Speaker 1: This is Bloomberg Law with June Grasso from Bloomberg Radio.
Speaker 1: It's a landmark antitrust case, the most aggressive antitrust action
Speaker 1: against an American company in two decades. The US Justice
Speaker 1: Department suited Google, calling it the monopoly gatekeeper to the
Speaker 1: Internet and accusing it of using exclusive deals costing billions
Speaker 1: of dollars to dominate search and lockout competition from rivals.
Speaker 1: US Deputy Attorney General Jeff Rosen announced the suit on Tuesday.
Speaker 1: Google is the gateway to the Internet and a search
Speaker 1: advertising behemoth. Google achieves some success in its earliers, and
Speaker 1: no one begrudges that. But as the nitrust complaint filed
Speaker 1: today explains, it has maintained its monopoly power through exclusionary
Speaker 1: practices that are harmful to competition. So the Justice Department
Speaker 1: has determined that an antitrust response is necessary to benefit consumers.
Speaker 1: But Google's director of Economic Policy, Adam Cohen, defended his
Speaker 1: company's tactics and, speaking to Bloomberg, we think this case
Speaker 1: is deeply fought and risks harming American consumers. We compete
Speaker 1: vigorously in the marketplace. Our industry, our sector is marked
Speaker 1: by prices that are free or falling and rapid innovation,
Speaker 1: and those are really hard hallmarks of a competitive industry.
Speaker 1: Joining me is antitrust law expert Harry First, a professor
Speaker 1: at m y U Law School. Let's start broadly, Harry,
Speaker 1: how would you characterize this lawsuit in terms of its significance?
Speaker 1: The lawsuit is very significant in this sense. It's been
Speaker 1: more than two decades since the Justice Department has filed
Speaker 1: a monopolization case, more than two decades since the Justice
Speaker 1: Department has taken on high tech, more than two decades
Speaker 1: since they've paid attention to this area. It's really quite extraordinary.
Speaker 1: So seeing them file a case I count as a
Speaker 1: real positive. Explain basically what the government's charges are of
Speaker 1: anti competitive conduct by Google. Well, the basic idea is
Speaker 1: that Google has monopolies. They are alleged three different markets,
Speaker 1: but basically in the market for search and the market
Speaker 1: for some aspects of digital or online advertising. So the
Speaker 1: complain alleges that they have a monopoly in those markets
Speaker 1: that have very high market shares, and that they've maintained
Speaker 1: these monopolies not through legitimate competition, but through exclusionary agreements
Speaker 1: that sends out any potential rivals any upstarts, and that
Speaker 1: they are continuing to do this as the technology evolves.
Speaker 1: And you know, we have the Internet of Things, and
Speaker 1: we have wired cars, and we have these personal assistants.
Speaker 1: That this is an effort just to keep control over
Speaker 1: and in some sense access to the Internet. It's not
Speaker 1: unlawful to be a monopoly in this country. And some
Speaker 1: people would say, well, Google is doing the things you
Speaker 1: can do as a monopolist, so what makes it illegal.
Speaker 1: So the law tries to distinguish between legitimate, even aggressive competition,
Speaker 1: and competition that isn't on the merits that tries to
Speaker 1: succeed by making sure competitors can't get to the market.
Speaker 1: So if you have a great product and consumers love
Speaker 1: it and everyone uses it, let's say that's not a problem,
Speaker 1: and you can continue to innovate and bring out better
Speaker 1: features and lower prices things like that. But if you
Speaker 1: take efforts to squeeze out your competitors by as this
Speaker 1: complain alleges, some kinds of exclusive agreements, which say, okay, Apple,
Speaker 1: for your iPhone, you have to make Google Search the default.
Speaker 1: And we know that consumers don't change their defaults, you know,
Speaker 1: they keep going with it. This means that other search
Speaker 1: engines can't get tractions, can't get enough people using their
Speaker 1: search engines to offer a good product, and that fences
Speaker 1: out competitive is not because you're better, but because you
Speaker 1: have this agreement with Apple. So now Google's response has
Speaker 1: been that its conduct doesn't raise prices for consumers. And
Speaker 1: he also compared its search engine distribution agreements to a
Speaker 1: serial brand paying a grocery store to be in the
Speaker 1: best position on the shelves. Is that a good response, Well,
Speaker 1: it's a response um search two consumers. Of course, is
Speaker 1: not priced in dollars. The complain alleges that it's priced
Speaker 1: in other ways. We'll see how that develops in the litigation.
Speaker 1: They get your data, of course, that's really what they want,
Speaker 1: and it's priced in terms of your attention. You know,
Speaker 1: your eyeballs, you pay attention to it. But in the end,
Speaker 1: it's monetized, as the complaint says, by prices for advertising.
Speaker 1: You know, if they control you and access, when they've
Speaker 1: got all these advertisements, monopoly share, they can charge prices
Speaker 1: for that. So that's one rejoinder to the Oh, but
Speaker 1: it's free, isn't that great for consumers? Maybe not so free?
Speaker 1: And what about Google's analogy to a cereal brand paying
Speaker 1: to get better placement on grocery store shelves. But as
Speaker 1: you were saying it, I was thinking, well, you know,
Speaker 1: usually the cereal maker doesn't own the whole store. Usually
Speaker 1: it's just a placement on a shelf. And if you've
Speaker 1: ever bought cereal, you know there's another brand right next
Speaker 1: to it. So it's true they do pay for that.
Speaker 1: But the argument here is, well, Google owns all the shelves,
Speaker 1: and by paying for the best spot, there aren't other spots.
Speaker 1: Nobody comes into this store for something else. You know,
Speaker 1: if you were going to have the analogy to say, okay,
Speaker 1: consumers can go to a different store, but it's not
Speaker 1: as convenient and they don't bother. So I've heard this analogy,
Speaker 1: I'm not sure how persuasive it's going to be legally.
Speaker 1: In the complaint, the Justice Department lawyers say that Google
Speaker 1: tapped the same playbook as Microsoft. How similar is this
Speaker 1: case to the Justice Department's suit against Microsoft decades ago. Well,
Speaker 1: the complaint itself says, as you say that it's governed
Speaker 1: by the principles for Microsoft, and they're talking about the
Speaker 1: legal principles I think that the Court of Appeals applied
Speaker 1: in that case. So in that sense, the government wants
Speaker 1: to align with Microsoft. But also in a broad sense,
Speaker 1: this is similar to the kinds of complaints that the
Speaker 1: government made. Microsoft had a monopoly on Windows, it was threatened,
Speaker 1: and it made efforts to extinguish the ability of rival
Speaker 1: browsers and an escape browser to reach consumers and get
Speaker 1: its product to consumers by forcing the people who bought browsers,
Speaker 1: which basically were makers of computers, to install Internet explo
Speaker 1: Lore rather than installing Netscape. So actually it's similar. One
Speaker 1: of the interesting issues is that it's not identical. So
Speaker 1: the world of mobile phones is different from the world
Speaker 1: of desktops in consumers may behave differently, the kinds of
Speaker 1: agreements are different. These are defaults, making Google Search the
Speaker 1: default but not the exclusive. So it's possible for consumers
Speaker 1: to have different search engines on their phones, and they'll
Speaker 1: be arguments about, you know, how do consumers behave and
Speaker 1: do they multi home, do they look at different search
Speaker 1: engines or they end up sticking with Google because that's
Speaker 1: what's from their phone and they assume that's what they
Speaker 1: should use. Some Lettle experts say that this is a
Speaker 1: pair down complaint. To make an easier case at trial,
Speaker 1: what would the Justice Department have to prove it trial? Well,
Speaker 1: the Jet Department has to show that Google in fact
Speaker 1: has a monopoly in the markets that the government alleges
Speaker 1: are shoe has to show that these really are markets.
Speaker 1: They talk about advertising, Well, you know, there's a lot
Speaker 1: of advertising in the world, and a lot of different
Speaker 1: ways to reach consumers, even on the Internet. I've heard
Speaker 1: there's something called Facebook. Facebook isn't mentioned in the complaint.
Speaker 1: There's advertising on Amazon, people do searches on Amazon. So
Speaker 1: there will be lots of arguments about whether Google really
Speaker 1: is a monopolis or whether consumers have choices. So that's
Speaker 1: the first part. Are they a monopolis? But as you
Speaker 1: pointed out, that's not the end of it, because it's
Speaker 1: not a violation of US any trust law to be
Speaker 1: a monopolis. So then the second part is, well, how
Speaker 1: do they maintain their monopoly position. Is it through anti
Speaker 1: competitive agreements that exclude competition, you know on some basis
Speaker 1: others and efficiency, or is it because as Google will
Speaker 1: certainly argue, it's got a great product, people like it
Speaker 1: because their search engine is really good. And their search
Speaker 1: engine is really good because there are a lot of
Speaker 1: people who use it and feed that into it. So this,
Speaker 1: if it ever gets the trial, this will be I think,
Speaker 1: also disputed and the government's going to have to show
Speaker 1: it's not competition on the mirth. In this complaint, the
Speaker 1: Justice Department hasn't said what remedies it would like if
Speaker 1: it wins the suit. In Microsoft, they sawt a breakup
Speaker 1: of the company. Is a breakup even on the table here, well,
Speaker 1: the table hasn't been set yet, so in the original
Speaker 1: complaint to the Justice Department file in Microsoft, there wasn't
Speaker 1: a specific remedy set out, and the Lidigans generally are
Speaker 1: pretty vague about what they want because they don't want
Speaker 1: to be confined by the time the trial ends to
Speaker 1: something they thought about before the trial started. So the
Speaker 1: complaint does mention the possibility of structural relief, which is
Speaker 1: somewhat unusual actually for government complaints to do. That's almost
Speaker 1: more specificity than I would have expected. So it is
Speaker 1: on the tab able. It's been reported that one possibility
Speaker 1: is making Google the best itself of the Chrome browser.
Speaker 1: I think that's yet to be seen, and it may
Speaker 1: very well be that the government has an idea but
Speaker 1: not a fully executed plan about the remedy at once,
Speaker 1: because to some extent it still needs to find out
Speaker 1: more information. They'll be discovery and there's an idea of
Speaker 1: what you want, but accomplishing it is another story. The
Speaker 1: state ages have been investigating as well. Is this going
Speaker 1: to set off a wave of other litigation from state
Speaker 1: ages and private complaints? Perhaps? Well, a number of states
Speaker 1: um joined this complaint. So um Uh the states which
Speaker 1: that have not UM lead I gather at this point
Speaker 1: by the Attorney General of Colorado was very good at
Speaker 1: any trust lawyer and former professor serve any trust. UM
Speaker 1: are still investigating and UM trying to decide whether they
Speaker 1: want to file their own case and what that case
Speaker 1: might look like. Though. UM. They did issue as I
Speaker 1: assume you saw press release yesterday, UM commending this litigation
Speaker 1: and the close working relationship they have with the Justice Department.
Speaker 1: But we will see what will happen, UM. The state
Speaker 1: federal partnership in these cases. Well, we haven't had a
Speaker 1: lot of monopoly cases. UM, so it's always a little
Speaker 1: touchy UM and uh this one apparently is as well. UM.
Speaker 1: But uh, yes, so I it will not surprise me
Speaker 1: at the states those other states do file UM their
Speaker 1: own case and then move to have a try together
Speaker 1: with the Justice Department's case. UM. That that gets to
Speaker 1: be seen whether UM that will be the case. As
Speaker 1: for private litigation, UM, I'm not sure taking on Google
Speaker 1: is a big deal. UM that some of the allegations
Speaker 1: are been well known for a while UM, and UM
Speaker 1: private cases have not been filed. So I'm actually not
Speaker 1: looking for private litigation to happen at this point. UM.
Speaker 1: Probably later if the Justice Department continues this suit and
Speaker 1: how it develops, and maybe we will see some private
Speaker 1: litigants jumping in. But UM, uh you know, and that
Speaker 1: did happen in the Microsoft litigation. There was a lot
Speaker 1: of private litigation UM that came about as a result
Speaker 1: of the government suits against Microsoft. Is this a test
Speaker 1: in any way of the current antitrust laws? Well, every
Speaker 1: case when in the a testment, UM, I don't so
Speaker 1: as I read the complaint, the government is not trying
Speaker 1: to push UM and USA any trust law in some
Speaker 1: sort of new direction. There. You know, lawyers are by
Speaker 1: nature and training somewhat conservative. They're trying to bring this
Speaker 1: case within the contours of current law. Um, and as
Speaker 1: they try to do in the Microsoft litigation. So um,
Speaker 1: you know, it may be a test of any trust institutions.
Speaker 1: It may be a test of what you can achieve
Speaker 1: in terms of remedy in any trust laws. But I
Speaker 1: think the basic structure is not um something that the
Speaker 1: government is attacking in in this case. So I don't
Speaker 1: think it's a challenge in that sense. We don't know
Speaker 1: how long this case will go on. But is this
Speaker 1: a case where the government is out matched by the
Speaker 1: resources of the defendant Google. Well, I haven't done the
Speaker 1: mass exactly, but if you if you figure out the
Speaker 1: budget of the any Trust Division and the budget of
Speaker 1: Google for litigation, half match might be you know, it
Speaker 1: might be a good word. Obviously, UM, in terms of
Speaker 1: a comparison of resources, You're not going to match Google.
Speaker 1: You're not going to match any of these tech giants
Speaker 1: the government. You know, historically that's always the case. And
Speaker 1: still the government managed to litigate against a T and C,
Speaker 1: against IBM and Standard Oil to the the beginning of any
Speaker 1: trust law. So I'm less worried about that. Where I
Speaker 1: think this matters is Google knows a lot more about
Speaker 1: its business and its technology than the government does. That's
Speaker 1: sort of the nature of things, and this is always
Speaker 1: a problem, but it's particular problem in the tech area.
Speaker 1: It's a problem for understanding how search engines are put together,
Speaker 1: how the advertising is done, how it's priced, all of
Speaker 1: these things. Google knows what it does. The government has
Speaker 1: to find out. So that's where the problem comes in.
Speaker 1: In terms of human capital. Well, the government here, unlike
Speaker 1: in Microsoft, hasn't hired outside council you know, I don't
Speaker 1: know where that's a plus for the professional staff, you know,
Speaker 1: show of support or some indication that there's a lack
Speaker 1: of seriousness in this litigation. I don't know which it is.
Speaker 1: They'll need outside economics experts, but you know, the government
Speaker 1: has been able to hire those in other cases that
Speaker 1: I'm sure there are plenty of economists who would love
Speaker 1: to help out on the government's side. So I think
Speaker 1: it's knowledge more than anything else. Thanks for being on
Speaker 1: the Bloomberg Law Show, Harry. That's Professor Harry First of
Speaker 1: n y U Law School, and that's for the edition
Speaker 1: of the Bloomberg Law Show. Remember you can always get
Speaker 1: the latest legal news on our Bloomberg Lawn podcast. You
Speaker 1: can find them on Apple Podcast or www dot Bloomberg
Speaker 1: dot com, Slash podcast, Slash Law. I'm June Grosso. Thanks
Speaker 1: so much for listening, and remember to tune to the
Speaker 1: Bloomberg Law Show every weeknight at Champion John right on
Speaker 1: the radio. Would you give the advantage to either side?
Speaker 1: Looking at the complaint? What is this way? The core
Speaker 1: of the government's case is hardly startling. The European Union
Speaker 1: has already done this case, and the government could have
Speaker 1: filed us three years ago. So I think they've pleaded
Speaker 1: a case that's not a laydown case, but it's a
Speaker 1: plausible case, strong case. Hard for Google to say in
Speaker 1: the end, oh, we're not a monopoly in search. Oh search,
Speaker 1: isn't the market. I mean, if that's the core of
Speaker 1: their argument, they don't win that way. Where they might
Speaker 1: win is convincing a judge that they've got a darn
Speaker 1: good product that consumers like And isn't that what the
Speaker 1: any trust laws and marketplace competition is all about? Thanks Harry.
Speaker 1: That's Professor Harry First of n y U Law School.
Speaker 1: The pandemic has affected every area of our life, bringing
Speaker 1: into stark contrast many areas of the law from bankruptcy
Speaker 1: to corporate governance. So how can law, governance and regulation
Speaker 1: be structured to bring about a more just and fair
Speaker 1: legal system. Columbia law professor Eric Talley addresses those questions
Speaker 1: in a new podcast series called Beyond Unprecedented the Post
Speaker 1: Pandemic Economy, and he joins me, now start by telling
Speaker 1: us about this podcast series and what you wanted to
Speaker 1: accomplish with it. Well, the podcast again again as sort
Speaker 1: of a brainchild between the mill Stein Center, which is
Speaker 1: a center that I co directed at Columbia, and our
Speaker 1: communications team and and and part of the idea was that,
Speaker 1: you know, everyone is so caught up in the dynamics
Speaker 1: of the current set of crises, but one of the
Speaker 1: things that seems to all of us that we need
Speaker 1: to be looking out for is how do we reimagine
Speaker 1: and reconfigure the way that you know, we organized laws
Speaker 1: and institutions and regulations as we come out of it.
Speaker 1: And so it was almost sort of an organic process
Speaker 1: by which we we really wanted to go beyond the
Speaker 1: current unprecedented events. And that's how we came up with
Speaker 1: the title Beyond Precedent. Let's start with One of your
Speaker 1: podcast was on income inequality, which certainly is more and
Speaker 1: more in our conversation lately, especially with the elections upcoming.
Speaker 1: How did the law contribute to income inequality? It's a
Speaker 1: great question, and there are a bunch of different ways
Speaker 1: that it has and you are exactly right to note that,
Speaker 1: you know, I think just about everyone would agree that
Speaker 1: wealth and income in equality has become almost one of
Speaker 1: the defining features of our time, whether you're an economist,
Speaker 1: a political scientist, or a lawyer. So one of the
Speaker 1: things that we end up spending a lot of time doing,
Speaker 1: and particularly myself I will say, is, you know, I
Speaker 1: teach business law, which on some level can be thought
Speaker 1: of as a very large, ornate field for trying to
Speaker 1: structure organizations and businesses in large part to create value,
Speaker 1: which from a business perspective is how do you minimize
Speaker 1: your tax liability? That's a big chunk of it. And
Speaker 1: just what it turns out that many of those structures
Speaker 1: that corporations are large, you know, limited partnerships or venture
Speaker 1: capital funds used for limiting their tax liability, they can
Speaker 1: carry over almost directly to family trusts, to family owned businesses,
Speaker 1: and if you are a person of considerable means it
Speaker 1: can be a vehicle by which to not only manage
Speaker 1: things like tax liability, but also protect those assets against
Speaker 1: any you know, problematic creditors or downturns that that one
Speaker 1: sees later on. So the well healed in the United
Speaker 1: States and across the world, This is not news to them.
Speaker 1: This has been a set of structures that have been
Speaker 1: routinely utilized by particularly wealthy individuals and businesses over the
Speaker 1: decades um and in fact, in some respects, many of
Speaker 1: the tax reforms and business reforms that took place starting
Speaker 1: in the late nineteen seventies and through pretty much two
Speaker 1: thousand added more fuel to the fire. It became possible
Speaker 1: not only to utilize some of these structures and tax
Speaker 1: protection devices as long as you're wealthy enough to make
Speaker 1: it worth while, but also to almost you know, almost
Speaker 1: weaponize it in some ways that that it it almost
Speaker 1: had an accelerating feature on on how you know, opportunity
Speaker 1: and wealth were distributed in a in a kind of
Speaker 1: a in a kind of a lopsided way within the
Speaker 1: United States as well as the world. And you know,
Speaker 1: it's it's a it's a hard issue to tackle in
Speaker 1: part because, um, you know, part of those wealth creation
Speaker 1: moments were probably also social value creation moments. They were innovations.
Speaker 1: There were new businesses that were being put into play
Speaker 1: that I think anyone would say, yes, this is added
Speaker 1: to the welfare of the United States and the world.
Speaker 1: But it but in the same moment that it did that, uh,
Speaker 1: that added productivity, that add growth also seemed to increasingly
Speaker 1: divide towards uh, towards the investor class. And uh and
Speaker 1: you know, we found ourselves even before this pandemic began,
Speaker 1: on the heels of a of a decade long migration
Speaker 1: that was often aided and assisted by some of these
Speaker 1: legal intax structures to put us ourselves in a position where,
Speaker 1: you know, we haven't seen this kind of uh of
Speaker 1: lopsided form of wealth and income distribution since the nineteen twenties. Uh.
Speaker 1: And it carries over not just into that context, but
Speaker 1: there are also many other sorts of follow on artifacts
Speaker 1: of it as well. UH. Education and schooling tends to
Speaker 1: tends to track some of these some of these features. UH. Nutrition,
Speaker 1: health tends attract some of these features as well. So
Speaker 1: UH it it in many respects, I think is is
Speaker 1: of all the all the episodes. One of the biggest
Speaker 1: and toughest eggs to crack. Speaking of cracking that egg,
Speaker 1: what can be done to address income inequality in our country. Well,
Speaker 1: one of the things that will come out when you
Speaker 1: listen to the to the episodes that there is not
Speaker 1: going to be a magic pill that we take it
Speaker 1: suddenly wealth and income into quality problems are going to
Speaker 1: be gone. I just don't think that that is, uh,
Speaker 1: neither of my guests in the podcast episode, and I
Speaker 1: don't think that that's a realistic possibility. That having been said,
Speaker 1: it seems to me that there's growing and coalescing support
Speaker 1: behind a couple of different things that might work. First,
Speaker 1: it turns out that even though many of these different
Speaker 1: types of business and tax structures have over the years
Speaker 1: systematically favored the well to do and the people who
Speaker 1: could sort of afford to engineer them, the once engineered,
Speaker 1: they're not that hard to copy it. So there are
Speaker 1: definitely some ways that that some of these structures can
Speaker 1: be incorporated into ordinary um individual finance, not at the
Speaker 1: you know, ten million dollar net worth level, but at
Speaker 1: a far at a far lower network level. So on
Speaker 1: some level, this is you know, access to reasonably good
Speaker 1: legal advice and how to navigate these very very same
Speaker 1: structures that the well to do have been able to
Speaker 1: navigate for years. Now, that's obviously only one, uh, one
Speaker 1: piece in the bucket. There is now, I think, growing
Speaker 1: impetus for trying to figure out how not only to
Speaker 1: engage in some sort of support of particularly of the
Speaker 1: lower middle class and the and the and the poor,
Speaker 1: but also to do so in a way that that
Speaker 1: is going to um allow them to to to be
Speaker 1: retrained for what is a you know, a changing workforce
Speaker 1: and and one that is probably changing, uh, you know,
Speaker 1: more dramatically than it has in my life, and I
Speaker 1: think the pandemic on some level. When you think about
Speaker 1: the the effects of the pandemic, it doesn't take too
Speaker 1: long for you to open up the Wall Street Journal
Speaker 1: and the Financial Times in the New York Times to
Speaker 1: read an article that says, yet another industry that has
Speaker 1: been focusing on, you know, an awful lot of a
Speaker 1: mix of of person power and an automation has decided
Speaker 1: to go fully automated because, uh, you know, slowdowns due
Speaker 1: to COVID make the economics of automating appropriate right now.
Speaker 1: So you know, my sense is that the crisis that
Speaker 1: the pandemic is going to send us even further into
Speaker 1: a type of a transition zone where even you know,
Speaker 1: jobs manufacturing, jobs that we thought were likely to be
Speaker 1: populated by humans for years to come are now going
Speaker 1: to be accelerated in that automated fashion. And and that
Speaker 1: doesn't mean that there won't be other employment opportunities in fact,
Speaker 1: nature of horrors of vacuum in this regard, but it
Speaker 1: will mean that the types of what employment opportunities are
Speaker 1: going to be different than the types that we saw
Speaker 1: even seven or eight years ago. If in fact, this
Speaker 1: this pandemic ends up visiting the types of transformation that
Speaker 1: that a lot of people think are going to happen.
Speaker 1: The pandemic has led to a number of bankruptcies, and
Speaker 1: we see small businesses closing all the time. One of
Speaker 1: your podcast is entitled making Bankruptcy a Better Tool for Resilience.
Speaker 1: First of all, what are the major problems that you
Speaker 1: see right now with the bankruptcy code? Yeah, well, this
Speaker 1: was a fascinating uh, this is a fascinating episode podcast.
Speaker 1: And one of the things that's interesting about it is
Speaker 1: that that when this pandemic started, I think people were
Speaker 1: expecting to see just a cavalcade of bankruptcies, and while
Speaker 1: there has been a little bit of an uptake, particularly
Speaker 1: with with with some larger firms, it's been way smaller
Speaker 1: than people expected it to be. And I think that
Speaker 1: may be in part simply because we bought ourselves in
Speaker 1: time with the Cares Act and and that payroll protection
Speaker 1: program that essentially allowed some businesses to limp a law
Speaker 1: probably until December of this year, things like uh forbearance
Speaker 1: on on various types of leases and mortgages as well.
Speaker 1: Um that having been said, you know, it seems to
Speaker 1: me that there are an awful lot of people that
Speaker 1: are in fact predicting that the rate of filing of
Speaker 1: bankrupts you're going to go way up. And there's also
Speaker 1: a shadow bankruptcy. There's a there is. You know, bankruptcy
Speaker 1: is really just the legal proceedings by which an insolvent
Speaker 1: person restructures their debts. But but knowing that that maybe
Speaker 1: on the road ahead often gets rise to almost any
Speaker 1: type of private restructuring that you can possibly imagine. And
Speaker 1: so so one of the areas that that is really
Speaker 1: kind of fascinating to think about is, you know, how
Speaker 1: do you design bankruptcy laws not necessarily so that the
Speaker 1: bankruptcy process itself is the is the key focus, but
Speaker 1: also how to help facilitate some of those private decisions
Speaker 1: to restructure. And we get the sense that a lot
Speaker 1: of that has been happening over the last six months.
Speaker 1: But let me give you an example of one area
Speaker 1: where bankruptcy law has not done a particularly good job
Speaker 1: of trying to figure things out. There are you know,
Speaker 1: and and and and the example might be in various
Speaker 1: types of securitization. And what I mean by a securitization
Speaker 1: is just, you know, maybe someone uh you know has
Speaker 1: borrowed money for a mortgage for a commercial property, and
Speaker 1: their mortgage is put into a pool with a bunch
Speaker 1: of others, and then the cash flows from that entire
Speaker 1: pool are sold off. Well, it turns out that that
Speaker 1: structure was sent around for a long time and very
Speaker 1: much contributed to the last finance of crisis we had.
Speaker 1: Is a very rigid one. There are so many parties involved,
Speaker 1: and there's this sort of master contract that governs when
Speaker 1: and under what circumstances, uh, those things can be restructured
Speaker 1: in environment where you didn't have all those things thrown
Speaker 1: into a pool and locked into a securitization system, it
Speaker 1: would be somewhat easier to restructure the mortgages, to kind
Speaker 1: of alter the terms in a way that would allow
Speaker 1: them to be paid back in a in a way
Speaker 1: that better accommodates the current economic crisis. But those structures
Speaker 1: are hugely rigid, and so there is a definitely a
Speaker 1: lack of information about what they look like and a
Speaker 1: real lack of of perceived ability to kind of induce
Speaker 1: the restructuring of those sorts of contracts. And and they
Speaker 1: haven't played out yet. There's a reasonable chance that that
Speaker 1: kind of a horror show that we saw play out
Speaker 1: in the two thousand and eight two thousand nine financial
Speaker 1: crisis could recur again where um, you know, no one
Speaker 1: is able to really restructure their mortgages. Their cash flows
Speaker 1: has gone way down because you know, you know, economic
Speaker 1: operations and economic activity is much lower, and it ends
Speaker 1: up almost forcing people either into insolvency or bankruptcy. So
Speaker 1: one of the things that that uh that you know,
Speaker 1: I think you know, bankruptcy scholars and you know also
Speaker 1: commercial law you know, policy makers can think about is
Speaker 1: how can we you know, how can we reconceptualize these
Speaker 1: deals that that makes them a little bit more resilient
Speaker 1: in the face of of a systemwide economic crash. And
Speaker 1: you know, on some level, it's a little embarrassing that
Speaker 1: we weren't able to solve this, given that we went
Speaker 1: through a financial crisis twelve years ago and exactly the
Speaker 1: same issue occurred. So related to this is small businesses.
Speaker 1: And you have UH podcast called Helping Small Businesses Survive
Speaker 1: and Thrive. This is a really tough time for a
Speaker 1: lot of small businesses. And you know, you look in
Speaker 1: your own neighborhood, you're bound to see small businesses that
Speaker 1: have closed. Yeah. Absolutely, this is a this is a
Speaker 1: big issue, and it is closely related to the bankruptcy issue.
Speaker 1: You know, I I love right by Columbia Law School,
Speaker 1: and we're up in in northern Manhattan and Harlem, and
Speaker 1: and this was this is a vibrant area of entrepreneurs
Speaker 1: opening restaurants and coffee shops and stores and and and
Speaker 1: that's been underway for many years and UH and many
Speaker 1: of the local residents around here and local businesses have
Speaker 1: really taken in the shops during the course of the
Speaker 1: of of this particular crisis. And it's exactly the group
Speaker 1: of businesses that you would think the businesses that end
Speaker 1: up relying on uh, you know, a business model that
Speaker 1: requires people to congregate in some area, you know, fitness
Speaker 1: clubs and cafes and UH and and and and bars
Speaker 1: and some restaurants. There's so there're been other ones that that,
Speaker 1: in fact have probably done a little bit better things,
Speaker 1: you know, things having to do with home delivery services
Speaker 1: and so forth. But on the whole, it's been very,
Speaker 1: very difficult for a lot of these entrepreneurs to make
Speaker 1: it through. Now, some of them took advantage of the
Speaker 1: payroll Protection Program and we're able to you know, make
Speaker 1: make it this far, you know, paying their their employees
Speaker 1: with the assistance of some of these grants that were
Speaker 1: made by the federal government, but those are about to
Speaker 1: run out. And in addition, a lot of these businesses
Speaker 1: just realized, look, we're not going to be generating revenue
Speaker 1: in this you know, in this bar or restaurant or
Speaker 1: or or or gym for for for months, if not years,
Speaker 1: and let me just shutter. And so you know, if
Speaker 1: you if you look at some of the more reliable
Speaker 1: databases on small businesses, like yelp, uh, it's a it's
Speaker 1: an astounding number of small businesses that are not just
Speaker 1: temporarily closed, but are permanently closed. UM. And so so
Speaker 1: this is in many ways one of the big as tragedies.
Speaker 1: With the current of the of the current uh you
Speaker 1: know situation, there may be some benefits on the uh
Speaker 1: you know going forward, but I think they would also
Speaker 1: require a little bit of of attention from a legal
Speaker 1: and regulatory perspective. So, for example, UM, one of the
Speaker 1: things that that is, you know, if you're an owner
Speaker 1: of a vacant commercial uh you know space that you
Speaker 1: were you know, thinking maybe I'd like to lease out
Speaker 1: someone who's thinking about opening a business, but you've been
Speaker 1: leasing it for you know, fifty thou dollars a month,
Speaker 1: and now it's going to be really hard to lease
Speaker 1: it for anything more than thirty thou dollars a month. UM.
Speaker 1: It may in some circumstances be more profitable just to
Speaker 1: leave it vacant, to leave it um, to to leave
Speaker 1: it shuttered, um and use those tax losses to offset
Speaker 1: gains that you have somewhere else. Wint on some level
Speaker 1: is a little bit crazy, but but you know, our
Speaker 1: tax code systems sometimes rewards UH owners who really just
Speaker 1: don't want to to uh to to to you know,
Speaker 1: rent their commercial properties and anything lower than their historical value.
Speaker 1: And there are some legal reforms that can be helpful
Speaker 1: in doing that. San Francisco is about to you know,
Speaker 1: is implementing a vacancy tax for for for for businesses
Speaker 1: they look but it will also be costly for you
Speaker 1: to keep those businesses vacant. Another thing that's probably worth
Speaker 1: thinking about is these entrepreneurs who have gone out of business.
Speaker 1: A lot of the value of those business businesses is
Speaker 1: in the entrepreneur himself or herself. And so I think
Speaker 1: there is a sense in which some of these folks
Speaker 1: they are going to be back in business. They may
Speaker 1: not be exactly the same business, or it may not
Speaker 1: be cast exactly the same way, but the very same
Speaker 1: imaginativeness and creativeness and and uh and grit is out there.
Speaker 1: Um And one of the key things that we need
Speaker 1: to think about is how do we facilitate that resurgence
Speaker 1: want it occurs and you know, some of these you know,
Speaker 1: you know ideas on how you would incentivize commercial real
Speaker 1: estateholders to welcome back these folks they try to outlap
Speaker 1: businesses is a key part of the Equation. Thanks Eric.
Speaker 1: That's Eric Tallely of Columbia Law School and you can
Speaker 1: listen to his podcast series Beyond Unprecedented on Apple Podcasts, Spotify,
Speaker 1: or Columbia Law School's website. And that's for this edition
Speaker 1: of The Bloomberg Law Show. Remember you can always get
Speaker 1: the latest legal news on our Bloomberg Lawn Podcast. You
Speaker 1: can find them on Apple podcast or www dot Bloomberg
Speaker 1: dot com slash podcast Slash Law. I'm June Grosso. Thanks
Speaker 1: so much for listening, and remember to tune to The
Speaker 1: Bloomberg Law Show every weeknight at chenpm East Joan right
Speaker 1: here on Bloomberg Radio