How Have the Lawyers Escaped Culpability?

(thanks to OneForAll)

The BBC showed a documentary tonight about the banking crisis and casino capitalism, which ties in nicely with another documentary released recently called "Inside Job". The BBC covers the British scene while Inside Job is mostly American coverage.

In both films the bankers are shown to be reckless gamblers who have yet to show any remorse for their actions despite Bob Diamond's (CEO of Barclay's) plea that the time for remorse and apology is over. It was encouraging to see the Deputy Governor of the Bank of England assert that capitalism that doesn't permit banks to fail is awry. Probably the politicians haven't quite got that yet.

Chris Blackhurst, the City journalist for the Evening Standard, makes the point in his review of Inside Job:

But if there's a criticism of Inside Job, it's that you're left supposing a group of bankers acted on their own. Of the accountants and others who supported them, there is no mention. Nor of the uncritical media.

For a long time now I have wondered why the lawyers involved in the financial world have escaped blame and culpability for their roles. It was brought home to me when discussing Gillian Tett's Fool's Gold with an ex-general counsel/CEO of a large investment bank. He said Tett completely ignored the lawyers and others. And he didn't know why.

I accept it is unlikely that the lawyers were the masterminds. Their mentality wouldn't allow it. And I'm sure they would claim only to be following orders, mere underlabourers. If Stanley Milgrim's experiments on authority teach us anything, it is that people are unfortunately easily gulled into following authority and the crowd. I suppose it might include lawyers, those masters of hyperrationality.

It was the lawyers who drafted the agreements that made it all possible. It is perhaps feasible they, along with so many others, didn't understand what the hell was going on because it was too complex. Yet lawyers thrive on complexity.

In Tett's book they appear implicitly. The banks strived to have regulation reduced or eradicated in the sphere of derivatives. It had to have been the lawyers who were drafting those new regulations or opinions decrying over-reaching regulation.

Is there hope? A glimmer. The New York Times reported recently that

In numerous opinions, judges have accused lawyers of processing shoddy or even fabricated paperwork in foreclosure actions when representing the banks.

Maybe this is the beginning of an accounting that must occur. Sure, these cases concern individuals' homes and livelihoods and not the big institutions. But it is at the behest of those institutions that this situation was initially created. It's like a Mexican Wave through a football stadium.

So the media is beginning to catch up and let's hope the regulators don't chicken out. I'm sure they will be watched.

(Robert Peston)

How Have the Lawyers Escaped Culpability?

61st Session of Philosophical Foundations of Law and Finance

Dear All,

The 61st Session of Philosophical Foundations of Law and Finance (Friday, 5 Nov, 6-8pm, room 5.17, 309 Regent Street) will be devoted to:

Overcoming Information Asymmetry in Law and Finance

with simple illustrations from entrepreneurial business plans to more complex examples from securities prospectuses.  

A very sophisticated use of information asymmetry theory can be found in http://www.federalreserve.gov/pubs/ifdp/2010/1010/ifdp1010.pdf (Nov. 2010) where Beltram & Thomas argue that information asymmetry alone is sufficient to explain the credit crisis and to provide a criterion for judging the potential success or failure of proposed regulatory solutions to the credit crisis. Joe recommends all Corporate Finance Law and International Banking Law students read the article since it provides a particularly good review of the recent scholarly literature and shows how information asymmetry may be used in arguendo to reach surprisingly general results.  The article was spotted by Edmond Curtin. Many thanks, Edmond.

As part of our philosophical investigation we shall ask, "What are the assumptions underlying information asymmetry?"  One possible answer comes from the concept of "mutuality of information" based on the symmetric correlation of probabilities between information-communication systems. [See, Seth Lloyd (1996) “Causal Asymmetry from Statistics” in Physical Origins of Time Asymmetry edited by J.J. Halliwell, J. Perez-Mercader, and W.H. Zurek, Cambridge, Cambridge University Press.] We will try to elucidate mutuality of information in relation to social phenomena and legal systems.  For example, the goal of Plato’s Laws was to attain “social amity" which could not be had unless there was a mutuality of information at every level of society.  [See, Plato's Laws, Book I.]

In class readings of Aristotle's Art of Rhetoric will continue on the forensic, epidetic and deliberate forms of enthymemes (available a http://classics.mit.edu/Aristotle/rhetoric.html).

Afterwards if we feel for pan-Asian food and good company please join us for a nice dinner at Wagamama at 101a Wigmore Street.  Please RSPV so that we can arrange for reservations.

Regards,

Rezi & Joe

61st Session of Philosophical Foundations of Law and Finance