Yale's Jonathan Macey: Wall Street Only Cares About the Bottom Line, Not Reputation

Wednesday, 15 May 2013 07:24 AM

By Glenn J. Kalinoski and Kathleen Walter

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The erosion of corporate America's reputation was a cause of the financial crisis, according to Yale University professor of corporate law, corporate finance and securities law Jonathan Macey.

"People didn’t realize how little firms, particularly the credit ratings agencies, cared about their reputations and so they kept trusting them and this trust led to reliance and disastrous consequences as people loaded up on AAA securities, particularly CDOs that weren't worth very much," Macey told Newsmax TV in an exclusive interview.

"People put their trust in some pretty unsavory businesses that the government allowed to run around with this sort of vague imprimatur of regulatory oversight and accountability."

Watch our exclusive video. Story continues below.



The author of “The Death of Corporate Reputation: How Integrity Has Been Destroyed on Wall Street” was asked if businesses on Wall Street care about their reputations.

Editor's note: To order 'The Death of Corporate Reputation' at a great price — Click Here Now.

"They care about the bottom line, that's for sure," he said. "There was a time when you had to care about your reputation or your bottom line would suffer. The problem we're in right now is that's no longer really the case," he said.

"These credit rating agencies, big investment banks, commercial banks have suffered a massive erosion in their reputations, but it really either hasn't affected their bottom lines or the people running their businesses believe that it has not affected their bottom lines."

He said "maybe the Federal courts" are "still generally not corrupt, and viewed pretty well, but you have to stretch pretty far to find somebody to fit that category."

Macey cited the Bernie Madoff scandal as proof that the SEC identifying itself as being an effective organization in protecting investors is really a false promise.

Editor’s Note: Put the World’s Top Financial Minds to Work for You

"The SEC has an incentive, unfortunately, to kind of oversell their capacity for protecting Main Street investors from Wall Street investments and it's also the case that when these scandals occur, they actually help the SEC in terms of creating new demand, new jobs, new funding," he said.

"We're in a bit of a conflict of interest situation with respect to the relationship between [the] SEC and Wall Street firms."

Can trust and integrity be restored on Wall Street?

"When businesses begin to realize that it's important to their bottom line once again, then things will change in a hurry," he said. "Unfortunately, I don’t believe we've quite reached that point."

Macey also discussed options for ordinary people looking to invest their savings.

"When you make an investment, you've got to think one of three things," he said.

"You've got to think either you're smarter than the other guy across the table, which is pretty unlikely, or you've got to think you're being protected by regulation, which is a pipedream, or you've got to think that you're protected because the company you're doing business with really cares about you and really cares about its own reputation," he said.

"The place to put one's money is in index funds, in very transparent investment interests whose performance tracks some broad market index, like the S&P 500 or the Russell 5000 or the Dow and is very, very easy to monitor. That's what a smart investor will do in today's environment. You'll get the market return and you won't get ripped off."

Editor's note: To order 'The Death of Corporate Reputation' at a great price — Click Here Now.

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