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Restoring Trust in Financial Markets*
Restoring trust in financial markets

The task, we are told, is to restore trust in financial markets after the damage done by Enron and its cohorts, the “tech bubble,” and earlier by the Asian crisis. Confucius said that a ruler needs three things—weapons, food, and trust; if he has to give up any of these, weapons go first, then food. “Without trust we cannot stand” (quoted in O'Neil, 2002). But how do we strengthen trust? We are now in the phase of the economic cycle when we hear increasingly strident cries that “the government ought to do something about it.” So there will be pressures to re-write, formalize, strengthen, and centralize the rules of prudential supervision, governance, and corporate behavior, making ...

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