GEORGE W. DENT, Case Western Reserve University - School of Law
Email: gwd@po.cwru.edu

The separation of ownership and control publicized by Berle and Means in 1932 persists today. Domination of public companies by self-serving and ineffective executives costs America billions of dollars every year and contributed to the current economic meltdown. Repeated efforts to solve this problem--including the Sarbanes-Oxley Act, expanded disclosure duties, and more stringent requirements for director independence--have had little benefit and have sometimes made matters worse. The flaws in our corporate governance system are a growing problem for America’s economy as disillusioned investors increasingly place their capital in other countries.

Nonetheless, proposals for greater shareholder power have encountered criticisms: various shareholders have conflicting goals; shareholders favor a short-term perspective at the expense of the long-term health of companies; and shareholders lack the knowledge needed to play a positive leading role in corporate governance.

MATTHEW L. BEVILLE, Florida State University - College of Law
Email: mlb03@fsu.edu
DINO FALASCHETTI, Florida State Law, Hoover Institution
Email: dfalaschetti@law.fsu.edu
MICHAEL J. ORLANDO, Economic Advisors, Inc., Tulane University
Email: michael.j.orlando@comcast.net

Legislators are calling for a “systemic risk regulator�, in part to provide an early warning of financial conditions that threaten the real economy. To succeed, however, we need a forward-looking measure of systemic risk. Even more, we need a measure that varies with “pollution� from financial transactions, not private costs and benefits on which popularly cited measures (such as the TED spread) are based. Our article thus proposes a new contract, one that derives from financial correlations that emerge from systemically consequential actions (i.e., financial transactions that affect third parties), and leverages important advantages of information markets (namely, incentives for individuals who are closest to relevant information to rationally develop and truthfully reveal expectations). We also offer a statistical back-test of our proposed contract, and find evidence that it could have anticipated important changes in systemic risk over the past ten years. Finally, we consider how this type of contract can be implemented within existing information market regulations, and how information from trading the contract can improve conventional tools of financial regulation (e.g., bank examinations, capital requirements).

RAPHAEL W. BOSTIC, University of Southern California - School of Policy Planning and Development (SPPD)
Email: bostic@usc.edu
SOUPHALA CHOMSISENGPHET, Office of the Comptroller of the Currency - Credit Risk Analysis Division
Email: souphala.chomsisengphet@occ.treas.gov
KATHLEEN C. ENGEL, Suffolk University Law School (eff. 7/1/09)
Email: kengel@suffolk.edu
PATRICIA A. MCCOY, University of Connecticut - School of Law
Email: patricia.mccoy@law.uconn.edu
ANTHONY PENNINGTON-CROSS, Marquette University - Dept. of Finance
Email: anthony.pennington-cross@marquette.edu
SUSAN M. WACHTER, University of Pennsylvania - The Wharton School - Real Estate Department
Email: wachter@finance.wharton.upenn.edu

Mounting foreclosures and recent disclosures of abusive lending practices have led many states to adopt new anti-predatory lending laws. Researchers have examined the impact of such laws on credit flows and the cost of credit. This research extends the literature by examining if the market responded to these laws by substituting different mortgage products for those restricted by anti-predatory lending provisions. The evidence indicates that the new laws were effective in restricting loans with targeted characteristics and that the market substituted other product types to maintain affordability in the face of these restrictions.

OTAVIO R. DE MEDEIROS, University of Brasilia
Email: otavio@unb.br

The development of the Brazilian stock market has raised concerns about the practice of insider information, with several cases being documented in recent years. We hypothesize that insider trading is a form of corruption. As such, the higher the corruption level in a country, the more intense insider trading practices in that country are likely to be. Brazil is in an intermediate zone of corruption, and there is a widespread feeling that the authorities do not fight insider trading efficiently enough and that the market tolerates it. Some authors argue that corruption is inversely related to education and that the struggle against corruption requires the control of public administrators, which can be exerted through voting, controlling congress, and bureaucratic procedures. There is a anthropological view in which corruption arises from an extension of the public to the private sphere as a result of cultural patterns that approximate the individual to the person. Corruption derives from existing personal relationships of the members of the State bureaucracy, implying illicit gains using public resources. In this paper, we survey the Brazilian legislation related to insider trading and present a review on empirical studies on the subject. We conclude that although an institutional framework exists in Brazil to fight insider-trading practices in the stock market, the actual success and willingness of the authorities with respect to this form of corruption is inefficient. One of the reasons for this is a long tradition of corruption culture. One cannot deny the efforts applied by CVM, Bovespa, and legislators towards increased transparency and ethical behavior, but the actual enforcement of the law against insider trading seems to require a much greater effort.