What the Market Needs: More Regulation!
The old saw goes that nothing burdens the market like the stifling oversight of government regulators. But real life is much more complicated than sound bites. Sometimes a market needs facilitating regulation to function.
An interesting derivation of this theme is the role of "creditor's rights" in comparative insolvency. Some international comparative works have sought to support the intuition that if creditors have weak protection -- for example, the State can nationalize all property without compensation -- investors will exhibit expected skittishness. If this intuition is correct, how sophisticated is it? Sure, nationalization is scary. But are investors really more scared off by, say, the American employee priority rule, with its higher wage level, than the Canadian one (currently under amendment) with its lower priority wage cut off?
Here's where readers may want to look at the new study by researchers from the United States and Finland (Timo Korkeamaki, Yrjo Koskinen, and Tuomas Takalo) on what happened when Finland INCREASED regulatory oversight in insolvency proceedings and DECREASED creditor's entitements: investment returns seemed to increase. (!). While I haven't had the chance to read the full article yet, this surely warrants exploration. Article link: Phoenix Rising: Legal Reforms and Changes in Finland During the Economic Crisis
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