“Jonathan Macey of Yale Law School explains why the Dodd-Frank bill might not have prevented the financial crisis, but will create jobs for regulators and lawyers”

February 20th, 2012

From the Economist:

And, relatedly from Bainbridge:

Lucian Bebchuk is still trying to use the financial crisis of 2007-2008 to justify his sweeping regulations of executive compensation: . . .

The trouble with this rhetorical move should be obvious. Unfortunately, Bebchuk’s not the only one peddling it. So I was forced to spell out the problem in my book Corporate Governance after the Financial Crisis:

Scholars are divided as to whether this incentive structure causally contributed to either the housing or credit crunch. Grant Kirkpatrick contends that incentive pay encouraged high levels of risk taking.  Richard Posner argues that the structure of executive compensation practices encouraged management to cling to the housing bubble and “hope for the best.”  In contrast, Peter Mulbert contends that the empirical evidence does not support treating compensation as a major causal factor.  What seems clear, however, is that the problem was localized to the financial sector. Whether or not financial institution executive compensation practices contributed to the crisis, there is no evidence that executive compensation at Main Street corporations did so.