Justin Fox of the Harvard Business Review has the most interesting read of the day, an interview with historian Brian Murphy, who’s studied early American corporations, and says the Founders would be appalled by how corporate power and status has grown:
Chief Justice Roberts lays out an ideologically pure view of corporations as associations of citizens — leveling differences between companies, schools and other groups. So in his view Boeing is no different from Harvard, which is no different from the NAACP, or Citizens United, or my local neighborhood civic association. It’s lovely prose, but as a matter of history the majority is simply wrong.
Let me put it this way: the Founders did not confuse Boston’s Sons of Liberty with the British East India Company. They could distinguish among different varieties of association — and they understood that corporate personhood was a legal fiction that was limited to a courtroom. It wasn’t literal. Corporations could not vote or hold office. They held property, and to enable a shifting group of shareholders to hold that property over time and to sue and be sued in court, they were granted this fictive personhood in a limited legal context…
When you read Madison in particular, you see that he wasn’t blindly hostile to banks during his fight with Alexander Hamilton over the Bank of the United States. Instead, he’s worried about the unchecked power of accumulations of capital that come with creating a class of bankers.
So even as this generation of Americans became comfortable with the idea of using the corporate form as a way to set priorities and mobilize capital, they did their best to make sure that those institutions were subordinate to elected officials and representative government. They saw corporations as corrupting influences on both the economy at large and on government — that’s why they described the East India Company as imperium in imperio, a sort of “state within a state.” This wasn’t an outcome they were looking to replicate.
Read the whole thing. And I’d love to read more on the evolution of the corporation in America.
— The Wharton School’s business journal Knowledge@Wharton has a very good piece explaining why Lehman’s Repo 105 was pure fraud.
“It was clearly a dodge…. to circumvent the rules, to try to move things off the balance sheet,” says Wharton accounting professor professor Brian J. Bushee, referring to Lehman’s Repo 105 transactions. “Usually, in these kinds of situations I try to find some silver lining for the company, to say that there are some legitimate reasons to do this…. But it clearly was to get assets off the balance sheet”…
Bushee notes, however, that Lehman’s maneuvers were more extreme than any he has seen since the Enron collapse…
By agreeing to buy the assets back for 105% of their sales price, the firm could book them as a sale and remove them from the books. But the move was misleading, as Lehman also entered into a forward contract giving it the right to buy the assets back, Bushee says. The forward contract would be on Lehman’s books, but at a value near zero. “It’s very similar to what Enron did with their transactions. It’s called ‘round-tripping.’” Enron, the huge Houston energy company, went bankrupt in 2001 in one of the best-known examples of accounting deception.
(h/t Francine McKenna)
— NYU’s Clay Shirky has a fascinating post (okay, let’s say it ties for most-interesting of the day) on complexity and what it means for the institutional media, pointing to a book implicating complexity in the collapse of civilizations from Rome to the Mayans.
How much does this sound like the financial system? (emphasis mine)
Tainter’s thesis is that when society’s elite members add one layer of bureaucracy or demand one tribute too many, they end up extracting all the value from their environment it is possible to extract and then some.
Corporations developed for the purpose of creating limited personal liability for all members. Trusts had served that purpose for the beneficial owners but not for the trustees themselves. The British Crown (and later the State Legislatures) found corporations a useful fiction because their creation involved the payment of large amounts of money to the sovereign. One of the many compromises of the Federal Constitution was that the right of granting a limited liability franchise would be held by the states, not the national government. What no one questioned was the need for such entities. Even the Founders who most hated bankers (usually because they were in debt to them) accepted the necessity of having associations whose members could not directly be sued. They really had no choice. Every school and church in the country already was such a limited liability association; and, as in so many things, Harvard was among the first. Logic - and the establishment clause of the 1st Amendment - required that even those heretical citizens who preferred Mammon to God had to the right to seek corporate charters. The origin of our present difficulties has far more to do with the decision of Congress to create limited liability entities - FNM, FRE, SEIU - whose franchises were immune from any state regulation. There, too, as in so many things, Harvard led the way; as taxpayers, we can all thank Felix Frankfurter for much of our present ruin.
#1 Posted by LetUsHavePeace, CJR on Fri 2 Apr 2010 at 02:08 PM