The Legal Origins Theory in Crisis

Article excerpt

I. INTRODUCTION .................................................................... 1571

II. THE LEGAL ORIGINS THEORY ............................................. 1575

III. FINANCIAL CRISIS AND THE GOVERNMENT'S RESPONSE.... 1578

A. A Financial Crisis and Recession ................................... 1579

B. The Government Response .......................................... 1590

1. Early legislative responses ..................................... 1590

2. TARP and economic reinvestment ....................... 1591

3. Some key initiatives from the Federal Reserve ....... 1598

4. The automaker bailout ......................................... 1600

C. Concluding Assessments .............................................. 1603

IV. ATHEORY THROUGH THE PRISM OF CRISIS ....................... 1603

A. The Wrong Tool Kit? ................................................... 1603

1. Over-reliance on legislation .................................. 1603

2. An emergent administrative and executive state .... 1606

3. Government intervention and the ideology of crisis legislation ........................................................... 1608

4.The marginalization of judicial review ................... 1612

B. A Second Look at the Kit and Tools ............................ 1613

1. Nationalization by any other name ..................... 1613

2. Paved with good intentions? ................................. 1614

3. Ideology reconsidered .......................................... 1616

V. CONCLUSION ...................................................................... 1617

I. INTRODUCTION

Economists describe the current global financial crisis as the worst financial crisis since the Great Depression.1 Moreover, the U.S. government's response has been almost as unprecedented as the crisis it is aimed to forestall and correct. Scholars have debated at length not only the cause of the crisis,2 but also about whether the crisis and its severity could have been predicted.3 By contrast, relatively little attention has been paid to whether we could have predicted America's response to the crisis. Because the legal origins theory purports to predict how countries respond to economic and social problems, it has the potential to fill this void.4 In that regard, this Article seeks to test that theory's predictive value with respect to America's crisis response, and thereby shed some light on the strength of, and limits to, the theory.

Beginning in 1997, four authors published a series of articles based on a theory that the historical origins of a country's laws shape its legal rules and regulations, as well as its fundamental approach to problem-solving.5 This theory, known as the legal origins theory or LLSV,6 predicts that a country's legal origin influences its laws and regulations. As a result, the theory asserts that common law countries and civil law countries will differ with respect to their laws and regulations because of their legal origins. Moreover, the theory suggests that a country's legal origins will dictate how a country responds to social and economic problems. That is, a country's legal origins shape the manner in which it confronts new economic and political challenges.7 As a result, countries in the civil law tradition will not only respond to problems differently than countries in a common law tradition, but will also respond to such problems in a particular way that is unique and consistent with their legal tradition. In this respect, the theory not only explains the differences in the development of institutions, but also reflects a "mode of thought" or attitude about how best to deal with problems.8 Moreover, the theory contends that a country's legal tradition tends to better predict its institutions and rules than other cultural, political, social or economic factors. …