naked capitalism

Ina Pickle says:

The correspondent may be right about a revolving door, but he is wrong about the ethical rules governing lawyers. You cannot work against the former client, not just on any cases you had before, but on any new cases. The client owns your loyalty for the rest of your professional life. The client can waive some conflicts, but not others.

So: the rules on lawyers are actually much stricter than the person thinks. Yes, you can SOMETIMES work for a firm that has the other side of a case or deal, provided that you are “chinese walled.” But that is really not common (probably more common in transactional law than litigation). Few lawyers and law firms are willing to take the risk of an accusation – these are career ending events if you were to break the confidence and accidentally share something that hurt the former client. Also, clients get royally pissed that you affiliated with somebody who works against them. What the correspondent doesn’t seem to realize is that the stricter rules tend to make you even more bound to the client because you can tend to be stuck to one large client in fields where competitors tend to sue each other. So in some fields, like oil and gas, a firm might work for several majors. In a field like investment banking, not so much.

With deals, companies will have their preferred lawyers and not change much. Also, the more you move your business around, the more you can block firms from helping your enemies. I have sometimes suspected that firms went on campaigns to sew up potential opposing counsel.

This is a little simplistic, but the person seems to have an overly negative idea of the ethics rules under which lawyers operate. Law firms take conflicts checks VERY seriously, as do individual lawyers. If practices around Wall Street have changed, it is out of necessity. Several investment banks *used* to be a hundred years old: that is a lot of conflicts history. And you would still have to get the clients’ consent.

I honestly believe in regulatory capture. But what you ought to ask yourself, perhaps, is how one can take graduates from the same two or three colleges and business schools, and expect different thinking from them if they are plopped into different work environments? They are still socializing with the same bunch educated at the same two schools, still living with those people, working with those people – but one group is supposed to be policing the other. If you ask me, take a look at everybody who went to Harvard over the past 25 years, and there is the start of your revolving door. The “elites” in all fields across the East Coast already have a lot in common before they start work.

DownSouth says:

Yves,

Reforming the polity at this point is more important than reforming the economy. If we attempt economic reform before political reform is accomplished, we’re just going to wind up with more disasters like the 2003 drug benefit for the elderly or the recent (and ongoing) bank bailout. What with Obama’s backroom deals with BigPharma that we already know about, plus heaven knows what else we don’t know about, the more astute observer can already see where healthcare reform is headed–huge benefits to powerful insiders, little benefit to the general good and huge cost to taxpayers.

I notice this post, along with a couple of other recent posts dealing with the Fourth Estate http://en.wikipedia.org/wiki/Fourth_Estate , deal more with political reform than with economic reform. I believe this is key, and I salute your efforts, as I am convinced that substantive economic reform is impossible without first achieving political reform.

The most radical creed of the American Revolution was that of the separation of Church and State. As Daniel Yankelovich put it, “the enemy was entrenched inherited privilege embodied in the church and in most branches of European royalty in collusion with each other.” Granted, the revolution was nominally against the British monarchy, but the Founding Fathers were acutely aware that the monarchy and the church were so inextricably interwoven as to be all but one and the same.

Today we face a similar problem, but instead of an unholy alliance between church and state, we have an equally pernicious alliance between major business corporations and state.

The first American revolution institutionalized the separation of church and state. I think we need a second American revolution that promulgates separation of big business and state.

You’ve already posted on a couple of the problem areas that require reform before the deathgrip that big business enjoys on the polity can be loosened. Let me repeat those and add a couple more (this is not meant to be a complete list):

• The Fourth Estate (the press, media)
• The Revolving Door
• Campaign Finance
• The Academe (and here I’m not just talking about the aberrant economics departments and their capture by business interests, but the equally perverse Nobel prize committee)

fresno dan says:

“I strongly disagree with the argument that SEC lawyers have incentives to drop cases to curry favor with future employers. On the contrary; they have every incentive to break big cases, which is the stuff that careers are made of. And it is the law firms, not the financial firms, that will most likely be their future employers.”
As someone in a regulatory agency, I appreciate someone explaining how the conflict really works. Indeed, the more actions one is associated with (and whether valid or not) the more one is in demand because of one’s “experience” in “resolving” such matters. I take the view that a lot of the regulatory operations are minor shake downs – how many significant actions were actually taken against Wall Street firms? Sure, the fines LOOK large, but they are like parking tickets to a billionaire. And if the parking traffic enforcer gets a bonus to generate parking tickets, whats the harm?
Other than the collapse of honor and propriety

Tao Jonesing says:

@Ina Pickle,

Windows Explorer ate the comment that I took an hour writing up in reply to your analysis. I don’t have the patience to recreate it, but I will summarize: your understanding of conlicts analysis for former clients is incorrect. Law firms can represent new clients against former clients without seeking a waiver, and they do so all the time. A waiver is only required when a firm obtained confidential information in the prior representation that is material to the new representation. See, e.g., California Rule of Professional Conduct 3-310(E), which is pretty representative of every jurisdiction’s rules regarding former representation.

Stephen V. says:

While I cannot fault Ina’s analysis above, I have little faith that any significant relief is forthcoming from either the political or the legal sphere.
Some serious Congressional investigating / enforcement / and conflict of interest crackdowns would be very educational for John Q. Public and might have some deterrent effect.
Wm. BUITER writes today of a Tobin Tax proposal:

http://www.ft.com/cms/s/0/76e13a4e-9725-11de-83c5-00144feabdc0.html?nclick_check=1

He doesn’t think much of the idea, however.
[snip]
The cost of capital to the banking sector is subsidised, causing the sector to be too large.

The solution is clear, and it is not a tax on financial transactions: bring default risk back into the calculations of unsecured creditors and other counterparties of the financial sector. This would eliminate the capital subsidy to the industry.

Stephen V. says:

And for more from the *regulation is the answer* point of view see:
http://www.democracynow.org/2009/9/2/american_casino_doc_investigates_roots_of

Broadcast from NYC earlier today.