Monday, April 26, 2010

Wrestling with the gods of Risk – Why Do We Keep Coming up Short?

Many thanks to dré cummings and company for inviting me to guest blog with Corporate Justice. I am delighted to discover a forum like Corporate Justice. During my years as a practicing lawyer in New York, I had the opportunity to support clients who engaged in public and private, domestic and international business transactions including securities offerings, syndicated credit facilities and acquisitions and dispositions of businesses. I had hoped and am enthusiastic to embark upon the marriage of that experience with my dream job – law teaching (hang in there, for those planning to go onto the teaching job market next fall).

My current research focuses on a variety of aspects of financial markets regulation. I teach corporations, securities regulations and a seminar exploring the intersection of federal law and corporate governance. I recently posted to SSRN an article exploring derivative securities and hope to share and receive commentary on certain issues raised in the article.

Risk management has presented itself as one of the most interesting topics underlying my current research. The discussion of risk management is rich and complex. For over a decade, financial institutions and hedge funds have challenged regulation of exotic financial investment products like credit derivatives because these instruments, financial intermediaries argue, offer a valuable risk management tool. Even if instruments like credit default swaps assist some financial services firms by allowing them to hedge against risk, as the recent crisis demonstrates, these investment products engender grave concerns.

In my forthcoming posts, I would like to explore these and other concerns such as the pending legislation in Congress designed to address the recent financial crisis, the SEC’s allegations against Goldman Sachs and Goldman’s role in the use of derivatives to assist Greece in doctoring its national debt levels to facilitate the country’s acceptance into the Eurozone. Hopefully, each will offer an opportunity to explore noteworthy normative issues and cultural assumptions about risk management, financial markets and financial market participants’ innovative creation of products and investment strategies designed to defy the odds of risk.


  1. STU Steve Newbold

    Welcome to this blog! I have enjoyed discussion with all the posters. Some I agree and others I disagree, but the conversation is always funs.

    One thing that I would like one of the bloggers to address is the push for the One World Government.

    I just don't think that the policies concerning the European Union and Greece can adequately be addressed while ignoring the fact that these policies are motivated by the desire to erode National Sovereignty and form a One-World-Government.

    The mainstream media is not allowed to discuss these issues, but the underground media reports on them regularly.

    Here's a quote from former Secretary of State Henry Kissinger:

    "That system is now changing fundamentally. In Europe the national state which brought about the greatness of the various European countries, is in the process of being abandoned. And European countries freely are ceding their… much of their sovereignty, and will do more, to the European Union. Now this is one of the creative acts of the current period..”

    The main stream media is not allowed to talk about the One-World-Government.

    One member of the mainstream media went rogue an consistently reported on the elites desire to a One-World-Government.

    That was Lou Dobbs of CNN.

    Of course what many people do not know about Lou Dobbs is that last October there was an assasination attempt on his life. There was a drive by shooting in his home, followed by numerous death threats which forced him into retirement.

    Most people do not know this because, like the elites desire for a One-World-Government, the mainstream media also completely ignored the attempt to assasinate Lou Dobbs and scare him into retirement.

    Anyways the point is, ALL these corporate policies are connected to a desire to bring us to a one-world-government, to ignore that is to ignore the heart of these corporate policies and economic policies.

    I hope this blog soon addresses the world economy and policies surrounding financial reform, with this in mind.

  2. I agree with Mr. Newbold...

    "I just don't think that the policies concerning the European Union and Greece can adequately be addressed while ignoring the fact that these policies are motivated by the desire to erode National Sovereignty and form a One-World-Government."

    Steve has a valid point. If you look at the increasing relationships and companies spanning out world wide, combined with increased technology and internet communications, the one world theory will only get stronger and stronger.
    Plus, our current President is a major supporter of international business...

  3. I think the "One World Government" that my classmates above are an optimistic ideology. I do not think a one world government is the answer to the financial problems that plague America right now nor other counties. While I agree that the EU is a promising union for Europe, I think that the problems of the EU will continue to haunt them for years to come. These problems include the inability to get legislation passed that is better for all of its members. While the EU does require certain qualifications to join, the problem is what is best for Greece is not necessarily best for Poland. Financial problems that plague Italy may not plague other members of the EU. Plus, I like the idea of America being an independent country and continuing to remain an powerhouse internationally.

  4. Steve Newbold STU

    Angela, no one is optimistic about the One World Government. I think it would be a terrible thing for the world. Although an idealist would hope it would be an end to war, I think the goal of it would be to control us "Sheeple" and take away our liberty.

    I realize to some this sounds like an outrageous claim, that many believe could never happen, but some of the elites, both on the "right" and "left" are open about wanting it.

    George Bush I was very clear about his desire achieve this goal, and Bush II, although not as vocal about it as his father clearly is of the same ideology which is apparent in the NAFTA agreement he signed, which expressly trumps the United States Constitution.

    I think it's not only relevant on this board, but goes hand-in-hand with nearly everything that's reported on this board, because the economic policies, particularly what is going on with the Euro, are at the forefront of eroding national sovereignty.

  5. Concerning the original article, I would like to say that there can never be enough research done into workings of derivative and swap markets and their regulation. While understand the need for creation of capital through derivative and swaps, I do not believe that there can ever be effective regulation of these markets. I believe the an effective regulation scheme must include a decentralization of not the companies that are investing but the markets themselves. Too many transactions occur throughout the day for any one agency or supervisory board to effectively regulate market transactions that are intended to manipulate. More markets with limited trades may be a better approach to tackling regulation.

  6. It is apparent that there needs to be stricter scrutiny of these risky investment strategies to prevent a future national and global economic crisis. Hopefully the pending congressional legislation will not be bogged down in partisan politics but will make a lasting change for the future. Risk is a part of the financial world but it seems as though firms like Goldman Sachs have forgotten where their duties lie and as a consequence their own clients have suffered, leading many to distrust investment firms. Without the necessary element of trust in these business relationships the public will lose faith in the market and business will suffer. Practices like these must be prevented from becoming a common place in the markets in the future.

    - Jonathan Haskell