Law Commons^™

Intra-African Investment – A Pressing Issue, Lise Johnson, Shawn Pelsinger

Columbia Center on Sustainable Investment Staff Publications

Intra-African investment is a critical source of growth for the continent, but is often overlooked. Africa Investor, together with the Vale Columbia Center on Sustainable Investment, reveals intra-African foreign direct investment is a rapidly growing phenomenon.

Uncertainty, Dangerous Optimism, And Speculation: An Inquiry Into Some Limits Of Democratic Governance, Lynn A. Stout

Cornell Law Faculty Publications

People are often optimistic. Nearly fifty percent of marriages end in divorce, but one survey found that 100 percent of individuals planning to get married believed they would never get divorced. Most people think they drive better than the average driver, and at one university, ninety-four percent of professors placed themselves in the top fifty percent in terms of teaching skills. We often seem to think we are like the youth of Garrison Keillor’s fictional hometown Lake Wobegon, where “all the children are above average.”

This is not always a bad thing. Optimism can be advantageous. Without optimism, Columbus might …

Defining Our Terms Carefully And In Context: Thoughts On Reading (And In One Case, Rereading) Three Books, Cynthia C. Lichtenstein

Cynthia C. Lichtenstein

In preparing to write this paper, I read again Walter Bagehot’s Lombard Street: A Description of the Money Market , Perry Mehrling’s The New Lombard Street: How the Fed Became the Dealer of Last Resort and John Authers’ The Fearful Rise of Markets: Global Bubbles, Synchronized Meltdowns, and How to Prevent Them in the Future. . Bagehot, of course, was the Governor of the Bank of England when he wrote what Mehrling calls his “magisterial” treatise in 1873 on how a central bank must react to a financial crisis. Mehrling is an economist and an economic historian. Authers is a …

Contrasting The Art Of Economic Science With Pseudo-Economic Nonsense: The Distinction Between Reasonable Assumptions And Ridiculous Assumptions, Mark Klock

Pepperdine Law Review

In this paper I explain that law professors who claim to have proven that the stock market cannot be efficient have based their case on economic models contain hidden assumptions which are nonsense. Specifically, the assumption that investors have no wealth constraint and can borrow unlimited amounts of capital is nonsense. I further explain that the frequently touted claim that many investors are irrational is not relevant to the debate about market efficiency because when real world characteristics of financial markets are imposed - markets clear, budget constraints are satisfied, and investors face credit limits - markets will be efficient …

Complexity, Innovation, And The Regulation Of Modern Financial Markets, Dan Awrey

Cornell Law Faculty Publications

The intellectual origins of the global financial crisis (GFC) can be traced back to blind spots emanating from within conventional financial theory. These blind spots are distorted reflections of the perfect market assumptions underpinning the canonical theories of financial economics: modern portfolio theory, the Modigliani and Miller capital structure irrelevancy principle, the capital asset pricing model and, perhaps most importantly, the efficient market hypothesis. In the decades leading up to the GFC, these assumptions were transformed from empirically (con)testable propositions into the central articles of faith of the ideology of modern finance: the foundations of a widely held belief in …

On The Theoretical Foundations For Regulating Financial Markets, Katharina Pistor

Faculty Scholarship

How we think about financial markets determines how we regulate them. Since the 1970s modern finance theory has shaped how we think about and regulate financial markets. It is based on the notion that markets are or can be made (more) efficient. Financial markets have been deregulated when they were thought to achieve efficient outcomes on their own; and regulation was designed to lend crutches to them when it appeared that they needed support. While modern finance theory has suffered some setbacks in the aftermath of the global crisis, defenders hold that improving market efficiency should still be the overriding …

Governing Interdependent Financial Systems: Lessons From The Vienna Initiative, Katharina Pistor

Faculty Scholarship

Financial markets have become globally interdependent, yet their governance has remained national at the core. This friction encumbers crisis management and distorts incentives for crisis prevention. The Vienna Initiative, formed to manage the fallout from the global crisis in the countries of Central and Eastern Europe (CEE), offers an alternative coordinated, multi-stakeholder governance framework. A critical prerequisite for such a regime is a coordinating agent, or ‘anchor tenant’, that is deeply vested in the stability of transnational financial systems, but does not directly compete with market actors or regulators. Lessons for more effective governance of financial interdependence are discussed.