Endnotes

¹The Sarbanes-Oxley Act of 2002 was implemented to establish new, higher standards for publically-held companies.

²The most egregious example, of course, is the case of Bernard Madoff, who was convicted of many crimes related to bilking investors to the tune of US$50 billion. He was sentenced to 150 years in prison.

³An extensive review of this process is beyond the scope of this study and, given the abundance of literature on the topic, would be redundant. See, for example, Kim, Kose, and Plummer (2001).

⁴In essence, the argument suggests that in order to avoid a systemic breakdown, policymakers need to “cap” risk, much as policymakers have developed systems to cap carbon emissions (Beville 2009).

⁵It is important to point out that, as is the case of all second-best policies, economic efficiency requires that the cure be less harmful than the externality itself. To paraphrase Harry Johnson, the problem with second-best policies is that they may be created by third-best politicians and implemented by fourth-best bureaucrats.

⁶They also note the potential of global approaches, but these tend to deal merely with enhancing transparency and information flows. These are necessary but not sufficient conditions for better management.

⁷One exceptional episode took place in December 2006, when the Thai government imposed capital controls pre-emptively in order to prevent further baht appreciation (but this occurred with negative consequences).

⁸Arthur Andersen folded due to its loss of reputation associated with the Enron case.

⁹Some testimony in the US regarding the origins of the global economic crisis suggested that risk-management staff in financial institutions and other firms were often afraid of raising potential risks when top management did not want to hear it.

¹⁰http://www.buyandhold.com/bh/en/education/history/2000/hunt_bros.html

¹¹Johnston et al. (2009) provides excellent analysis of valuation methods and risk models in its Box 1.

¹²A bank holding company is simply an enterprise that owns one or more banks. The investment banks made this change because it allowed them to take advantage of additional funding programs being provided by the US Federal Reserve Board in order to support banks during the crisis.

¹³I have focused specifically in this topic elsewhere in Kreinin and Plummer (2008).

¹⁴The Economist magazine has examples of this.

¹⁵The AEC Blueprint was formally approved by the ASEAN Heads of State on 20 November, 2007 (“Declaration on the ASEAN Economic Community Blueprint”).

¹⁶This discussion borrows from Petri and Plummer (2009).

¹⁷Given the inter-connectedness of the Asian economies and the potential for “contagion” across markets, this is particularly important.

¹⁸For example, the extremely large US balance of payments deficit was funded in large part by Asian economies, that bought up US-denominated assets in order to maintain exchange-rage stability. The resulting build-up in foreign exchange reserves, though often mostly sterilized, affected the money supply and interest rates in a less-than desirable way. Countries were hesitant to revalue in part out of fear for losing competitiveness. An effect AFSD could have led to concerted approaches to address the problem.

¹⁹One representative each from Australia; Hong Kong, China; Netherlands; and Singapore, which are not Group of Seven countries, were included.

²⁰Details can be found at its homepage: http://www.financialstabilityboard.org/. This section draws from information available at that site.

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