Table Of ContentReshaping Markets
Set against the origins and consequences of the global financial crisis, this
timely bookoffersanenriching andrevealing narrative of the role that the
stateplaysinregulatingmarkets.Focusingoncoreareasofprivatelawsuch
as corporate, labour and banking law, the contributors offer a conceptual
frameworkinwhichtoexaminethecentraltenetsoftheroleofprivatelaw
intoday’sglobaleconomy.Inthecurrentclimateofever-increasingeconomic
inequalityandausteritymeasures,theauthorshighlighttheurgentneedfor
acomprehensiveanalysisofthecontinuingtensionbetweenideasofmarket
liberalism and theories of society. With a focus on both the domestic and
transnational dimensions of market governance, the authors offer a crucial
insightintotheco-existenceandinteractionbetweenstateandmarket-based
economicgovernance.
bertramlomfeldisProfessorofPrivateLawandLegalPhilosophyatFree
UniversityofBerlin.
alessandro somma isProfessorofComparativeLawattheUniversityof
Ferrara,Italy.
peer zumbansen is the inaugural Professor of Transnational Law at
TheDicksonPoonSchoolofLaw,King’sCollege,London,wherehedirects
theTransnationalLawInstitute.
Reshaping Markets
Economic Governance, the Global Financial
Crisis and Liberal Utopia
Editedby
Bertram Lomfeld
ProfessorofPrivateLawandLegalPhilosophy
FreeUniversityofBerlin
Alessandro Somma
ProfessorofComparativeLaw
UniversityofFerrara,Italy
Peer Zumbansen
ProfessorofTransnationalLaw
King’sCollege,London
UniversityPrintingHouse,CambridgeCB28BS,UnitedKingdom
CambridgeUniversityPressispartoftheUniversityofCambridge.
ItfurtherstheUniversity’smissionbydisseminatingknowledgeinthepursuitof
education,learningandresearchatthehighestinternationallevelsofexcellence.
www.cambridge.org
Informationonthistitle:www.cambridge.org/9781107095908
©CambridgeUniversityPress2016
Thispublicationisincopyright.Subjecttostatutoryexception
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noreproductionofanypartmaytakeplacewithoutthewritten
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Firstpublished2016
AcataloguerecordforthispublicationisavailablefromtheBritishLibrary
LibraryofCongressCataloguinginPublicationdata
Lomfeld,Bertram,editor.|Somma,Alessandro,editor.|Zumbansen,Peer,1966–
Reshapingmarkets:economicgovernance,theglobalfinancialcrisisandliberal
utopia/editedbyBertramLomfeld,AlessandroSomma,PeerZumbansen.
Cambridge,UnitedKingdom:CambridgeUniversityPress,2016.
LCCN2015047141|ISBN9781107095908(hardback)
LCSH:Law–Economicaspects.|Financialinstitutions–Lawandlegislation.|
Traderegulation.|BISAC:LAW/Corporate.
LCCK487.E3R4692016|DDC343.08–dc23
LCrecordavailableathttp://lccn.loc.gov/2015047141
ISBN978-1-107-09590-8Hardback
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Contents
Listoffigures pagexi
Listofcontributors xii
Introduction:reshapingmarketsandthequestionofagency 1
peer zumbansen
PartI Crisisandnormalityintransnationalmarketregulation 7
1 ThecentralproblemsofMarx’seconomicsandthenatureof
marketregulation 9
david campbell
1.1 Introduction 9
1.2 Themeaningof‘regulation’ 10
1.3 Left-wingcriticismofthefreemarket 13
1.4 EarlyBritishleft-wingcriticismofthelabourtheoryofvalue 16
1.4.1 ShawandKeynesonMarx 16
1.4.2 WicksteedonMarx 21
1.5 Thecritiqueofcapitalisminlightofthelabourtheory 23
1.5.1 Supplyanddemand 23
1.5.2 Competition 31
1.5.3 Planning 33
1.6 Conclusion:theformofvalue 36
2 Contractlaw,securitizationandthepre-crisistransformation
ofbanking 45
james ‘jay’ varellas iii
2.1 Introduction 45
2.2 Liberalcontractlawandthedevelopmentofthesecuritizationmarket 47
2.2.1 Thehistoricaldevelopmentofsecuritization 47
2.2.2 Thelaissez-faireinstitutionofcontractlaw 49
2.2.3 Contractlawandthepre-crisisspeed-upofsecuritizationmarkets 50
2.3 Securitizationandtheriseofmarket-basedbanking 52
2.3.1 Securitizationandtheeclipseofthepost–WorldWarIIbanking
regime 52
2.3.2 Theriseofmarket-basedbankinganditsconsequences 53
v
vi Contents
2.3.3 Market-basedbankingandtheproblemofthe“coordinatedmarket
economy” 54
2.4 Conclusion 56
3 ‘Inside’and‘outside’thefirm:corporatelawandcontract
governanceasregulatorytheories 60
peer zumbansen
3.1 Introduction 60
3.2 Studyingthecorporation 63
3.3 Thelawyer’smindsetandthenewtwistinlawandeconomics 66
3.4 Thepromises(andpitfalls)ofcontractgovernance 70
3.5 Comingfullcircle?Thecorporationandcontractgovernance 72
3.5.1 Theconundrumofagencyincontemporarycontractandcorporate
theory 73
3.5.2 Beyondpublicversusprivate:thepromiseofrelationalcontract
theoryforanewtheoryofthefirm 75
3.5.3 Themanybasesofcontracts 78
3.6 Conclusion 81
PartII Austeritywoes:trialsandtribulationsofdebt 95
4 TheGreekcrisis:acriticalnarrative 97
iannis michos
4.1 Prologue:thebiggestsovereigninsolvencyinhistory 97
4.2 Foucault’s‘toolbox’ 99
4.2.1 Crisisandreform 100
4.2.2 Aneventandthequestforasinglecause 101
4.2.3 Theuseofdata 101
4.3 Whatdidreallyhappen? 102
4.3.1 Theyears1990–2005:availabilityofcheaplabourandprofit
margins 102
4.3.2 GreeceintheEurozone:livingwithastrongcurrency 105
4.3.3 GovernanceissueswithinGreeceandtheEurozone 107
4.3.4 The‘inefficient’markets:eurozoneoreurocountry? 110
4.4 Epilogue:Theshapingofanewparadigm 112
5 Thebiopoliticsofdebt-economy:marketorder,asceticand
hedonisticmorality 115
alessandro somma
5.1 Accumulationregimes,hedonismandasceticism 115
5.2 Theemergingofadebt-economy 117
5.3 Themoralityofdebtrelationsaspowerrelations 119
5.4 Sovereigndebtrestructuringandmorality:citizens’asceticism 121
5.5 TheGermanexperience:Hartz-reformsandinvisiblepoverty 124
5.6 Cooperationandworkers’asceticism 126
5.7 Fromconsumers’hedonismtocommunitarianism 128
Contents vii
6 Creditcontractsandthepoliticaleconomyofdebt 133
moritz renner and andreas leidinger
6.1 Introduction 133
6.2 Threestagesofadecline?Ahistoricalpoliticaleconomyofdebt 134
6.2.1 Thesocialemdeddednessofdebt 134
6.2.2 TheGreatTransformationPartI:creditcontractsandtheregulatory
state 135
6.2.3 TheGreatTransformationPartII:tradingrisks 137
6.2.3.1 Makingrisk‘disappear’:theexampleofCDStrading 138
6.2.3.2 Makingthelawmorerisk-sensitive:theexampleof
close-outnetting 139
6.2.3.3 Ashiftfromnormativetocognitiveexpectationstructures? 141
6.3 Reembeddingdebt?Theconstitutionofapoliticaleconomybeyondthestate 142
6.3.1 ISDA’sdevelopmentandfunctioning 142
6.3.2 ISDA’spartinthecognitivationoffinancialmarkets 143
6.3.3 TheevolutionofISDA’spositioninthederivativesmarket 144
6.3.3.1 Internalcentralisation–The2009Supplementtothe
MasterAgreement 144
6.3.3.2 Externallobbying–theexampleofclose-outnetting 145
6.3.4 Reembeddingdebt? 147
6.3.4.1 Isthereareembeddingofdebtatall? 147
6.3.4.2 AreISDA’sstandardsdemocraticallylegitimate? 148
6.3.4.3 Societalregulatoryauthoritiesandthenation-state–
acomplementaryrelationship 153
6.4 Conclusion 154
PartIII Reformingfinance:systemicriskandaccountability 159
7 Whymanagerliabilityfailsatcontrollingsystemicrisk 161
andreas engert
7.1 Introduction 161
7.2 Managerliability:notstrictbutfault-based 162
7.2.1 Strictliabilityisinconsistentwithmanagers’roleasagents 163
7.2.2 Incentivedistortionsfromstrictliability 164
7.3 Definingthestandardofcare 166
7.3.1 Objective:limitingtheprobabilityofbankinsolvency 167
7.3.2 Definingthestandardexante 169
7.3.3 Definingthestandardexpost 174
7.4 Theconsequencesofuncertaincarestandards 176
7.4.1 Thecaseforrestrictingmanagerliability 177
7.4.2 Objections 179
7.5 Conclusion 180
viii Contents
8 Howspecialarethey?Targetingsystemicriskbyregulating
shadowbanking 185
tobias tro¨ger
8.1 Introduction 185
8.2 Therationaleunderpinningcurrentregulatoryinitiativestocovernon-bank
creditintermediation 188
8.2.1 Insearchofanoperativedefinition 188
8.2.2 Goalsofbankingregulationrevisited:substance 191
8.2.2.1 Safeguardingthesupplyofliquidityastheparamountend
inprudentialbankregulation 191
8.2.2.2 Risk-insensitivefundingasthecoreproblem 193
8.2.3 Synthesisingthedebates 194
8.3 Legislators’andsupervisors’‘formalist’implementationofthepolicy
prescriptions 196
8.3.1 Securitisationandoff-balancesheetconduits 197
8.3.2 Mutualmoneymarketfundsandrepo 198
8.4 Enhancingprudentialregulation’sassertivenessinanormativeapproach 199
8.4.1 Theideaofaninternalsolutionwithoutpermanentlawreform 199
8.4.2 Actualandallegedlimitsofanormativeapproach 200
8.5 Conclusion 202
9 FixingFinance2.0 208
john m. conley and cynthia a. williams
9.1 Introduction 208
9.2 Toobigtofailbanksarestillaconcern 210
9.2.1 Whyis“toobigtofail”aproblem? 211
9.2.2 RelevantprovisionsofDodd-Frank 212
9.3 Executivecompensation 214
9.4 Whythegaps? 216
9.5 Culture,organizationalpsychologyandregulation 219
9.5.1 Projectfinanceasamodelofpublic/privateco-regulation 221
9.5.2 DutchCentralBankpsychologicalinterventions 222
9.6 Aco-regulationmodel 223
9.7 Conclusion 224
10 Regulatingfinancialmarkets:whatwemightlearnfrom
sovereignwealthfunds 229
larry cata´ backer
10.1 Introduction 229
10.2 TheoperationoftheNorwegianSovereignWealthFund:privateactor,
internationalactor,andsovereign 231
10.2.1 OrganizationoftheNSWF 232
10.2.2 Responsibleinvestingandactiveownership 233
10.3 Juridificationofinvestment:theemergingjurisprudenceoftheethics
council 236
10.3.1 TheNSWFethicalguidelines 236
10.3.2 OperationalizingtheEthicsGuidelines–thestructureand
functionsoftheNSWFCouncilonEthics 238
