Private sector creditors and
depositors have little leverage over delinquent debtors or banks. When
Russia - and trigger happy Russian firms - defaulted on their
obligations in 1998, even the largest lenders, such as the EBRD, were
unable to recover their credits and investments.
The defrauded depositors of BCCI are still chasing the assets of the
defunct bank as well as litigating against the Bank of England for
allegedly having failed to supervise it. Discipline imposed by
depositors and creditors often results in a "run on the bank" - or in
bankruptcy. The presumed ability of stakeholders to discipline risky
enterprises, hazardous financial institutions, and profligate
sovereigns is fallacious.
Asset selection within a well balanced and diversified portfolio is
also a bit of a daydream. Information - even in the most regulated and
liquid markets - is partial, distorted, manipulative, and lagging.
Insiders collude to monopolize it and obtain a "first mover" advantage.
Intricate nets of patronage exclude the vast majority of shareholders
and co-opt ostensible checks and balances - such as auditors,
legislators, and regulators. Enough to mention Enron and its
accountants, the formerly much vaunted Andersen.
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