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Lawless Capitalism

The Subprime Crisis and the Case for an Economic Rule of Law

Steven A. Ramirez

Publication Year: 2012

The subprime mortgage crisis has been blamed on many: the Bush Administration, Bernie Madoff, the financial industry, overzealous housing developers. Yet little scrutiny has been placed on the American legal system as a whole, even though parts of that system, such as the laws that regulate high-risk lending, have been dissected to bits and pieces. In this innovative and exhaustive study, Steven A. Ramirez posits that the subprime mortgage crisis, as well as the global macroeconomic catastrophe it spawned, is traceable to a gross failure of law.

The rule of law must appropriately channel and constrain the exercise of economic and political power. Used effectively, it ensures that economic opportunity isn’t limited to a small group of elites that enjoy growth at the expense of many, particularly those in vulnerable economic situations. In Lawless Capitalism, Ramirez calls for the rule of law to displace crony capitalism. Only through the rule of law, he argues, can capitalism be reconstructed.

Published by: NYU Press

Cover, Title Page, Copyright

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Contents

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pp. vii-viii

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Acknowledgments

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pp. ix-x

I am greatly indebted to the following individuals for reviewing all or part of this book and improving it: Laura Caldwell, andré cummings, Joe Grant, Chunlin Leonhard, Katrina Ramirez, Mary Ramirez, Barry Sullivan, Alexander Tsesis, and Spencer Waller. ...

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Preface: A Historic Collapse of Capitalism

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pp. xi-xviii

On September 13, 2008, CEO Jamie Dimon told his senior management team at JP Morgan Chase: “You are about to experience the most unbelievable week in America ever.”2 Dimon summed up the outcome for the Chase bankers of extended late night meetings with government officials and fellow banking executives: ...

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Introduction

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pp. 1-16

Law plays a pivotal role in economic growth and stability. This book highlights the role of corrupted law and regulation in the financial crisis of 2007–9 (and its ongoing macroeconomic consequences) and articulates a legal framework that comprehends the links between law and macroeconomic stability and growth. ...

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1. A Revolution in Economics (but Not in Law)

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pp. 17-46

Adam Smith long ago recognized that the extent of the marketplace drove ever-increasing specialization. Larger and deeper markets support a more developed division of labor, which enhances economic growth.1 He further recognized the importance of financial regulation, to contain panics and system risk.2 ...

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2. The Corrupted Corporation

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pp. 47-73

Legal infrastructure created the corporation, and it qualifies as one of the most economically powerful legal innovations in history. Yet governance issues plague the modern publicly held corporation, and sophisticated investors like John Bogle (founder of one of the largest mutual fund families—the Vanguard family of mutual funds) see the dementia.2 ...

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3. Animal Spirits and Financial Regulation

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pp. 74-104

So long as free capital markets permit all holders of assets to sell at once, a risk of panic looms. For example, an exogenous shock such as the terrorist attacks of 9/11 can deter all buyers and cause financial markets to crash. Human psychology (or “animal spirits”) influences investment decisions and as such injects inherent instability into the financial system. ...

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4. Rigged Globalization

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pp. 105-130

Globalization is a rigged game. The present construction operates to maximize elite power to lower wages and to free elites from regulatory restraint.2 The legal framework governing globalization encourages a race to the bottom whereby nation-states compete for transnational corporate patronage in exchange for diluted regulatory infrastructure.3 ...

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5. The Costs of Economic Oppression

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pp. 131-158

Throughout the world today, economic oppression exacts a painful economic toll on national economies and the global economy. Stripping an individual of the ability to reach his or her economic potential retards the extent of the market available to support maximum innovation and specialized knowledge for everyone. ...

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6. The Crisis in Crisis Management

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pp. 159-183

The history of capitalism proves that financial crises can be eliminated only with superior legal and regulatory infrastructure, if then. The MIT economist Charles Kindleberger, in his classic Manias, Panics and Crashes, shows that aside from a thirty-year period of stability, from 1945 through 1975, “speculative excess,” such as manias or panics, ...

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7. The Potential for an Economic Rule of Law

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pp. 184-216

This book argues that those with economic “might” subverted law and regulation in the years leading up to the financial meltdown of the fall of 2008. They rigged law to loot the American economy with impunity.2 Between 1986 and 2008, constraints on economic power ranging from liability under the federal securities laws ...

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Epilogue: Optimized Legal Infrastructure and the End of Scarcity

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pp. 217-220

The economist Paul Romer theorized in 1993 that, given the number of elements in the universe, the possibilities for innovation by putting things together in new ways may be finite but are definitely enormous.1 The key to exploiting this fundamental reality is to create as many innovators as possible— that is, to create institutions through law to support the creation of more ideas.2 ...

Notes

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pp. 221-276

Index

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pp. 277-285

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About the Author

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pp. 286-

Steven A. Ramirez is Professor of Law at Loyola University Chicago, where he also directs the Business and Corporate Governance Law Center. He has spent the past thirty years studying the intersection of the law and the economy. ...


E-ISBN-13: 9780814777299
E-ISBN-10: 0814776493
Print-ISBN-13: 9780814776490

Page Count: 304
Publication Year: 2012

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Subject Headings

  • Global Financial Crisis, 2008-2009 -- Moral and ethical aspects.
  • Financial crises -- Moral and ethical aspects -- United States.
  • Capitalism -- Moral and ethical aspects -- United States.
  • Corporate governance -- Moral and ethical aspects -- United States.
  • Business and politics -- United States.
  • Financial institutions -- Law and legislation -- United States.
  • Law and economics.
  • Liability (Law).
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