Frank Pasquale Blogging About “A Deep Rot at the Core of American Finance and Politics”

Posted on Categories Business Regulation, Corporate Law

Over at Concurring Opinions, Frank Pasquale has written a post entitled “The Economics Was Fake But the Bonuses Were Real.”  If you find yourself wondering lately about whether and how we will “rebuild the trust necessary for a thriving economy” (Pasquale’s words), it’s worth reading.  He discusses, for instance, the recent and somewhat surprising statements by a “shaken Richard Posner,” who seems to be losing his faith in law and economics. And he describes the profound opportunism at the base of our economic crisis:

The current crisis exposes the fragility of markets generally. They are built on mutual reciprocity, and as more opportunism from trusted intermediaries is exposed, the weaker our faith in other market actors becomes. Both Francis Fukuyama’s work on trust and Robert Putnam’s on the “social capital” it reflects bode ill for our economy. Putnam describes a southern Italy mired in corruption and fraud, and a northern Italy whose economic success is built on its long history of civic associations and mutual endeavor. Can anyone doubt that our economy is exposed (with each passing day) as more Sicilian in its “winners'” casual acceptance of fraud, more Russian in its oligarchic tendencies, more Brazilian in its inequality? After the Madoff scandal, what are investors to do–personally spot-check their broker’s office and assure that trades are actually being made?

There is a bunch of other interesting stuff in this post, but I think I’ll just end with my favorite part.  In discussing the “worship of wealth,” Pasquale quotes from the blog of former fund manager John Bogle:

At a party given by a billionaire on Shelter Island, the late Kurt Vonnegut informs his pal, the author Joseph Heller, that their host, a hedge fund manager, had made more money in a single day than Heller had earned from his wildly popular novel Catch 22 over its whole history. Heller responds, “Yes, but I have something he will never have . . . Enough.”

One thought on “Frank Pasquale Blogging About “A Deep Rot at the Core of American Finance and Politics””

  1. Thanks for the link! I think we are finding a sea-change in public responses to the crisis. For example, this very smart piece by Ngaire Woods articulates a whole new way of looking at regulation:
    http://www.guardian.co.uk/commentisfree/2008/dec/19/global-corporate-financial-regulation-madoff/print

    “The bankers, earning millions, persuaded regulators earning thousands to opt for a “light touch” which allowed them to take more risks. The explosion of new instruments, off-balance sheet activities and fancy risk models made regulation ever more difficult.

    What is needed is a hefty global regulatory framework. Three elements are crucial. First, there have to be robust and enforceable rules at an international level: recent events have made it clear that all countries, not just those with big financial sectors, stand to lose from a crisis in the industry.

    Second, oversight has to be made more powerful and effective: global institutions need to monitor and report on national regulators, pressing them to apply regulatory standards and resist lobbying to “lighten up”. “

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