, Alpin J. Cameron Chair of Law. “Maybe the Mafia won’t be coming around to break your knees, but it’s close to that level of legality.”
Writing about consumer issues is new intellectual turf for Squire, a scholar who normally focuses on corporate matters. But the way he sees it, he’s simply following the money. Republicans, following the 2016 election, have revived the debate about how much the federal government should tinker with debt markets. Legislators have turned their crosshairs on the Dodd-Frank Act of 2010, designed to regulate Wall Street. Squire worries that legislators who focus on Dodd-Frank are ignoring the real danger to the economy, a housing bubble like the one that triggered the financial crisis 10 years ago.
“House prices are rising again, higher than their 2006 peak—before the roller coaster went over the cliff,” says Squire. “This is where concerns about consumer debt flow into concerns about corporate debt.”
Those concerns inspired Squire to write Getting Ready for the Next Bailouts, a close examination of the government bailouts of 2007 and 2008. In the book, forthcoming from Columbia University Press, Squire makes the case that bailouts were a necessary part of the recovery and will be necessary all over again the next time the economy tanks. “Politicians continue to have the view that the big problem was the bailouts, but to me that’s like blaming the fire department for the fire,” says Squire. “Bailouts helped reduce the spread of the conflagration that had started elsewhere.”
Squire is aware he may sound like he’s shouting from an ivory tower, but one look at his resume makes it clear that he is reporting from the trenches. After studying English and economics at Bowdoin, he worked at Deloitte as a management consultant for telecommunications companies when they reinvented their troubled business models in the mid-1990s. After a serious immersion in academia, attending Harvard Business School and Harvard Law School at the same time, Squire practiced for three years as a litigation associate at Wachtell, Lipton, Rosen and Katz, a firm that specializes in mergers and acquisitions. When he took a position at Fordham Law in 2006, he already had plenty of material to teach and write about. Last year he published the casebook he has developed for his Corporate Reorganization class, Corporate Bankruptcy and Financial Regulation, from Aspen Publishers.
Lately, Squire has also written on an area of bankruptcy law that he has dubbed “distress- triggered liabilities.” In some situations, bondholders will give companies lower interest rates so long as the companies agree to pay an extra penalty charge should they go bankrupt and default on the loan. If the company goes belly up, the lenders that negotiated for the penalty clauses end up getting more than their fair share of the bankruptcy estate when it comes time to collect. “The size of the pie is fixed in place by limited shareholder liability, so some creditors get a bigger slice over others,” says Squire. “There’s a moral hazard there that courts aren’t seeing.”
Squire has other papers in the works, but even after Bailouts hits the bookshelves, he knows he won’t be finished with talking about the topic. “It’s important to remind people that sometimes banks need emergency loans from the government, albeit at interest rates high enough to protect the taxpayer,” he says. “I sympathize with the argument that you should leave free markets alone, but not in this case.”
