Every month — if not week — brings new reports of allegations, settlements, and, in some cases, admissions involving the banking industry, many involving the largest and best-known banks. The law has attempted to address these problems, but has not done so successfully. Indeed, society...

This paper argues that a nuanced view of sophisticated investors, as well as sellers and structurers of financial instruments, articulated within a rationality paradigm, has implications for financial regulation. The paper distinguishes between conformist investors, who tend to herd, and...

The scandals in the financial industry have thus far been beyond the law's power to prevent. Many constituencies have suffered significant harm, including those dealing with financial institutions, and many others. Indeed, the institutions themselves have also been adversely affected. Bank...

A ‘perfect storm’ of pathologies and (financial) technologies contributed to the financial crisis. Investment bankers became willing and able to expend significant energy chasing massive payoffs, where the conduct being rewarded was at best societally neutral but more likely harm-causing. To...

Why did rating agencies do such a bad job rating subprime securities? The conventional answer draws heavily on the fact that ratings are paid for by the issuers: Issuers could, and do, “buy” high ratings from willing sellers, the rating agencies. The conventional answer cannot be wholly...

The decision to forsake large or long-term benefits, or incur large costs, for small, short term benefits is often referred to as irrational, as are people who make such a decision. The author suggests that some people making these “irrational” decisions may have a rational basis that...

Enron was rated investment grade by Moody’s, Standard and Poor’s, and Fitch until four days before it declared bankruptcy - scarcely a ringing endorsement of the agencies’ acumen. Even before Enron, the rating agencies had come in for significant criticism. Yet many investors who lost...

Securitization, a complex financing technique, has been used by Latin American firms since the late 1980s. After the debt crisis of the mid-1980s, Latin American firms needed to develop new ways of appealing to foreign investors fearful of political risk; securitization, a transaction structure...

Complex business contracts are notoriously difficult to write and read. Certainly, when litigation arises, courts scarcely have an easy time interpreting them. Indeed, contracts don't look at all as though they are written to tell a court what the parties want. Why can't smart, well-motivated...

Economists typically assume that preferences are fixed - that people know what they like and how much they like it relative to all other things, and that this rank-ordering is stable over time. But this assumption has never been accepted by any other discipline. Economists are increasingly...