Preface

• Author: Miriam Weismann
• Pages: 14-15

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PREFACE

The first edit ion of this book’s publication coincided wit h a massive global financial

crisis dubbed the worst recession si nce World War II. The culprit wa s and, in the

continuing current fi nancial crisis, remains unbrid led corporate power that has over-

taken judgment, tr ust, and self-restraint—all cornerstones of a norma lly functioning

capital marketplace. Cu lt personalities a nd mystical invest ment “quant” models in

the financia l world have subsumed rational business judgment and replaced the logi-

cal funct ioning of companies under trad itional fina nce risk and reward principles

incident to economic growth.

I was reading Ala n Greenspan’s recent book, The Age of Turbulence: Adventures

in a New World, thinking wh at a smart guy he was u ntil he got to the part ab out

derivatives. He wrote about the t iny Wall Street brain trust t hat claimed to know how

derivatives “really worked ” as if they were geniuses as opposed to the greedy cabal of

opportunists ex posed during the u nprecedented global collapse of the market place.

In short, we trusted cor porations to do the right thing because of a system of check s

and balances def ined by the legal relationship of fiducia ry duty owed to sharehold-

ers by boards of directors and cor porate management. The duties of care and loyalty

were suppo sed to protec t investor i nterests as part of cor porate gover nance gu ided by

these fiduciar y responsibilities. Unfortunately, corporate governance was replaced by

personality. Ken Lay, Bernie Ebbers, and mos t recently, Bernard Madoff, have under-

mined corporate fu nctionality t hrough fraud. Perceived as the “smartest guys in t he

room,” not even the SEC could be counted on to look past the persona.

How did they get away with it for so long? The answer is inesc apable: it takes

a community of part icipation to operate so openly and notoriously. The proverbial

“watchdogs,” including banks, appra isers, fina ncial advisors, accou ntants, lawyers,

and even regulators, either pa rticipated in the scheme or closed their eyes to known

risks.

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