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provider of external audit services.99 At a broader level, a profound miscalculation of risk salience resulted in suboptimal regulatory oversight. Deepening market integration ensured that risk, while diversified geographically, remained undiluted. From northern Norway to rural New South Wales, local councils bought securitised products on the basis of misplaced trust in the efficacy of internal controls, the strength of independent directors to hold management to account, the attestation provided by external auditors, legal due diligence, the assurances of those providing

corporate advisory services, including inherently conflicted rating agencies ultimately, the robustness of the overarching regulatory system.


The very fact that the crisis metastasised so quickly across regulatory systems is exceptionally revealing. The moral hazard can be traced to regulatory incoherence in both rules and enabling regimes. The President of the Federal Reserve Bank of New York has conceded the US regulatory system ‘has evolved into a confusing mix of diffused accountability, regulatory competition, an enormously complex web of rules that create perverse incentives and leave huge opportunities for arbitrage and evasion, and creates the risk of large gaps in our knowledge and authority.’ Moreover, the allegedly superior responsive principles-based regulatory regime in the United Kingdom proved equally defective in securing more than mechanistic (and ultimately valueless) compliance. 100 101

Despite two decades of corporate governance reform instituted, in the main, in the aftermath of scandal, therefore, we are no closer to finding a moderating mechanism. Instead, the deleterious effects of a dysfunctional system that allows for private profits and socialised risk have emerged into clear view. Irrespective of the dimension, accountability proved elusive because of essentially ideographic and therefore incommensurable representations of what fealty to the concept entails. The problem intensifies as one cascades through the mechanisms used to measure


See Del’Aricca et al, above n 2 (suggesting that ‘aggressive’ lending at precisely the most vulnerable

part of the market was a critical amplifier: at 4. Paradoxically, lending standards on prime applications simultaneously tightened, exacerbating a herding dynamic towards ‘gambling on speculative borrowers’: at 11-12). For a persuasive analysis that suggests ‘a large chunk of money has effectively been recycled to a developing economy [of the poorest and least creditworthy borrowers] that exists within the United States own borders’, see C Reinhart and K Rogoff, ‘Is the 2007 US Sub-Prime Financial Crisis So Different? An International Historical Comparison’< www.economics.harvard.edu/faculty/rogoff/files/Is_The_US_Subprime_Crisis_So_Different.pdf> 11. On gambling impulses within investment banking, see K Philips, Bad Money (2008) 19-22; S Strange, Mad Money (1998); C Kindleberger, Mania, Crashes and Panics (1978). For managerial failings; see M Power, Organised Uncertainty (2007) 9; for empirical examples drawn from the millennium stock market analyst conflicts of interest, see O’Brien, above n 97; for more recent examples; see D Gauthier-Villars, ‘Behind a Trading Scandal’, Wall Street Journal (New York), 24 May 2008, B3 (citing an internal investigation into a recent multi-billion dollar trading scandal at French Bank Societe Generale. It concluded ‘despite numerous alerts, which provided grounds for vigilance of investigation, the supervision…failed.’); A Efrati, ‘Are Borrowers Free to Lie’, Wall Street Journal (New York), 31 May 2008, B2 (citing judicial ruling in California [National City Bank v. Hill, United States Bankruptcy Court, Northern District of California, A.P. 07-4106 (May 28, 2008)] that lenders had a prudential obligation to vet the representation of borrowers);. See, more generally, ‘Barbarians at the

Vault: A Special Report on International Banking’, The Economist (London), 16 May 2008, 1-18.


Geithner, above n 93.

101 For critique suggesting that the rules versus principles dichotomy is overstated; see D Kershaw, ‘Evading Enron: Taking Principles Too Seriously in Accounting Regulation’ (2005) 68 Modern Law Review 594.


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