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legal corruption

Capture and the Financial Crisis

Submitted by Kaufmann on Mon, 2009-03-09 17:41

There is no 'theory-independent' way of viewing reality.  We see and analyze world events through our own prism, shaped and tinted by upbringing, experiences, training and professional field of expertise. So it is not surprising that when it comes to the many explanations given for the current financial crisis, they differ greatly.

From Madoff to Stanford Ponzi, from SEC to Congress: in dire need of political reforms

Submitted by Kaufmann on Wed, 2009-02-18 12:25

Another Ponzi scheme has allegedly been uncovered now, led by the Texas Financier R. A. Stanford, who may have swindled about 50,000 investors out of US $8 billion, or so.  The Feds have raided his house of cards but were having a hard time finding him. 

At US $50 billion, Madoff may have stood out because of the sheer magnitude of his scam.  But obviously he is not alone in large Ponzi schemes, not even within the US.  As global financial conditions have continued to deteriorate, the nakedness of those emperors without clothes is starkly exposed. 

But like the case of Madoff, this case also raises questions about whether ‘the SEC was asleep at the switch’ in this case as well.  Evidently allegations of fraud (and possible drug money laundering) have been made against Stanford over the past decade.  Yet the SEC took belated action very recently only after two former employees filed a lawsuit in civil court.

 

From self regulation to government regulation: Mary Shapiro move to the SEC as a metaphor?

Submitted by Kaufmann on Tue, 2009-01-27 12:59

Mary Shapiro, unquestionably a highly qualified choice, was confirmed by the US Senate and is expected to be sworn in the next days as the new chairman of the Securities Exchange Commission (SEC).  She would literally be moving from a chief self-regulator to a chief government regulator.  Her previous position was as CEO of the Financial Industry Regulatory Authority, FINRA, the largest independent and non-governmental regulator for securities firms in the US.  In her Senate hearings, Shapiro indicated that she would give priority to the regulatory problem in the country and that she will reinvigorate the SEC enforcement divisions.  But according to a Wall Street Journal article, Shapiro showed a light regulatory touch at FINRA.

 

Illinois Governor Blagojevich: sign of endemic corruption in the US?

Submitted by Kaufmann on Thu, 2008-12-11 14:00

The new corruption scandal embroiling Illinois Governor Blagojevich is already resulting in sweeping generalizations about the hopelessly corrupt state of that State.  And commentators from other States are jumping in to suggest that their State can compete with Illinois in having such high levels of corruption. 

Wait a second.  First, let us take a world-wide perspective.  Granted, the US in general is not a model for the world in terms of control of corruption.  Countries like New Zealand and the Nordics are closer to being a model of integrity instead.  There are 18 countries rating better than the US in controlling corruption according to the Worldwide Governance Indicators.     Yet there are about 190 countries rating worse.   

 

Capture and the Financial Crisis: An Elephant forcing a rethink of Corruption?

Submitted by Kaufmann on Mon, 2008-11-03 01:48

Mushrooming analysis of the determinants of the financial crisis are all over the web.  They range from simplistic and blanket accusations of the ‘greed’ of the market capitalism to the arcane technical explanation of a misguided regulatory covenant on the other. And the spectrum is crowded, including the misstep by Treasury Secretary Paulson in letting Lehman fail that fateful weekend.

When all is said and done, some consensus may emerge about which particular combination of a few fundamental factors, coupled with recent policy and oversight failure, were culprits. I am not weighing in now on what the precise ingredients of such debacle were.  Instead, I want to focus on one factor that has often been kept under wraps:  the regulatory and policy capture by vested interests.  This has been years in the making.  And we have been researching and measuring the notion of capture for a decade, and providing some general warning. A frank and open debate about this issue, grounded on sound analytics and data, is overdue.