Keynote Address: The Role of Lawyers in the Global Financial Crisis

Abstract

In recent articles, the author has argued that the global financial crisis can be attributed in large part to three causes — conflicts, complacency and complexity — as well as to a type of tragedy of the commons. This article, which comprised the keynote address for the 2010 Corporate Law Teachers Association Conference, will focus on the failure of market observers, including corporate lawyers, to foresee or act on critical correlations that might have prevented, or at least mitigated, the crisis. Although conflicts, complacency, complexity and the tragedy of the commons can help to explain this failure, the goal will be less to tie the failure to these factors than to demonstrate that the same types of failures to see the same types of correlations have been responsible for many of the major financial crises of the past century, including the current crisis, the collapse of Enron, the meltdown of LTCM, and even the Great Depression. The article will also examine what the responsibility of corporate lawyers should be and how corporate lawyers can be better educated to help their clients try to see these correlations.

Keywords: collateral pricing, financial crisis, Enron, LTCM, gatekeeper duty