Sign Banking Word Mississippi Fast

Industry sign banking mississippi word fast

Thank You ty and thank you boys means Institute for inviting me I'm really happy to be here obviously my homeland and I put three really big topics here and I have lots of slides so we will see how far we go everybody can hear me good okay so I want to start by defining what a governance problem is or the way I would like us to think about the governance problem and that is for all institutions in the private sector and in government and elsewhere so the governance question is who makes decisions on behalf of an institution whatever institution it is what do they know when they make this decision what should they know I want to be there constraints when they make these decisions and what are their motivations when they make these decisions why would they do certain things and then here's the question for the rest of us is it gonna work out for us so that's the question the way I want to frame it I'm gonna ask it about different institutions specifically in the banking sector I put socially efficient in quotation mark it's a little bit of a thing to define but I'll point out two things that are inefficient for sure and then we can decide what we want so start with banky bottom line I'm not gonna spend a lot of time on banking I've given many talks that were entirely on banking I can talk about it for hours kind of getting tired of it and in fact I want to draw a broader conclusions from that and view of it banking as an example of a broader problem just an extreme example of a problem so my bottom line on banking it's an inefficient industry too dangerous sector it's privileged and it's fully regulated so basically there's severe governance program in bank okay start with the financial crisis and this was a report prepared by a committee and this is a majority report of a committee in the United States Commission in the financial crisis inquiry report FCIC called it came out in January 2011 and I'm quoting from the executive summary of this report which was thousands of pages and archives and everything the crisis was avoidable it included it was a result of widespread failures of regulation or breakdown in corporate governance a lot of borrowing too much lack of transparency governments being ill-prepared and having inconsistent response and widespread breaches in accountability at all levels in other words there was governance problems and nobody paid much of a price or enough so bottom line financial crisis was a result of a major governance problem of the type that I said we should worry about in the private sector and in the government those who made decisions on behalf of way these various institutions somehow together didn't work out for us right after the financial crisis the senator said banks are still the most powerful lobby on Capitol Hill and there's competition there there's lots of lobbies and they frankly own the place this is after the financial crisis they own the place so just reflect on that Senator describing it that way so you begin to see the problem in 2010 a few months before that Commission report President Obama then President Obama signed a massive law that was rushed through Congress because there was a big crisis and we had to do something about it the public wanted action so we signed it dodd-frank act named after two senators no more bailouts lots of speeches big smiles signing the dodd-frank act what did the lobbies say about that it's the half time there was massive lobbying during the period of the discussion of dodd-frank Act but it was half time meaning now we're going to do this and I'm going to do that then we're going to do this and this and this it's never over actually it's not just half them it's not over til today it's never over you can change it you can sue nor the regulators but the Congress it's never over the lobbyist has work to do these are a little bit of my opinions I'm not gonna bore you with all the different op-eds and all the other things I wrote about this but this was one from five years after the crisis in the New York Times this was after Ben Bernanke had his book the courage to act and my claim was it there was a lack of some other courage political courage direct but he had the courts to save everything that's true sent the ambulances when it only imploded and more recently as I was concluding this battle because probably until there is another financial crisis it's only going to get weaker and weaker in terms of any resolve to do something about it that we missed at least on one regulation that know about we missed an opportunity to actually fix it when it spectacularly failed and was shown to be completely badly designed and it totally inadequate type of regulation I explained that in a paper that I wrote very grudgingly to a British publication fuming all the way about all the stuff I was reading at the very time in 2013 I've finished it came out a book it's actually mentioned here a banker's enclosed that does exist in Hebrew translators it's right there my brother and this book is trying to clear some confusion and to explain that the reason is confusion or the many different kinds of confusions arise here is a sort of mix of genuine confusion and the sort of willful confusion which is sort of you know I don't understand something is because I don't want to understand it okay works for me not to understand it on which Upton Sinclair said you can't experiment something if it's salary depends or not understanding it so that I know dynamic okay so we tried to remove my casa Martin Halligan I some of this confusion because maybe people really do not understand some of these issues let's try to clear the fog in the politics here is some of what goes on in the politics of banking okay backs over the money is said the robber when asked why we robbed the bank it's kind of a lame joke but it's a very deep if you're gonna collude with an institution might as well be the one where the money is you just can tell it what to do with the money and make a deal of some sort okay so banks over the monies the politicians always have preferences about what they do with the money okay if you give a guarantee to the bank may be explicitly maybe implicitly that not to worry your debt will be paid promised to the creditors whether they're depositors rather that everything would be okay then it seems to the politician free to do it's not our budget for one thing when it comes that's later we can hope it doesn't come today so guarantees are very tempting to a politician to give if instead they can get the bank to do something now banks also have the money and they are private corporations usually units are publicly owned they can decide what to do with it who gets a loan how big the loan what terms of the loan etc that's their business to do that okay now when it comes to regulation there's always this notion that you know we can't regulate because some other country is not regulating we got our level playing field you know especially now in the global world so we can't do it because the other person is not doing it creates a sort of race to the bottom in a regulation or we love our banks are banks tough to win against the other banks as before in the Olympics so there are all these champions kind of narratives you know the policymakers start worrying about their banks instead of their people and that becomes a little bit muddled in their own heads about who it is they're actually for so like they say what's good for GM good for America etc okay don't forget central bank's we're not going to go into that but it's part of banking central banks are very unusual institutions okay I'm going to talk about governance of central banks it's just too much for here but they really are very very special they stand between the private sector and the government's and they can help everybody because they're they have the magic they have the magic I see one of them here the issues then seemed even though they're not that complicated seem confusing to the public and everybody needs a bank so at some point if you're confused you're not going to challenge you know I'm gonna call it because maybe you're wrong whatever plus you're gonna offend the banker and everybody needs a banker so bottom line is banks get away with being the way they are when you look at it's like how can it be and guess what here it is they can be reckless they can do all kinds of things in the end not that much that happens Paul Volcker was a very famous central banker in the u.s. some of you may remember him and this is something he said to a senator back in 2012 reported in a book written by a somebody who was a staffer for Joe Biden and then worked with another senator Kaufman who was there to replace Biden in the car in the Senate and Senator Hoffman was very special because senator Kaufman was only there for two years and he wasn't running for reelection that was a big deal because they didn't need money from anybody so and in this discussion Paul Volcker says every time you're going to say something that you're going to do to the bank they'll always say oh don't do that credit we suffer and growth we suffer that is how a politician gets scared and then he added it's all this was confirmed with him he said be s same thing okay so here we go I am NOT I have probably 20 30 slides that have a document whoever document wrote after the book called the parade continues it's like the Emperor keeps marching 31 flood claims we banked and we could edit some more distinct claims that we can sort of explain what's wrong with it but I'll give you just a few example of what it is about so first of all credit oh here's what a warm and warm up okay the CEO and then I should say xeo stuff was the CEO of West Fargo Bank West Fargo Bank I'll mention later okay been in the news recently happens to be my bank I came to California open account was Fargo Bank closest bank I still have my con what's Fargo Bank terribly but my money's insured I don't have eight accounts or 14 I like have a checking account basically he said to a reporter this is after my book was published it's not in the book but it is in this pride continues document we were struggling have a lot of retail deposits that's my money and therefore we don't have a lot of death he says I could not make this up that a bank CEO would forget that he owes me the money but you see if you get into his head what's going on is he doesn't feel like it's that because I'm such a nice creditor I need him alone usually creditors kind of have you know conditions they kind of break down your neck all of that but not depositors they're so nice walking give the money no contract no covenants no conditions what you do with it who you we can pay dividends or anything take it so it feels like play money to the banker so most companies that need to raise money actually need to have a business model got to go pitch it all of that the bank is just money comes so it becomes a that used to stuff like that you know so from his perspective you know God deposits why is other regulators asking him to go raise money from some creditors who are going to be really junior might lose you know they call them Coco's deluxe whatever no it doesn't like that they might ask a question in the off chance they actually lose she likes depositors it's like me okay what did he just say front page of the Financial Times this is more recent so I have like 20 in between them this is some of trumps staffer care from Goldman Sachs okay banks are forced to hoard money the first to hoard capital English not mine and they cannot take any risk dodd-frank prohibits them from lending he said that is simply false you have to just remember these banks just paid dividends there was plenty of money to lend if they didn't lend they didn't want to lend they prefer to do something else take the money out invest in derivative to whatever no law prevents them from having taken the money they had just paid out and make a loan with it so this is just false there's no law that prevents now we get to this question of credit so now again you get into this narrative credit is such a positive word in English language really is you know you got crazy at a movie you know that credit it's good so you use that word credit you suffered the terrible terrible thing debt not such a good word two sides of the same coin but oh say credit you've suffered give you credit meaning you'll owe me okay good or bad well that's bad crazy good same thing okay you can't say what it is the right question are we making the right investments things that should be funded are they funded and then is the funding mix that equity convertible something else is that the way best way to fund it okay then obviously related who is it it gets the loan is it the right loan to make was the good decision to make why we subsidizing that as a form of funding do we have to for example if corporations do we have to give that an advantage over equity we don't have to but we do why stupid policy to pay policy we subsidize housing but not by subsidizing housing directly if we want to encourage homeownership but by subsidizing borrowing to buy house in the US they subsidize education through loans to students not directly so bottom line on banking it takes a village to make it so bad lots of enablers okay so when you look at the sentence comes from a movie about sexual harassment in their spotlight in the Catholic Church if it takes a village to raise a child takes a village to abuse a child takes a village to maintain this system who are all their neighbors everybody in the private sector is fine they do what they do which we talk about in a second and then you got all their watchdogs in the private sector cray or ad agencies auditors then you got the supervisors in regular do they do what they do but you know as a system as a whole they're part of that system okay central bankers politicians and media and academics I can talk to all of those things in detail okay exactly what each one of them do I have a paper called it takes a village to maintain dangerous financial system it's an essay on ethics okay so in this whole story between the politics the nonsense the confusion and all the incentives of everybody run to standby or to let it be as it is or do whatever you do because of your own incentives the nonsense can win a debate so you can have bad policies for the wrong reasons spin the way you present it provides justification so some of these claims that people make and people get confused you actually confuse them they need a loan you threaten them something you know terrible will happen go to suffer all of that so that's what happens so here's one narrative there's a narrative that the crisis was like a natural disaster 100-year flood and earthquake obviously when a natural disaster happens we want all the help so but you saw the financial crisis in curve committee not a natural disaster people made disaster man-made mostly men probably but anyway people preventable right now we get to conduct okay this is not about risk and who bears it as much as the fact that banks keep being caught and all kinds of conduct like fraud opening extra crap light burn money laundering tax evasion all kinds of things like that 321 this is it's guns up since then because at least there was one more billion for doubtful for the Wells Fargo recently so by this count 321 billion dollars in fines okay some shareholders money was there written checks okay 30 21 billion dollars but no worry they made trillion okay so over this period of time so somehow you know it's like a toll booth you pay them I finally keep going make enough money to pay the fines then pay the salaries everything else so what about that what kind of corporation a set of corporations sector pays so much in fines why are defines too much government just extorting them for all this money or settlement for something they did wrong breaking the law but they don't admit it on and on settlements okay narrative few bad apples okay every time it's like oh not a big problem but just a few priests few traders and labor were very disappointed these people broke the law it's not a systemic problem we just will pay fine so I came across this a while ago and I let her found out that maybe it asn't by the raw shell it's not clear there's some controversy about this quote the thing at the end and the bottom says trust me and then behind it says I'm lying okay so anyway so this supposedly came from a letter that the Rothschild brothers sent in 1863 the few more understand the system the financial system will either be so interested in its profits or so dependent upon its favors spending right that there would be no opposition to whatever it is that was being discussed in the letter from that class while the great body of people mentally incapable of comprehending the tremendous damage to the capital derives from the system we bear its burdens without complaining and perhaps without suspecting that this system is inimical to their interests so you kind of have the public not fully quite understanding what just happened and the people in the system being just okay doing oh okay I've tried this line on many people in the current financial system and when I present him with this line the self that sounds right for today so I'm moving on to the second subject of my talk ok so this was a little bit about banking and it sort of asked the question what's wrong with banking a little bit and basically I didn't give you all the details but I gave you the bottom line of that it's a few examples so corporate governance and policy failures is sort of what we saw somehow the combination of all the decisions by all the people involved doesn't work out does this happen beyond banking well it does and here in the last year and a half or two I've gone back to the corporate form and two things I thought about more than a decade ago as a finance professor interested in corporate governance and what economists usually think of as corporate governance problem I'm quoting you Valhalla here first the corporation is that something we created in our heads okay it's an abstract thing figment of our imagination an ingenious invention okay what is the cooperation well it's not an asset it's a legal thing okay so it's illegal you can call it person okay it's a thing you go and create in the law okay it's separate from all individuals it exists separate from all human beings it gives it a certain longevity beyond all people it's not like a partnership that you can anybody can dissolve it's very strong in that way in its existence okay now the existence of this person and the rights of this person all in the law okay so each laws would give them right the usual rights would be property rights locked in capital was a big invention this I'm gonna go to the history in a second that was the thing what is it being locked in it means the following the shareholders providers of the main long life capital for this are separating with their money any now you know they're forces that would make the corporation pay them dividends or whatever but they cannot walk into the corporation say oops give me my money back they can go through the governance process or whatever but legally it's not theirs anymore belong to the corporation okay then of course they get limited liability meaning that if they take a debt and they can't pay it or they were fine or whatever it is they sell they can't pay whatever they promised then they could just say oops take the assets I'm out of here so the people involved their own assets are protected from the corporation's liabilities of any sort be any fines or accidents or debts or whatever okay it also means that you can trade the shares in markets all of that in the US corporations get political political speech right they're not voters but we gave them the right not just an advertisement or something this big make a donation we even give them a little religious rights if they say oh my religion prevents me from you know giving contraceptives Supreme Court they love that so they go they don't you know to get rights they don't march on Washington they go to the court right in the court history is that it started in 17th century in its current form so the first ones were like East Dutch East India British English East India they went off to sea they were like governments they had armies they went on bringing spices and all that that's before it governments were doing these kinds of things so the Spanish government was doing the same thing was not in private cooperation in in the u.s. in the end of the 19th century they were building infrastructure government wasn't taxes taxing as much you needed to build a bridge or a tunnel you collected money and you create a corporation you asked for special permit to do that you need a special Charter from the government even to vote on it and then you became I think a corporation and often time owned by the people consumed what the corporation was was producing with what it was doing in the process of getting limited liability rights and trade ability of assets sometimes and all of that banks were special in that they had printed a lot of i/o used not necessarily central bank's private money and the depositors needed to trust them so they often had like extra liability for their shareholders double-triple unlimited liability so there were some of the last institutions to be allowed to walk away from their debts so if the depart of there before Deposit Insurance if the they didn't couldn't pay the deposits the shareholders had to shell out money for their own thing nowadays incorporation is super easy not only do you not need the vault of Congress to become a corporation you go to Delaware pay a little money money you don't even need an ID in their lower you can take a lawyer then make your cooperation you don't have to have any activity there you could form this corporation just to hide behind an entity by property you could be for we know a dictator from Africa with with some ill-gotten funds but in the u.s. you can launder that money in the United States of America Delaware has hundreds of thousands not more corporations many of them have no business in Delaware at all except they fill the coffers of the state of Denver stating the lower loves it it's the capital of incorporation and when the US was challenged to keep track of beneficial owners of corporation it's been dragging its feet so despite G to own a decision that we had to have less opacity of corporations the u.s. is probably in some parts of Canada some of the biggest money laundering havens around so let's go to corporate governance the mantra in corporate governance is what Milton Friedman said it still guides what we teach in business schools corporations should make as much money as possible while adhering to the laws society in the etiquette rules of society in the law and in the ethics said Milton Friedman ok famous article and that is basically don't talk to whoever purposes corporate social responsibility all these things just make money shareholders we decide what to do with it that's what corporations should do make as much money as possible what does that actually mean the way we teach it in corporate finance every corporation is textbook treats the shareholders if their owners remember there are not owners they just happen to have the shares there are pieces of paper that in tell them - I don't know vote for directors or a few other things and sit and wait for dividends to arrive or the stock price to go up ok but we teach that corporations should maximize the stock price that is the measure of what the purpose of the whole thing is about and the way we operationalize there it is that in the standard view of it the corporation exists for the shareholders and the way to make a corporation do the right thing for the shareholders is to give incentives in these days financialized form based on counting profit accounting profit stocks or turn on equity some other financial measures that is how managers are compensated supposedly to align them with the shareholders so that shareholders will be happy that is the theory and that's what we teach so this approach makes sense however it assumes a lot of things what is it assume it assumes the markets are competitive so in Milton Friedman's saying you know free competitive markets without deception and fraud and why is it okay to worry only about fictions because everybody else has contracts markets laws so not to worry about employees customers citizens the laws will take care of them if the corporation pollutes or kills or does anything and the Lord take care of it the contract will take care of it for the employees so the customers contract they can sue in courts whatever and competitive markets you know you'll have to pay fee fair salaries because otherwise them people would leave where you have to go to the right you know product at the right price otherwise markets etc no worry about customers or employees or anybody else because everybody else is protected by some contract or other or loss what's being ignored is that somehow these laws are taken as if they just land on us but that's not the way it works laws are people made it's a big process to write them not that that simple and corporations get involved remember the political speech ones in the US they get involved they got people in them they have certain incentives certain desires opinions information they want to be part of it so they get involved okay we want everybody being full the question is is it produced a good outcome corporation is very opaque so when it starts being about the contract and the law do you even know if the law was break but what's broken how do you what do you do if it is broken the fines remember okay who's responsible when they break the law what do you do let's put the corporation jail can you put anybody in jail and then of course you got the police people the people who write the laws the people who enforce the laws they're regulators all of that what about them are they always making the right decision they're full of people what about that governance problem okay so as a society they always talk about regulations are terrible you know laws are good there's all this confusion okay traffic laws regulate traffic okay we agree this society there's a certain speed you shouldn't pass in this road in that road please you know and the Lord might be vague it might say in the California the law says you know if the speed limit is 55 that's the maximum speed but you have to drive in a safe speed so the policeman can stop you and say well you know there's 55 or two days for me you drove too fast even a tree thing so it's a safe speed gotta be a safe speed okay and we accept that the policeman might stop us lobbying arguing usually hopeless okay so there's enforcement of those here's enforcement okay so the referee in a soccer game needs to be fair okay here is the player lobbying about the red card here are the lobbies they are often on K Street in the US they populate explicit Lobby they are there to represent certain interests now that's kind of over ground Underground's the whole other world of lobbying consultants and PRS and lawyers and my friends somewhere we're gonna write an op-ed or talk to somebody the whole system of people who are not defined as Lobby but they get involved okay so what can happen you can have fraud and here are a few examples I'll show images in a second you can have deception this sort of not quite illegal but you know marketing I got you to buy something and confuse you about the you know health benefits or arms of a product etc etc I can endanger you okay so that's sort of like what the banks do you know how to produce a product you know it's a lot of in danger it's out there so I can all that cargo has a danger of it floating but maybe my car is you know less safe then I claim it is oh no no no I'll share some examples so maybe I didn't protect your data carefully enough these days it's very common or you know I produce something unsafe and then later it's like oops you know sorry I recalled the product but I didn't let you know if it's a car I do let you know all kinds of lloyd variations that happen and they matter they add up so it's not like Oh a little bit happen here and there this is progressing then I'm gonna flash a number of images to kind of shock you okay oh this is my cartoon first of all yes the planet got destroyed but for a beautiful moment of time we created our value for our shareholders so this is kind of the the essence of the problem okay so here's what can happen in London there was a fire if you read about that fire it was well known I'm talking of preventable things and then I know that there aren't preventable things but the fire was in high-rise building built with materials that are known to be extremely dangerous hi-rise you cannot really control those flames in fact they make the building really really dangerous for people inside it okay so that was that fire there were many many warnings about this problem UK allowed it but other countries did not the marketing materials of the companies were special to the UK where they could sell this stuff okay Japan there's a preventable nuclear disaster okay not that tsunami was not preventable but the nuclear disaster was highly preventable and it wasn't much of a of an investment to have prevented it it just was unlikely event and they cut the corners continuously because there was a what's called the nuclear village was Takara and their regulators revolving doors and all of that so it was a clear-cut regulatory capture case on something very important ah well sports wagon Volkswagen for some years has been lying about and producing specific ways to defraud regulators on emission standards they have confused everybody about diesel and polluted the air in Europe and in the u.s. until the US regulators got a hold of this problem massive so there's a book about this faster higher farther how one of the world's largest automaker committed a massive and stunning fraud anything going on this is just recently ok this still goes on so all these news you know you kind of get numb to them after a while but if you pay attention you know GM GM produced cars that had a part that was the fact it was causing the the ignition to stop suddenly again went on for a while the knowledge about this was inside the company but somehow it didn't come to the surface they continued to produce the same type of part with the same number didn't even change it when eventually the engineer did know that it was causing problems but the information was never kami discovered got discovered from the outside the corporation not from inside the corporation and then it became a big scanner because it turned out people died and people put almost in try for killing other people for something the GM is a company did so here is the guy save GM killed our daughter GM Equifax oops lost the data of what her 40 million people subjected all of us that had data with them to identity theft we all had to Russian by all kinds of protection some of it from Equifax us the usage for marketing to and and it was like oops who's responsible for that well you know when you give them personal data Social Security numbers all kinds of things that you can go get loans with people to freeze their credits I had to freeze my credit it was the first time when they would borrow in my name Facebook this is an old title it's been going on for a while okay what happened with the data what's about the business model what about addiction on and on and I'm not mentioning cigarette fewer other things here is the CEO of HSBC after some tax scandal he said oh-ho I can't keep track of so many people two hundred fifty seven thousand people I don't know what they're all doing so he's basically saying I can't govern his corporation it's too big okay too complicated I mean that's what he's saying he got too big for me I don't know what they're doing it or there's a way to move great mechanisms to from prevent them from breaking the law I can't do compliance Wells Fargo the classic I spend a lot of time thinking nowadays about what anybody could do about this their cooperation Oh had a culture of opening a lot of accounts somebody asked me how many counts I have eight is great they used to say that was kind of a mantra the more the better consumer they Bank has lots and lots of divisions the consumer f nance was defined as a Sales Corporation like a supermarket wanna sell sell sell more accounts so you convinced people young people old people who don't know that they need another counter in another car another they don't agree you open a con for them anyway and this went on for years 2013 they already got hit by a US by a California attorney with a fine and it was in the newspaper so there's no I didn't know about it for the board or any of that anyone on and on until at a moment of time in for 2016 before the election last year they got a bigger fine and all of a sudden in the middle of this election campaign it was a big big news ah wonderful time for the Senate and Congress to bring in that same stamp who said he doesn't remember he owes me the money and beat up on him beat up on him eventually the board lets him go not because the board woke up in the morning and decided to fire staff but because politically became a problem and bottom line became a problem because everybody was angry with West Fargo and what was special about this is that West Fargo's fraud was so simple that every person could understand open an account for you okay there's a lot of fraud that is much more complicated than that some accounting on derivatives or something like that nobody industry is gonna understand the issue at all so if you tell them it happened or not happened they'll have to the expert would have to explain it Wells Fargo had fraud and deception in many practices they attached insurance to car loans that people didn't need they change the terms of mortgages they overcharged in foreign exchange transaction on and on and on and on okay huge rap sheet and they're not the only ones the City deserve what's the punishment oh here's the writing I will not say okay so what happens then is about the challenge of enforcement at all as I said how do you know that the law was broken eventually it was Fargo there was enough of this that eventually came to light you do it a little bit nobody knows that you did that a lot of other fraud is invisible it's not the kind of harm where you see somebody dead in the street it's very abstract it's just lying bass it could be some other thing that's by the rules maybe but it still creates you know confusion for investors or for regulators or something like that sometimes in the agreement when you agree to service you sign away your legal rights to sue so nowadays they'll say in the small print you have to go to arbitration arbitration is usually stacked up against small individuals versus their repeated customers of the coercive private legal system basically and then of course I didn't know it wasn't me somebody else they didn't do what I told them or you know it's a lower-level person you don't want go after them etc so nobody is responsible and then they could start selling so if you get into this thing it's all about how the department justice doesn't want to spend a lot of time money so they tell the corporation can you investigate you bringing me your investigation you pray the Lord's there's a whole industry but it's about three billion dollars of industry kind of doing internal investigations for corporations and they come to the department justice say okay here's what we found and now let's alone a number and they said on a number and they pay with show this money and their to the end of that next time they go back okay the leaders usually very were said to have been servants will happen to stop okay loses his job they even took a little bit of money back he's okay last I know it's not on the street okay recidivism is rampant meaning repeat offenders okay it's not the same people again the corporation repeats does something else in fact there was a case with I think Pfizer some door manufacturer and they kept breaking certain laws the judge when he spoke to my class was saying well I mean they kept breaking they kept saying you know it's a deferred prosecution the prosecution could defer in the prosecution they're paying the fine but they keep doing it so worried why we deferring why I was settling well you know they're producing drugs that we consume pharmaceuticals you can't kill the company so they created another subsidiary is it subsidiary was committed admitted to a crime so that subsidiary couldn't do anything but the corporation persisted so you can't kill a corporation if they produce something we like so we got a problem there justice system is not working ok it's very hard to enforce laws on institutions ok so the last part of my talk is inequality I'm going to go fast here well what does it have to do with inequality when here you see the 1% started right after the crisis this will Occupy Wall Street ok was not necessarily about banks they called itself the 1% 99% so was about inequality but here's the ears they think billions for bombs and banks why are they spending all this money on on the banks okay now what form does it take in this country governments always sort of give a lot of tax breaks to corporations so in the u.s. it was a whole spectacle about cities competing for the affection of Amazon to open their second headquarters Marilyn gave it like unbelievable tax breaks they were returning back personal taxes of things and then meanwhile of course the municipality has to build schools and has to do all these things it doesn't get any tax from the compression in the promisee would create jobs and somehow it will all work out you know you have big incentives for Intel right now I've got my hometown and anyway what ends up happening is that the people the cities with high sandy qualities often are giving the most tax breaks to corporations so it's not clear this is really working out the other thing is you're looking now at the way there's an exhibit I just want to about evicted the by divisions from rental properties and payday lending a lot of deceptive practices mostly by corporations so a lot of a homeowner home ownership is by corporations renting with all kinds of practices and there are mostly corporations a couple of final slides so in in salaries usually the top levels get paid more shared of the increasing profits of corporations their wages are low and if you go to trade agreements there is this very strange things about the ability of corporations to sue government so one classic example was Philip Morris suing the government of Australia for effective cigarette advertise a effective cigarettes against cigarette smoking so Philip Morris is saying not only can you not expropriate my building but i'ma tell to profit if you tell your people not to smoke cigarettes my profits are harmed stop doing that is pathetic perverse the government's can no longer prevent their costs their citizens from protect their citizens from harm because of corporate sort of birthright to profit and this happens when corporations to governs is a really strange process that was created when the trade agreement started way back for warning foreign investment and it was mostly Co portions in rich countries suing weak governments they don't have enough money to and protect themselves in these processes so that's another form of kind of injustice that happens in the world ok so I'm going to finish by the following nobody in the street is gonna know about Accounting Standards but you got to start there ok so I am a finance professor but I say Joe half jokingly only that the biggest fears in the business school are marketing that's all about smoke and mirrors and accounting okay because accounting is the underbelly of all capitalism accounting sometimes you have private companies they don't have any disclosures but this is a book called political standards corporate interest ideology and leadership in the shaping of accounting rules for the market economy this is about the politics of setting accounting rules and I can speak to that but let me just say the governance challenge is I'm just back from DC in which for the very first time and really it's not a word they use in business schools very much the word corruption ok so what is corruption the abuse of power for private gains that's a general diffusion of corruption okay it takes many forms so we think of quadrant brides okay bags of money but in developed countries a lot of corruption is just controlling the rules okay so excessive narrow interest on writing and enforcing of rules more generally and that is a corrective thing why does it happen people with better information and more controls are taking advantage of people with less information and less control and the author of this book called it think political markets you think okay in a political process all opinions will come we'll kind of cancel each other out we'll get the right outcome well not so not so easy because the dispersed uninformed public is not organized to actually have a voice doesn't even know what it should be like and that gives space to organized power voices okay and the experts are conflicted so Louis Brandeis said famous thought leader and the Supreme Court just if sunlight is the best disinfectant bring the fact and that would be the disclosures will not so fast because it's not even enough first of all how do you shine the light and secondly how do we use that information so you can in the u.s. right now you can give me all information about campaign donations and it doesn't help us thing okay because it's slowly gonna so it's fine so that's it I'm gonna end here and just leave you where challenges having to do with governance we want to have good rules in developed countries and in developing countries they the challenges are not only in developing countries but we have anger for the public that is taken advantage of by demagogues including in the United States right now and elsewhere that's very worrying for democracy for capitalism for everything so I'm concerned thank you sorry I'll be happy to talk to people here but oh okay few people are willing to stay I'm happy to answer they want to go home have a drink shut shop yes so my solution way from the book was you know we say unless the public understands more you can a political accountability so I teach now course at Stanford called finance and society in which I want to create severe consumers of the financial system and better educated citizens already 150 undergrads a year but they don't learn it in high school so how would they know what's what they're being told and all the stuff they read in the paper when it's wrong so educated cities that's why you know in the description of this talk it said the importance of having more educated citizenry otherwise democracy is not going to work otherwise you just have to hope that your dictator is benevolent yes yeah that's right so we have waited yeah so yeah so larry lessig the law academic wrote the the lost republic i think it's a book and he was basically saying you know the very few get to decide who's on the ballot in the u.s. so what kind of a democracy is it yes it's one more one-person one-vote but who gets to put the people on the ballot who gets to even run well you need a lot of money to run in the US so that's the campaign finance system that we have and so democracy depends on all these details of of campaign financing and all of that that's right yeah so in the u.s. money's voice yes so it is very interesting that you know democracy and good rules it's not the same thing okay so you can have you can be lucky and have some good rules or you can have dictators that actually you know do okay minor might not be corrupt and democracies that are corrupt or they don't work that well so it's kind of more than once then than that we tend to take liberal democracies with win end of history Fukuyama said you know that's it done and he lives to having to regret this statement very at the end of history my first fear is is hacking cybersecurity now I wake up in the morning and the computers are hacked I mean they already so you know stole money from the New York Fed I don't know that we know everything that happens because they won't trust in the system so but you know our this we all depend on computers nowadays and data is on the computer what if there's a huge hack so that could be a way to start otherwise you just have the kind of the usual suspect that might start it people who are looking at this are saying that it looks not that different from 2006 right now so you got repeat I don't know if right now so maybe you know you're kind of driving fast you hope for the best around the next curve system is fragile so it could be any number of things that would that would start it you know what's really where is the the risks building up and and because of the global economy there's a lot more kind of contagion so crisis become more global more easily whereas in the past there may have been more contained yes maybe last my look you know when we teach economics we start with your perfect markets we start with you know the results of general equilibrium where everything is perfect you know you could have a lawmaker in the u.s. saying I took econ one and I learned to be a Republican in a libertarian and governments should get out because they taught me an econ one that markets work great now Ken arrow who just died last year the greatest economy's his actual thesis was a different result and his result on public choice was actually an impossibility result you cannot aggregate easily people's preferences except through a dictator and get it Social Welfare function so if we started teaching economics from that result we would be nowhere we wouldn't know where to begin to create a system so you know the question is then how do we create a sort of a not first best but second third fifth bit given the constraints that we have on on processing of information expertise other things I do think there's better but you know there will you come down to a bunch of policy suggestions that would help you know that would you know create a better you know Singapore has better paid people in the public sector and they you know so they revolve less and they're more proud of their work and they might be might have more more integrity or something like that when they create rules you know you need whistleblower protection laws you need all kinds of you know other things to improve the quality of making making and enforcing rules you know it budgets for white-collar crime maybe they reduce those budgets after 9/11 well went to terrorism so now we don't do it anymore so white collar criminals are in debt think you're not thank you everybody goodnight