With government so involved in business, business cannot afford to sit on the sidelines. A recent Mercatus Center at George Mason University study explores the relationship between business political activity (lobbying and campaign expenditures) and business success, and finds that with few exceptions, lobbying isn't correlated with better business performance. The paper's findings must be viewed in light of an important factor driving companies' involvement in policy debates: the need to fend off distortive, ineffective, and costly regulations. This type of lobbying is not likely to generate profits.

Paul Krugman, in today's New York Times, assures us that Dodd-Frank is working, despite claims to the contrary from critics all across the political spectrum. To make his case, Krugman points to consumer protection, resolution, and the designation of systemically important financial institutions. On each of these fronts, his defense falls short.

Dodd-Frank turns four today. Proponents marketed the law as the response to the financial crisis of 2007 to 2009, even though it included many unrelated items and left out many matters central to the crisis. It is not surprising that four years later, Dodd-Frank is still flawed. A recent poll conducted on behalf of Better Markets found that sixty percent of the respondents support "stricter federal regulation on the way banks and other financial institutions conduct their business." Only ten percent of survey respondents think the federal government is doing a good job regulating the financial industry using the powers it has already, so additional authority for the government is not the answer. A more effective approach would be to allow the markets to do what they do best--allocate resources to their most productive use and punish firms that are not delivering products and services that people want and need at prices they are willing to pay. Government regulations often impede these healthy market functions. An intense government regulatory regime, such as the one embodied in Dodd-Frank, comes with deep government relationships with large financial institutions and implicit or explicit guarantees that the government will be there to clean up those firms' meeses. Taxpayers bear the cost of this regulatory regime, but so do the consumers and Main Street companies that financial markets are supposed to serve.

By Olivia Davidson
Summer Intern, Manhattan Institute's Center for Legal Policy

Two weeks ago, supposed baseball fan Andrew Rector filed a defamation lawsuit against Major League Baseball, ESPN, commentators Dan Shulman and John Kruk, and the New York Yankees for $10 million. Rector, who was caught sleeping on camera during a Yankees-Red Sox game on April 13th, claims that the commentators "unleashed an avalanche of disparaging words" commenting on his weight and ability to sleep through a home run.

Defamation is not a crime, but a tort, and for a statement to qualify as slander (a defamatory statement that is spoken), the following elements must be proven, writes attorney Emily Doskow:

"Published" means that a third party heard or saw the statement...

A defamatory statement must be false -- otherwise it's not considered damaging. Even terribly mean or disparaging things are not defamatory if the shoe fits...

The statement must be "injurious". Those suing for defamation must show how their reputations were hurt by the false statement -- for example, the person lost work; was shunned by neighbors, friends, or family members; or was harassed by the press...

"Unprivileged": Lawmakers have decided that in [some] situations, which are considered "privileged," free speech is so important that the speakers should not be constrained by worries that they will be sued for defamation...

In Rector's case, the alleged slander is evidently published and unprivileged, though whether or not it was injurious and false remains to be determined by the Court. According to a NY Times article,

Mr. Rector maintains the announcers used words like 'fatty' and 'stupid' to describe him, but neither Mr. Shulman nor Mr. Kruk uttered such insults in the clip [of their commentary]. It is unclear whether they commented later in the game on Mr. Rector's lengthy nap, implying perhaps the falsehood lies in Rectors idiosyncratic and frequently grammatically incorrect complaint.

Undeniably, following the upload of the clip to Youtube by MLB, Rector was subject to public ridicule, being called 'Sleeping Beauty' by one Twitter user. Rector goes as far as to say he has "suffered substantial injury" to his "character and reputation," as well as "mental anguish, loss of future income and loss of earning capacity." Rector's mother supported his claims saying he had missed work because of the public scorn he had experienced and that "everyone made fun of him everywhere he went."'

Rector is also suing for intentional infliction of emotional distress which requires an intentional or reckless act, outrageous conduct, causation and sufferance of emotional distress by the plaintiff.

As Texans for Lawsuit Reform wrote, "Lampooning the lawsuit industry has become an industry unto itself." We'll have to see if Rector has what it takes to make it in this business and win his plea.

Now that the Supreme Court's flurry of opinions for the last term is out, we can start thinking ahead to the new term. The Court will consider a case based on a provision of the Sarbanes-Oxley Act, which was the legislative response to the Enron-era accounting scandals. The law is now being used to pursue fish destruction--a type of fraud that most certainly was not within Sarbanes-Oxley's intended reach.

The ruling in Erica P. John Fund v. Halliburton got lost among the other opinions released at the end of the Supreme Court's term. The case had already been to the Supreme Court once on a separate issue. This iteration presented the Court with the opportunity to fundamentally rethink its own role in generating securities class actions. Instead, the Court made only peripheral changes that slightly limit the leverage that class action attorneys have against a corporation after a drop in its stock price.

The Wall Street Journal reports that Michael Corbat, the CEO of Citigroup, has a singular focus--ensuring that his bank passes its next stress test. The bank's failure of its most recent stress test last spring was an unwelcome surprise. The Journal reports that its failure was rooted in the qualitative portion of the test. Mr. Corbat is thus focusing on "courting the Fed" with visits; "passing next year's stress test [is] his 'Mission No. 1.'" How sad that a bank manager's overriding objective is to cozy up to his regulators so that they give him their blessing. Doing so might not even keep the bank safe. What if the regulators' focus is misplaced? As much as we want to believe that regulators are omniscient and unbiased decision-makers, they have limited information and sometimes miss things or exercise imperfect judgment. The Fed made supervisory missteps with respect to entities like Citi in the lead-up to the last crisis, and that is not surprising. Regulators simply are not able to collect and process information as quickly and effectively as necessary to be outside risk managers for the big banks. Moreover, as John Cochrane observed in a recent article, "[a] system more ripe for capture and a revolving door would be hard to design." Our regulatory system should be designed to encourage bankers to pay close attention to the challenges and opportunities faced by their institutions, not to keep their eyes fixed on every move their regulators make. Bank executives with their heads in the regulatory clouds are likely to miss important happenings on the ground.

The Wall Street Journal reports that the Financial Industry Regulatory Authority is reviewing its penalty guidelines to make sure they are appropriately severe. This review follows a speech by Securities and Exchange Commission member Kara Stein, in which she opined that FINRA penalties are "too often financially insignificant for the wrongdoers" and urged FINRA to make penalties high enough to be "impactful, and provide strong motivation for compliance." It is good that someone at the SEC is paying attention to FINRA, but a blanket suggestion to raise penalties may serve only to exacerbate problems that arise from FINRA's inadequate accountability structure.

Last week, payday lenders sued the Federal Deposit Insurance Corporation, the Office of the Comptroller of the Currency, and the Board of Governors of the Federal Reserve System for allegedly dissuading banks from doing business with payday lenders. Plaintiffs argue that the bank regulators' efforts are part of the now infamous "Operation Choke Point," the Department of Justice's program to prevent fraudsters from gaining access to the banking system. Bank regulators, through these Choke Point initiatives, have effectively changed the regulatory landscape for banks and legitimate businesses without affording these entities an opportunity to weigh in.

The payday lenders contend that the banking regulators, urging banks to be mindful of reputation risk, have forced banks to sever their relationships with payday lenders. Rather than using notice-and-comment rulemaking, bank regulators have used informal methods to spur action, such as guidance documents and suggestions by bank examiners. Using guidance documents and other informal means to influence bank behavior, plaintiffs argue, runs afoul of the Administrative Procedure Act, because they are de facto mandates on banks that are implemented without public input. FDIC guidance, for example, identifies as higher-risk activities payday lending, magazine subscriptions, and pharmaceutical sales. Although these regulatory directives are about keeping banks away from bad actors, banks would rather cut ties with a legitimate customer than risk attention from their regulators. As the Department of Justice explained in a September 9, 2013 memo, it is up to legitimate businesses "through their own dealings with banks, [to] present sufficient information to the banks to convince them that their business model and lending operations are wholly legitimate." Such information campaigns likely will go unheeded by bankers following the not-so-subtle hints they are getting from their regulators.

Yesterday's decision in SEC v. Citigroup weakens the much needed judicial check on the Securities and Exchange Commission's enforcement program. The U.S. Court of Appeals for the Second Circuit told District Court Judge Jed Rakoff to stop being so skeptical when the SEC presents him with settled enforcement actions.