Benjamin Barber (the author of the polemic, Jihad vs. McWorld) has an editorial in the LA Times today.  Its title is:  “Overselling capitalism: Why today’s markets are headed for disaster unless there is a shift in focus.” At first the editorial looks like a pretty standard entry in the growing line of comments suggesting we deny credit to the poor–you know, for their own good.  But then it really goes off the rails.

Read the full piece here.

Marginal Revolution’s Alex Tabarrok has a good post responding to recent attacks on the extension of credit to poor borrowers (and in particular, this rant from Nouriel Roubini).

Read the full piece here.

Securities fraud class-actions are down. In an op-ed in yesterday’s WSJ, Joseph Grundfest observed that both the number of such actions and the dollar value of total damages claims have dropped dramatically since mid-2005. Why has this decline occurred? Grundfest considers several possible reasons.

Read the full piece here. 

Henry Manne is back with another article in the WSJ.  This time Manne goes toe-to-toe with the “corporate democrats.”

Read the full piece here. 

Elizabeth Warren (Credit Slips) points to an interesting empirical study by Agarwal, Liu, Souleses, and Chomsisengphet (“ALSC”) which examines consumer credit card selection in a natural experiment setting in which a card company offers two cards to consumers: (1) a high interest rate, no annual fee card and (2) a low rate card with an annual fee.

Read the full piece here.

I don’t have much to add to Larry’s post about Eliot Spitzer’s persecution (and non-prosecution) of AIG and Maurice Greenberg, or to Larry’s ongoing crusade against the criminalization of agency costs.  But I just can’t resist registering my outrage. How can this sort of thing not make your blood boil? Other than a few lonely voices clamoring in the wilderness of the blogosphere, where is the outcry?  I’m not suggesting that those who are enraged by politicized prosecutions in other spheres should take up this cause, but a little sensible appreciation among the rest of us for the costs here would be nice. And while I’m thinking of it, let me add to Larry and Tom K’s despair about the egregious prosecution of Jamie Olis.

Read the full piece here. 

Abstract

Corporate law generally makes voting power proportional to economic ownership. This serves several goals. Economic ownership gives shareholders an incentive to exercise voting power well. The coupling of votes and shares makes possible the market for corporate control. The power of economic owners to elect directors is also a core basis for the legitimacy of managerial authority. Both theory and evidence generally support the importance of linking votes to economic interest. Yet the derivatives revolution and other capital markets developments now allow both outside investors and insiders to readily decouple economic ownership of shares from voting rights. This decoupling, which we call the new vote buying, has emerged as a worldwide issue in the past several years. It is largely hidden from public view and mostly untouched by current regulation.

Hedge funds have been especially creative in decoupling voting rights from economic ownership. Sometimes they hold more votes than economic ownership – a pattern we call empty voting. In an extreme situation, a vote holder can have a negative economic interest and, thus, an incentive to vote in ways that reduce the company’s share price. Sometimes investors hold more economic ownership than votes, though often with morphable voting rights – the de facto ability to acquire the votes if needed. We call this situation hidden (morphable) ownership because the economic ownership and (de facto) voting ownership are often not disclosed.

This Article analyzes the new vote buying and its potential benefits and costs. We set out the functional elements of the new vote buying and develop a taxonomy of decoupling strategies. We also propose a near-term disclosure-based response and outline a menu of longer-term regulatory choices. Our disclosure proposal would simplify and partially integrate five existing, inconsistent ownership disclosure regimes, and is worth considering independent of its value with respect to decoupling. In the longer term, other responses may be needed: we discuss strategies focused on voting rights, voting architecture, and supply and demand forces in the markets on which the new vote buying relies.

Today’s WSJ reports that professional stock analysts employed by brokerage firms are up to their old sunny ways. These “sell-side” analysts came under fire in 2002 for rendering falsely optimistic trading recommendations. Congressional hearings revealed that during the late 1990s, analysts’ “buy” recommendations outnumbered “sell” recommendations by nearly 100 to one.

Read the full piece here.

In today’s W$J, Holman Jenkins stands up for short-sellers, and rightly so. Those folks have taken a bit of a beating lately. They’ve been sued by companies like Biovail and Overstock.com and trashed on talk shows like CBS’s 60 Minutes.

Read the full piece here.