It's a bit hard to remember on a day like this but just a little while ago the big concern among journalists and regulators was the systemic risk created by hedge funds? The SEC was trying to regulate them, journalists watched them warily and corporate governance types referred to them as cowboys operating in a wild-west without rules.
As it turn out, the really risks in the system were being created not by hedge funds but by boring old investment banks and insurance companies. Sure there have been hedge fund failures but none on the scale and with the repercussions of the recent failures of Bear Stearns, Lehman Brothers, and the government sponsored mortgage companies. Hedge funds might not have had all that many rules governing their behavior but their incentive pay structure seems to have regulated their risk far better.
Larry Ribstein thinks that maybe we should start paying attention to the kind of corporate governance reform that works rather than the kind the experts favor.
As odd as it might seem seven years after Enron, I think this is the wake up call for corporate governance. Despite all the regulators, independent directors and Gretchen Morgenson, big firms were taking catastrophic risks under the radar.
And, yes, the culprits were the conventionally governed big corporations.