I’m getting more mail these days. I’m especially thrilled when the writer is a lawyer and even more excited when it’s a law professor. Forgive me for feeling a certain sense of satisfaction and pride in their interest. There are a lot of lawyers reading this blog. There’s always someone who looks when I write about a firm like Mayer Brown or Hogan Hartson. But it’s even more gratifying to see the guys from Sidley or Wilson Sonsini or Cooley Godward reading every day.
So it was great to receive an email from Larry Cunningham, Professor of Law at George Washington University in Washington DC.
Professor Cunningham writes:
I enjoy your blog and wonder if the following may be of interest to your readers: I’ve developed a new bond that auditors could issue to cover layers of losses at catastrophic levels ($500M+), akin to those insurers began issuing in the mid-1990s to deal with cat risks from natural disasters. An exchange I had with Kevin LaCroix of D&OD Diary appears on his blog, along with a link to the paper and further background on the idea.
I will be reading a little more about Professor Cunningham’s idea and talking to him later this week so I can get an update on some further conversations he plans with bankers and the audit firms themselves. But I invite you to take a look for yourselves and send your comments.
My initial reaction to him, after reading the exchange he had with Kevin LaCroix was this:
At first blush, I think the disclosure issue is the biggest practical hurdle. The firms want a lot but are not willing to give much. I don’t think in all of these discussions of liability caps with the politicians that any of them has insisted that full disclosure and transparency would be a prerequisite to sponsoring such legislation. That, to me, is crazy.
I also am increasingly worried about the way derivative instruments distribute and appear to dissipate risk, only to see it roll back uphill when unexpected events inevitably occur. The risk and the consequences are still there and, as we have seen in the sub prime crisis, spreading it around sometimes makes things even worse than if one player makes a bad bet and takes the fall themselves, ending the suffering neatly and quickly.