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Here's what Washington and Wilmington share. Both begin with "W" and end with "ington" (pronounced ing-ton). Both are capitals of something. Wilmington is capital of corporate law in America. Washington is capital of lots of things, some of which can't be mentioned in a family publication. Washington has lots of marbled buildings full of pols and slicksters hanging out in lobbies. Wilmington has the Hotel du Pont and a railway station full of dark-suited, briefcased Delaware bar types. Washington is agitated by what appears to be the near collapse of a financial regulatory scheme born in the Great Depression. Wilmington celebrated the 40th birthday of its revised corporate law -- the kind of thing that defines hip there -- which remains fresh, vital and still able to attract six out of 10 corporations to domicile there and sue each other in the local Court of Chancery.
It's worth pausing, after perusing David Marcus' piece on the Delaware General Corporate Law, to ponder the differences. In Washington, despite regular verbal eruptions, regulatory reform is about as appealing as Social Security's third rail. True, we came within a Bear's snout of a complete market collapse. True, the structured finance market is moribund -- where are those earnings going to come from? -- and Citigroup has now passed $30 billion in new capital, which is a lot of moolah (a technical term Chancery Judge Leo Strine Jr. favors). True, we've sold part of Wall Street to foreigners and unloaded regional banks onto private equity. We've also redefined the word "run," and the entire Southwest has been foreclosed. But, no problemo, pal, things are getting better. Not great, just better, which is an improvement over March, when they were freaking awful. And what is the best idea for regulatory reform (granted, one that wasn't so much made in a spirit of rational deliberation as in ass-clutching panic): Tell the Federal Reserve to housekeep the markets. Then we have Delaware. In 1965, three associates (white shirts, short hair) holed up in the Hotel du Pont every Saturday morning with three partners (white shirts, no hair) and rewrote the state's corporate law, based on a memo from a law professor. Presto: They produced the law that provided the legal framework for a period of unprecedented transformation in corporate finance. Now it's indisputably true, revising rules is easier than rethinking an entire regulatory scheme. But it's also worth examining the differences between the two Ws. In 1968, the Delaware bar was small, specialized, expert, unruffled by deep political differences, monastic in its monomania; it's not dramatically larger, or different, today. There was a tightly integrated community of politicians and practitioners. There was consensus on approach and a clear goal: Keep Delaware dominant. The framing memo from University of North Carolina Law School professor Ernest Folk III was less creation ab nihilo than an articulation of community wisdom. There was continuity. The world was shaking itself up; Delaware was not. And Washington? The markets have decisively outflanked existing regulatory structures. The foundation of the '30s system, with its emphasis on disclosure and transparency, has eroded in a globalized world of abstract instruments in constant motion. But then so has the absolute belief in untrammeled markets that rose to orthodoxy in the '80s. There is no agreement on fundamentals: principles versus rules; efficiency versus prudence; market discipline versus bureaucratic oversight; federal versus state (versus -- what? -- global?); Wall Street versus Main Street; me versus you. That's a lot of versus. And that's the serious stuff. Behind the stony facade, in Washington's bustling back alleys, occurs the clash of bureaucracies, the sword play of careerism, the belly dance of reality and illusion. Accounting rules are tweaked. The Securities and Exchange Commission rediscovers liquidity and its relation to capital. Treasury pumps out paper. The Southwest is sold to a new Russian sovereign wealth fund for 60 cents on a falling dollar. Needless to say, Delaware is hardly perfect, and, again, its brief,
which is law, not regulation, favors tradition and continuity. It's
also flexible, modest (in its way), empirical as opposed to
ideological. Even now, on the 40th anniversary (well, 41st, but don't
ask), discussions of change animate the festivities. The largest threat
to Delaware is not executive comp or shareholder access, but coping
with whatever is cooked up down I-95 in that other W joint. It's by no
means guaranteed that such an anomaly as Delaware survives in a highly
charged, politicized world dominated by a freaked-out Washington. The
absurd overreach forced upon the Fed -- another imperfect institution
with an empirical bent and a sense of limits -- should give Delaware
pause. Being effective is not enough. In fact, it may be the kiss of
death. - Robert Teitelman Delaware fends off states, feds Immaculate reception Really personal finance Bankruptcy blues
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