Dear employer, I think I begin to understand the crisis we are experiencing: a crisis of confidence, not economic, the last and lasting distrust among financial agents. Because, indeed, is a problem between them have been fooling each other and eventually pay it all. Maybe they use the word cheat a little too hard, but the feeling is when you try to understand what happened and that a summary is financed with other risk and bought the rights to this funding believing the underlying risk was controlled and was acceptable, when it was not that way. That some call it market crisis, as if to say "bad luck, the invisible hand could not do the job." I call crisis of confidence, or loss of lubricant that allows the gears without breaking Rodin, following the metaphor of Kenneth Arrow. I trust that is so fucking hard to get and very easy to dispel, as has happened.

But in no case before us nothing new. Fever corporate eighties in the U.S., with takeovers and purchases made ​​with leverage (debt) and instruments such as junk bonds (junk bonds), ended on Monday, causing black in October 1987, when Wall Street was lost in a one day 22% of its value. The model was similar to the Current debt to buy companies, debt to buy properties. In 2001 came the collapse of Enron due to accounting fraud, the company that Fortune magazine for six consecutive years was named America's Most Innovative Company - and appeared in other companies with similar problems, which triggered a crisis of confidence corporate spawned a new wave of review of corporate governance practices, and that the U.S. led to the Sarbanes-Oxley.

Dear colleague, notice how all these crises share a weakness: the actions of supervisors, and especially nearest the board. Twenty years after 1987 the responsibilities and functions of boards are defined and accepted by the community institutional, financial and business is a major exercise of control of executive action. Do not have much directly to this logic and set complementary mechanisms: internal and external audit, external evaluation (grades), ethical codes, different rules, etc.. But it seems that is not enough and this makes us think that the cause probably lies in how directors carry out this function, in short, how directors do their work. At least in Spain, in the real estate companies with problems, since not been very effective in monitoring, directors are promoting companies that submitted tenders volunteers, lest arrived demands.

Joseph Albet

Economic Focus, 12-04-2008