Disorganized Crimes: Why Corporate Governance and Government Intervention Failed, and What We Can Do About It PDF
Preview Disorganized Crimes: Why Corporate Governance and Government Intervention Failed, and What We Can Do About It
Disorganized Crimes This page intentionally left blank Disorganized Crimes Why Corporate Governance and Government Intervention Failed, and What We Can Do About It Bernard E. Munk ©BernardE.Munk2013 Softcover reprint of the hardcover 1st edition 2013 978-1-137-33026-0 Allrightsreserved.Noreproduction,copyortransmissionofthis publicationmaybemadewithoutwrittenpermission. Noportionofthispublicationmaybereproduced,copiedortransmitted savewithwrittenpermissionorinaccordancewiththeprovisionsofthe Copyright,DesignsandPatentsAct1988,orunderthetermsofanylicence permittinglimitedcopyingissuedbytheCopyrightLicensingAgency, SaffronHouse,6–10KirbyStreet,LondonEC1N8TS. Anypersonwhodoesanyunauthorizedactinrelationtothispublication maybeliabletocriminalprosecutionandcivilclaimsfordamages. Theauthorhasassertedhisrighttobeidentifiedastheauthorofthiswork inaccordancewiththeCopyright,DesignsandPatentsAct1988. Firstpublished2013by PALGRAVEMACMILLAN PalgraveMacmillanintheUKisanimprintofMacmillanPublishersLimited, registeredinEngland,companynumber785998,ofHoundmills,Basingstoke, HampshireRG216XS. PalgraveMacmillanintheUSisadivisionofStMartin’sPressLLC, 175FifthAvenue,NewYork,NY10010. PalgraveMacmillanistheglobalacademicimprintoftheabovecompanies andhascompaniesandrepresentativesthroughouttheworld. Palgrave®andMacmillan®areregisteredtrademarksintheUnitedStates, theUnitedKingdom,Europeandothercountries. ISBN 978-1-349-46090-8 ISBN 978-1-137-33027-7 (eBook) DOI 10.1057/9781137330277 Thisbookisprintedonpapersuitableforrecyclingandmadefromfully managedandsustainedforestsources.Logging,pulpingandmanufacturing processesareexpectedtoconformtotheenvironmentalregulationsofthe countryoforigin. AcataloguerecordforthisbookisavailablefromtheBritishLibrary. AcatalogrecordforthisbookisavailablefromtheLibraryofCongress. ThisbookisdedicatedinlovingmemoryofDEMandHGJwhose careandsupportneverwavered. Iwillmissthemforever. This page intentionally left blank Contents ListofTables x ListofFigures xi Acknowledgments xii 1 Who’stheFish? 1 2 BehindEveryGreatFortuneIsaGreatCrime 13 TheGreatHeistsofHistory 13 TheCreditCrisiswasDisorganizedCrime 15 3 SeeingOne’sFriendsGettingRichIsUpsetting 18 Boom–Bust,FinancialScandalandGovernance 18 AnAssessment 25 4 RoundUptheUsualSuspects 31 IncentivesforMisgovernance 31 ConspiracyorSelf-Delusion 38 5 CarrotsforGoodGovernance 46 GoodGovernanceRequiresProperIncentives 46 FailuresofRearViewMirrorReforms 50 CreatingIncentivesforGoodCorporateGovernance 52 6 TheConflictsofManagerialCapitalism 61 ThePermanentConflictofInterest 61 TheParadoxofCorporateGovernanceFailures 63 TheAgencyProblem 71 PerformancePay:ATwo-EdgedSword 73 UnlearnedLessonsinSupervisingRiskManagement 76 vii viii Contents 7 CallThemDisorganizedCrimes 79 OtherPeople’sProperty 79 CommonThemesofDisorganizedCrimes 95 8 ConnectingtheDots 100 DisorganizedCrimes:OriginsandConsequences 100 WealthEffectsofOptionCompensation 107 EconomicMotivation 108 UncertaintyandtheEnvironmentforProducingCollusion 112 Gatekeeping;RegulationandIncentives 114 9 TheCorporateGovernanceDilemma 118 WhatDoWeWantFromOurSystem? 118 Panics,UncertaintyandInstitutionalChange 120 CentralIssues 128 AFatalFlawinContemporaryCorporateGovernance 135 10 MicroRisksandMacroDisturbances 137 CreditDefaultSwaps 143 Reflexivity 145 11 CrimeandPunishment 150 12 FoolishBankersandBurdenedTaxpayers 161 PayMeNoworPayMeLater 161 TooBigtobeAllowedtoFail:AIGandtheGSEs 168 13 NoPlacetoHide 175 PublicMarketsandPublicPolicy 175 PublicPolicyRegardingCorporateDefaults 181 MoralHazard 182 PoliticalGovernance–ContradictionsinPublicPolicy Stances 184 14 Remediation 188 ThePartneringofMarketsandRegulations 188 AFrameworkforRemediation 190 RiskManagementCommittee 191 RMCMemberQualifications 193 ExpertBoardMembers 193 DirectorLiability 195 Director’sInsurance 195 DirectorIndependence 196 SeparatingtheOfficesofChairmanandCEO 196 AppointmentofDirectorsandTermsofOffice 197 Contents ix TermLimits 198 CompensationSystemsandinternalpromotionstandards 199 UsingOutsideCompensationExperts 200 DealingwithCapitalMarketConspirators 202 CapitalMarketServicerLiability 203 TermLimitsforCapitalMarketServicers 204 RatingAgenciesOnceMore 205 BanksandOtherFinancialIntermediaries 206 IstheMarketaCasino? 207 TheRoleofGovernment 208 OtherMarketResponsestoDeficientCorporateGovernance 209 15 FinancialAlchemy 212 EnronErav.CreditCrisis:DéjàVuAllOverAgain? 212 BuilduptotheCreditCrisisof2007–08 214 Nesting:BirdsofaFeather 220 MarketFailuresorMarket-CenteredSolutions 221 BankruptcyasaMarketDrivenProcess 223 ForgettingNothingandLearningSomething:Observations andConclusionsonCorporateGovernanceand InstitutionalChange 223 16 Epilogue 228 Notes 236 Bibliography 290 AuthorIndex 301 SubjectIndex 303
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