The Intellectual Foundations of the Global Financial Crisis: Analysis and Proposals for Reform

Univ. New South Wales Law Journal, Vol. 32, No. 2, p. 390, 2009

U Illinois Law & Economics Research Paper No. LE10-003

Illinois Public Law Research Paper No. 09-19

29 Pages Posted: 18 Dec 2009

See all articles by Frank Jan de Graaf

Frank Jan de Graaf

Amsterdam University of Applied Sciences; University of Amsterdam - Department of Business Studies (BS)

Cynthia A. Williams

York University - Osgoode Hall Law School

Date Written: December 15, 2009

Abstract

Much has been written about the current crisis in the global financial system, and many thoughtful analyses have examined the causes and consequences of that crisis. This paper joins those analyses that argue that the crisis reveals flaws in the theoretical underpinnings of capital market regulation, particularly in those markets that had relied upon the assumptions of ‘market fundamentalism’ as a regulatory philosophy. We suggest a more Northern European approach to market regulation better accommodates the social values necessary to ensure stable, equitable economies. In these approaches, economic actors make decisions after having consulted relevant stakeholders. By taking this view, we challenge the tendency in Anglo-American regulatory theory to rely on the self-interest of market participants as an adequate substitute for external constraints on risk-creating activity, and we challenge the perspective that suggests that the financial system can be thought of as properly separate from social values and considerations.

In various Northern European countries corporate governance systems have been developed in which the management has legal requirements to interact with various stakeholder groups, enabling broader social values than shareholder wealth maximizing to be considered within the market sphere. We argue that these systems offer inspiration for market reform. In making this argument we do not idealise the legal systems of these countries, which also have their weaknesses. Our argument is that there are aspects of Northern European stakeholder governance, specifically Dutch corporate governance, that represent means by which the law can be used to allow markets to better incorporate social values. We conclude with a number of policy suggestions for incorporating such corporate governance values into capital market regulation.

Keywords: Corporate governance, capital market regulation, financial crisis, stakeholder governance, market fundamentalism

JEL Classification: A13, A14, G15, G18, G32, G38, K22, L20, L21, L51, M14, N20

Suggested Citation

de Graaf, Frank Jan and Williams, Cynthia A., The Intellectual Foundations of the Global Financial Crisis: Analysis and Proposals for Reform (December 15, 2009). Univ. New South Wales Law Journal, Vol. 32, No. 2, p. 390, 2009, U Illinois Law & Economics Research Paper No. LE10-003, Illinois Public Law Research Paper No. 09-19, Available at SSRN: https://ssrn.com/abstract=1523831

Frank Jan De Graaf

Amsterdam University of Applied Sciences ( email )

Wenckebachweg 144-148
Amsterdam, 1000BA
Netherlands

University of Amsterdam - Department of Business Studies (BS) ( email )

University of Amsterdam Business School
Plantage Muidergracht 12
Amsterdam, 1018 TV
Netherlands

Cynthia A. Williams (Contact Author)

York University - Osgoode Hall Law School ( email )

4700 Keele Street
Toronto, Ontario M3J 1P3
Canada
416-736-5545 (Phone)

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