Corporate Governance Regulation: How Poor Management Is Destroying the Global Economy

Introduction

Several factors suggest that the U.S. financial markets may be more in need of transparency today than at any time in past history. As just one of many potential examples, a looming credit crisis forced the sale of Bear Stearns Co., the fifth-largest U.S. investment bank. Its stock market value reached $18 billion in 2007, then fell to $3.5 billion on March 14, 2008.¹ Two days later, the firm was rescued by JPMorgan Chase for a mere $236 million²—a transaction made possible only with a $30 billion infusion from the Federal Reserve.³

Market Capitalization of Bear Stearns ($bn)

Source: NYSE.

Regrettably, the ill-fated rescue of Bear Stearns by JPMorgan Chase—with the help of the U.S. taxpayer—further decimated the economic climate, and added to the number of serious and costly policy blunders committed by U.S. regulators since the enactment of the Sarbanes-Oxley Act of 2002. This most recent blunder, contrary to addressing the profound, underlying policy issues motivating corporate executives to mismanage firm risk(s) in heretofore unseen levels with catastrophic consequences to shareholders and the general public, offered a veiled assurance to other would-be misanthropic executives that the financial responsibility for any additional, egregious acts of corporate irresponsibility would be borne squarely upon the shoulders of (innocent) taxpayers. As a result, large ...