Capitalism: Success, Crisis, and Reform

PLSC 270 - Lecture 12 - Accountability and Greed in Investment Banking

Chapter 1. Introduction and Agenda [00:00:00]

Professor Douglas W. Rae: Okay let’s try to begin. People will trickle in for the next twenty minutes, but let’s get on with our work. Today we had ordinarily expected Paulo Zanoni, who is a senior partner of Goldman Sachs, to be with us, and it turns out we are a lower priority than a new merger deal, and we will have him a month from today, which gives us time to pull together a bunch of important details about the institutional foundations of capitalism, and I’m going to use the term “wealth maximizing law” today. If you think about what courts do, and what legislators, at any level from New Haven to the Congress of the United States, they set rules which create incentives and disincentives that affect how people behave. We’re going to do four topics today, but they’re all ways of talking about that.

I’m going to start with the Coase Theorem, which is not in your reading packet, and neither is it, strictly speaking, a theorem. But it is a foundational set of concepts that Hernando de Soto’s book, which we are reading, is built on. De Soto has, in effect, taken the Coase Theorem, which is sixty years back, and it won Ron Coase a Nobel Prize about thirty years ago; has taken the Coase Theorem and applied it to reality in a very lively way. The theorem is a good thing to have in the background. Second, and very briefly, we’re going to look at a law case, which is actually in the syllabus for a little later in term, but I’m going to bring it forward because this is really a good place to show its result. It’s a case about whaling off Cape Cod in the 1980s [correction: 1880s]. And what’s important about it is not the facts of the case, but the way the judge reasoned his decision. Third, we’re going to do de Soto in America, which was the assignment in this book for today’s class, and finally, we’re going to look at some of the finer grained distinctions in the way you can structure a business organization.

Chapter 2. Coase Theorem [00:02:51]

Coase Theorem. It’s about this story, this is a story we’ve all been through, right? About disputed ownership of property. Now I’ve noticed a pattern here, and let’s see if I’ve got it right or not, that you’re always in that third chair from the end of this row, and I think all three of you are always in this orientation, am I right?

Student: [Inaudible]

Professor Douglas W. Rae: Okay, and how would it work out if, let’s say Leslie here, came a little early next Wednesday and sat in one of those three chairs?

Student: That would be horrible.

Professor Douglas W. Rae: It would be horrible. Okay, now what would be horrible about it? You’re all co-equally students in the course; the chairs, so far as I can tell, are identical, except that this one is broken. What’s up?

Student: Well I’d that this is sort of acknowledged as my seat.

Professor Douglas W. Rae: Okay, it’s acknowledged as your seat and the other two of you would say something very like that?

Student: [Inaudible]

Professor Douglas W. Rae: You own this one?

Student: Yes.

Student: Yes.

Professor Douglas W. Rae: Okay. What we have here is an informal set of property rights. There isn’t a law of any kind which refers to these rights, but they are the folk way, folk way norms of our classroom. Now if we press further, let’s take — do you live in your college?

Student: Do I what?

Professor Douglas W. Rae: In your college.

Student: In my college?

Professor Douglas W. Rae: Yeah.

Student: [Inaudible]

Professor Douglas W. Rae: Do you live there?

Student: Yeah.

Professor Douglas W. Rae: Are there property rights in and around your entryway, and in your suite, and so on?

Student: Yes.

Professor Douglas W. Rae: Are they ones written down by the Dean’s Office or by the Master?

Student: I presume.

Professor Douglas W. Rae: Are they?

Student: I believe so.

Professor Douglas W. Rae: Well, I mean, aren’t there some that aren’t written down?

Student: Among our students perhaps.

Professor Douglas W. Rae: Well can you — I’m trying to draw you out on this.

Student: For example, right here is a corner of the common room, and dedicated to his desk and his chairs, studies.

Professor Douglas W. Rae: Would you think of sitting there?

Student: No.

Professor Douglas W. Rae: Okay. Ray, how does it — does your friend here have any rights or not?

Student: I guess I would say no, not where you go in.

Professor Douglas W. Rae: I think we’re not doing that one this afternoon. It’s actually very suggestive, right? That there is — that beneath government, outside the actions of the state, there is an enormously intricate system of informal property which governs the way we actually function. That system of property can be good, bad, or indifferent, it can be just or unjust, it can be notoriously inefficient, and in fact, if you think about the failure of socialist regimes, one important explanation is that the underlying informal norms about what people do with their work lives were never integrated with the planned economies in an effective way. Now — so that’s something about formality and informality. I also have here a watch, it says on the top Movado, it’s really very handsome and I really don’t need it. I’m thinking of selling it. Does anybody have any — does anybody need a watch? You do? You don’t? What does a standard Movado watch sell for in a jewelry store? I actually don’t know. I should have done my homework. I think its low hundreds and I’d be willing to part with this one for $20.

Student: Deal.

Professor Douglas W. Rae: Who says deal? Be careful. Is it conceivable that the proper retail price of this is less than $20?

Student: I think you’re a pretty trustworthy guy.

Professor Douglas W. Rae: Remember what I’m trying to demonstrate is information asymmetry. This watch is worth about $8, and it’s a — and if I sold it to you what I would be doing is stealing from the manufacturer, stealing the brand. One of the curious things about watches these days — by the way, it works fine. Somebody gave it to me for my birthday as a joke, it keeps, as far as I can tell, perfect time, possibly better time than a real Movado, and there’s an interesting problem about watches, right? Which is better, a $9 Casio, the cheapest imaginable Casio or Timex; or a Rolex, if the question is keeping good time?

Student: The Casio.

Professor Douglas W. Rae: Pardon?

Student: Probably the Casio.

Professor Douglas W. Rae: Yeah, the Rolex is a mechanical movement of brilliantly designed and executed mechanical movement, and it’s not as good as an ordinary electronic watch; doesn’t keep time as well, and yet people are willing to pay thousand to one multiples for the social meaning of the brand. That means that there’s an enormous market for cheaply made watches, gray market watches, or even black market watches, which knock off a brand name and which people sometimes buy really thinking that it’s the real deal, but more often, just thinking it’s kind of fun to buy an expensive brand for, say, $20. Well the Coase Theorem is about those issues plus the one where this girl is vexed. And the one where she’s vexed is that the property rights to that toy are unclearly marked.

I have a granddaughter who got the boss gene from her mother and she’s a first — kindergartner and her first day at school they got out — they brought out little plastic ants for the children to learn basic arithmetic with and they put a pile of them on the — in the middle of each table, and than four kids. And my granddaughter came home complaining that the other kids had been to her. So her mother talked to the teacher the next day, and the story was that our grandchild had taken all the ants and put them in a pile and then begun negotiating bilateral agreements to give some to the other students. They didn’t like that. Well, the Coase Theorem boiled down is that if you have three conditions, clear initial entitlements to property and this is what’s stressed most in the de Soto book; clear entitlements to property; a high degree of transparency, which is what’s missing in the story about the bogus Movado watch; and low transaction costs.

The Nobel Prize in Economics, announced today — they announced two of them, but one of them went to Ollie Williamson, formerly a colleague of ours here at Yale, for inventing and elaborating the idea of transaction cost economics. By trans — have we talked a little about transaction costs here? About how hard it is to do — to get a deal made? You know what deal you want to make, but the — all the red tape that gets in the way makes it very difficult to get there. Coase’s principal point is that in that tiny segment in the middle of the Ven diagram, where these three conditions all obtain, we should expect people to reach efficient allocations of property no matter what the initial allocation. Now notice I didn’t say, and he doesn’t say, fair or just allocations, just efficient. And efficient in the sense that people will trade to a point where there are no further opportunities to — for mutual gain, and you get to a so called Pareto efficient or contract curve outcome. And I’m going to — I don’t do this to you very often, but we’re going to do this with a graphic demonstration. This is an Edgeworth box. I used one once before — does anybody have any trouble about how an Edgeworth box is set up? Hum if you are. Okay, so Smith is here, Voltaire is there. Smith gets that much paper and that quantity of pens, Voltaire gets the obverse quantities. If we start at the red dot, Voltaire’s entitlements are shown by the blue lines and Smith’s by the pink lines.

Voltaire would prefer anything — any outcome beyond this indifference curve going this way, away from his point of origin, and Smith would prefer anything that way from the pink indifference curve. So there is a set of outcomes which are clearly superior to the starting point and they’re in that set, that lozenge in shape. And so they will trade to that, and if we just set it up as this is a rank order account of what Smith wants and of what Voltaire wants, S is that set of outcomes and those two — S in the two diagrams is the same thing. Ultimately they’ll get to an outcome where the indifference curves are at tangency to one another; there’s no further gain from trade, and there will be a whole set of outcomes that fit that description, forming the contract curve, all those points, and the contract curve will be equivalent to this possibility frontier in the other style of diagram. The — it’s a really simple idea.

The way to use the Coase Theorem though is backward. The Coase Theorem is boring. Incidentally, I was talking to my TA’s this morning about the first round of memos, and they had only one complaint: that they were often boring. Not bad, but there was none of the author’s personality in most of them. You’ve all learned long since how to write papers in college and get good grades, but you ought to just occasionally put yourself into it. Don’t do it the standard way, just go out on a limb. Now that’s especially true if you don’t think you need to go to law school, med school or an MBA. It’s actually — I remember making all the exact same calculations when I was where you are, but a little risk taking in writing actually endears you to those who read the work, and often actually pays off. An interesting thing about writing: After your B.A., taking risks with your writing turns out to be the only way of getting ahead. Standard issue writing pays up to the B.A., and by and large doesn’t pay after. It’s interesting. At any rate, I don’t mean to alarm you about your grades, but I think it’s actually worth thinking about.

Chapter 3. Ghen v. Rich (1881) [00:18:04]

I’ve mislabeled this. The top label should read Ghen v. Rich, and this is a case about thinking out the incentives to make people behave in productive ways. The story goes as follows: Ghen is a whaler; he operates out of Wellfleet, Massachusetts. It is 1881 and he spots a finback whale and sends the little boats out with his crew and they harpoon the whale. Finbacks are big, fast, aggressive, and they have one further peculiarity, when you kill them they sink to the bottom of the sea. Virtually all whales float when killed and the general rule of property in whaling is finder’s keepers, loser’s weepers. You’ve all heard of that. The specific method is that after you kill a whale you either lash it to your ship and tow it to harbor, or slice it up and process it at sea, but these boats by and large weren’t big enough for that. Or you leave it floating and put a marker on it, and the marker is your — it’s your brand. It’s like branding cattle, and everybody then is compelled by law to acknowledge that it’s your whale.

The finback presents a dilemma because neither of those strategies is available to the whaler who kills a finback. What happened to this particular finback is that it floated up a day or two later on the beach near Wellfleet on Cape Cod. And a gentleman came along and found it, and conducted a quick auction, and Ellis bought it. Ellis bought the whale and processed it into whale oil and other by products, put them on the market and at this point, Ghen returned from his voyage and wanted his whale back. He sued Ellis — Rich, rather, sorry; Ellis is the guy on the beach who found it. He sued Rich, who had processed the oil for his money. What happened was that the judge ruled in favor of Ghen and reasoned — well, let me not tell the whole story. Let’s suppose you were hired as attorney for the finback whales. The finback whales hire you as a lawyer and they want to get this case to come out so that they will be safe from whaling in the future. How would they have the judge decide the case? Back —

Student: Decide in favor of Rich [inaudible].

Professor Douglas W. Rae: Okay, exactly, and why?

Student: Because the whalers were taking all the risk and all the time, but they were not going to be able to bring the whale in. And Rich gets all the — or whoever finds the whale’s body two days later gets all the profit, why harpoon them? It’s completely [inaudible].

Professor Douglas W. Rae: Okay, perfect. The judge reasoned, just as suggested, that only by honoring the relatively indirect claim to property, which Ghen was urging, could the industry of whaling for whalebacks be incented so that it would go on in the future. Now a lot of things we’re doing and thinking about are analogous to that. Structuring incentives so that people behave in ways which increase the wealth of society while trying to increase their own wealth in effect creating conditions analogous to the invisible hand in Smith is what the judge was doing. It’s actually — you should Google it, it’s only three pages long, and just read the opinion. Because it brings out the fundamental issues that we’re trying to deal with.

Chapter 4. De Soto in America [00:23:24]

Now de Soto in America. De Soto talks in the early parts of the book which we read at the opening of term. De Soto talks mainly about emerging market countries. The gist is that they are loaded with dead capital. Can somebody help us with the notion of dead capital? Here we go.

Student: De Soto argues that why capital serves both as purpose as a house and kind of second like is to serve to backing of future investments. Like in a country where you have a legal right over your house, it can’t serve the second purpose.

Professor Douglas W. Rae: Okay so the house — let’s take the chair you own here. Is it dead capital or live capital?

Student: Well it’s not alive to me because I don’t own it but to the university maybe it’s alive.

Professor Douglas W. Rae: Okay, that’s well put. We will in fact look at the title to this room in a few minutes. The — de Soto’s idea is that in an informal system of property which has not been integrated with a governmental system of property, people have capital, but it is dead in the sense that it can’t be used for collateral against a loan, and if it is sold, there is no way to enforce the contract on the sale except mafia style, and mafia style often doesn’t work out all that well. The chapter we read for today is about the proposition that the advanced economies didn’t get to having live capital all at once. It came through a long process, and de Soto, in this chapter, talks through the informal practices of property which grew up in mining camps in California, in agricultural communities in Iowa and other Midwestern states, in claims to land in colonial America.

What I’d like to do is start at the present and then work our way back. This is a property map of our present neighborhood. This is an official government map from the place where deeds are kept at 200 Orange Street in New Haven and in every community in the United States you will find a set of deeds and a corresponding set of maps similar to this one. I’ll dissect this and enlarge parts of it and so on as we go. You’ll find these maps are quite ubiquitous. Now this one has the peculiarity that in some parts of the city they’ve drawn in the buildings and it turns out that that’s — that has happened where there is a wealthy institution that paid to have it done, familiar to all of us and not where there isn’t a wealthy institution that would pay to have it done. The green lines represent property parcels and all this is entirely accessible if you go — if you Google Visionappraisal, one word, Visionappraisal New Haven, you’ll get all these files and you’ll get a photograph of every structure to go with it. Here we have a particular parcel that includes and surrounds this building. There’s a close up of the building and we’re in the — you can see the match there. Let’s look at three properties first and then we’ll look at some more and we’ll see how structures of ownership get built around the formalized property parcels; 61 High Street is this building. Anybody know what 64 High Street is? No idea? What’s the small stone — small brownstone building across the way?

Student: Skull and bones.

Professor Douglas W. Rae: Skull and bones, and skull and bones turns out for property purposes to be called The Russell Trust and we’ll look at that, and 41 High Street? I was just there, is Starbuck’s and some other property above it. Let’s look at — well I — 1066 Chapel is actually Starbuck’s, I was mistaken in what I said a minute ago, 41 High is the building right behind Starbuck’s. This is what you find on the land records. This building is Parcel 14188, map 261, block 252. It has an effective total area, and this means places you could do anything with, and this would count every square foot of indoor or outdoor space, and it totals a little over 100,000, of which 9,259 is heated indoor space. Its asserted value from the city is $2.68 million for the land, $4.97 million for the building, $7.65 million all together and of that $7.65 million, $7.65 million is exempt from taxes in the city, and that’s a point of interest to the city.

What I’m trying to get you to do is just get into the details of this stuff and see how interesting it is. The net value to the city for tax purposes is zero, owner Yale University. Now compare this to 1066 Chapel where the numbers are smaller because the buildings are smaller and they’re nowhere near as good. The net taxable value is $500,000. The owner is something called Chapel Investments, LLC. Chapel Investments, LLC is owned by people I know, the Warrick family, and they own four parcels over there, including the one in which Caesar Pelli has his architectural office and so on, and it is organized as a taxable corp — a taxable LLC which is — this is a hybrid form which we’ll get to at the end of the hour. Now let’s take the value of this building and the way it looks to Yale and the city. If we wanted to mark-to-market Lindsey Chittenden Hall, we want to say, “What would this building really sell for? This building and the land in question.” How would we go about that? Who’s got an estimate? More or less than $7.65 million dollars? More, who said more? Okay there we go. Why do you think so? (32:55 — starts to get choppy — audio is fine).

Student: It’s a building that has a lot of history and a lot of alumni might be interested in it. It has beautiful artwork, nice carving, you know, you could put a pool in.

Professor Douglas W. Rae: Okay, does it look like it’s well maintained?

Student: Yeah, very well maintained.

Professor Douglas W. Rae: Might buying this have any resemblance to buying a Movado watch of this description? Let’s suppose I want to run a — some kind of a commercial educational institution, what would this building be worth if I were — suppose I were going to run something which was aimed at wealthy kids with bad test scores.

Student: It would be nice to be associated with the Yale brand.

Professor Douglas W. Rae: Yeah I might name it Rae College at Yale. That has a ring to it, right? The building — use that — that might be the highest and best use of the building. Anybody else got a thought about what — yes, Tom is it?

Student: You’re going to have to start paying taxes on it?

Professor Douglas W. Rae: I am. Well, unless I can get it made into a 501(c)(3), nonprofit corporation, in which case I might get away with not paying taxes. Any other use anybody can imagine for this thing? Come on — yes.

Student: I would actually argue that property value would be lower because the building is [inaudible] that in some ways it’s unlikely to find anybody who would value it as much as this [inaudible].

Professor Douglas W. Rae: Well I — can we think of anything unrelated to education you could do with this? Could it be a resort?

Student: I’d make it a movie theatre.

Professor Douglas W. Rae: Pardon.

Student: I’d make it a movie theatre.

Professor Douglas W. Rae: You would make it a movie theatre. Well I got to tell you I think that’s a really bad idea. If you study the current economics of movie theatres, don’t do it. Anybody else?

Student: You don’t have to look at the alternatives, you can look at how much Yale invested in renovating this building as an indication of how much Yale values it and so if Yale didn’t own it it would be able to — it would be willing to pay a tremendous amount of money, I think, to buy it and that would give it a lot of value.

Professor Douglas W. Rae: Well, that’s right and that, by the way, is a good reason to think that they’re not going to sell it for any price that we could even imagine capturing the value from. I think that’s right. Now, the other property is probably already — the Starbuck’s one is probably already pretty much at highest and best use and is therefore uninteresting. Now let’s think about the properties on the other end of the block across Chapel Street, the end down toward the New Haven green. There’s a large assembly, there are about fifteen parcels down there. I picked out three. They all look like this. They all belong to something called The Chapel Company. Who can make a guess what The Chapel Company might be? Well I’ll tell you — yes?

Student: I was going to say possibly Yale.

Professor Douglas W. Rae: How perceptive. Here’s the story: Twenty-five years ago, a Yale college alum named Joel Schiavone, who is an irascible and brilliant fellow. He has the same educational pattern as Jim Alexander here, Yale College, and Harvard Business School. He bought — it was a slum, all these — this whole area down here was a commercial slum. The buildings were in disrepair, they were being used for very marginal purposes, and he bought the whole thing up for not very much and began renovating it. The renovation model was small retail. Small retail with quality residential on the second and third floors and we’re talking about places like The Union League and Claire’s Cornercopia, and The Schubert Theatre and The Taft Hotel now The Taft Condominium. He fixed it all up and made it really sing and one of his precepts was every property should be leased to somebody who owns their own business and is willing to work really hard at making it work. He didn’t go after chains he went after entrepreneurs.

The thing really worked beautifully but Schiavone is one these guys who — he’s got the spirit of Schumpeter about him. He can never leave well enough alone. He gets interested in other things and leverages the new things by taking further mortgages on all this property. Then in the 1980s there is a huge real estate recession, and he loses it all to a federal — the federal government buys all the property for very little and then auctions it off for something called the RTC, and Yale hires a guy named Joe Fahey who was a student of mine at SOM at the time this happened. He now runs all of Disney’s real estate, and Fahey invented The Chapel Company and bought all of Schiavone’s property on Yale’s behalf for about $.25 on the dollar. Yale has had the good judgment, in my opinion, to leave it all functioning as if it were private commercial property, and the neighborhood is strengthened enormously by that and Yale does not make a lot of money at it, but it indirectly gets a lot of benefit by having a strong commercial neighborhood abutting the campus. We’re not quite ready for that.

Well let’s not use the maps but let’s do — let’s talk about properties further up in the middle of campus. I’d like you to focus on 140 High Street and 306 York Street. 140 High Street is the Yale Law School ,and its taxable value is $42 million dollars, that’s the building not the institution. Across York Street is Mory’s, or more exactly, The Mory’s Trust. What do you think Mory’s is worth? Well the tax estimate is $400,000 and a little bit. Who would be prepared to buy Mory’s for $400,000? No takers? Anybody tempted? Okay, why are we so cautious about Mory’s?

Student: [Inaudible]

Professor Douglas W. Rae: Pardon?

Student: Why are we what?

Professor Douglas W. Rae: Why are cautious about Mory’s?

Student: Well, because it’s failing right now.

Professor Douglas W. Rae: It closed its doors on December 19 last year, what’s wrong with that?

Student: It would make me skeptical about the area, like maybe there’s something wrong with the business around it, or what’s around it would make it less valuable as a commercial space.

Professor Douglas W. Rae: Okay, yeah, it’s sure a rundown neighborhood. You’ve got the Yale Hall of Graduate Studies, Morrison, Stiles.

Student: No, I mean as opposed to the Chapel area where there’s a whole area that is like a commercial area, and maybe sort of out of place. I would consider buying it personally because I think it could be used effectively

Professor Douglas W. Rae: I am the chairman of the group that in fact owns it. I’m going to try not to take offense at the way you guys value it. We’re investing $3 million dollars in it over the next four months and we plan to open it and have all of you clamoring to get through the front door, or the backdoor, which will be the Whiffenpoof Bar. Now in evaluating it you do have to take into account lots of things that aren’t bricks and mortar, and I’m glad you said what you said. You’re blaming the neighborhood for what is in fact a spectacularly mismanaged business. Did anybody eat in Mory’s last year? Can you — can we get the microphone to this lady, we’re going to a — on a one to five star basis, what’s the rating?

Student: You mean, compared to dining hall food or —

Professor Douglas W. Rae: Compared to food that costs about the same thing on the private market.

Student: I mean, I was never paying but — I mean a three.

Professor Douglas W. Rae: A three?

Student: The food’s not that good but it’s really fun.

Student: I’d say a one.

Professor Douglas W. Rae: Okay the fun part was the singing, the memorabilia, the cockroaches … no, I’m kidding but the food was notorious. It was really bad. How well did they do at serving drinks?

Student: Very well.

Professor Douglas W. Rae: I mean, horrible. There was no bar, the tables down at Maury’s had no bar, and it failed partly because it was very badly managed. It was managed by fifteen Yale alumni, not one of whom knew anything about business. That’s a little harsh. Not one of whom knew anything about business except for being a stockbroker, which is a pretty abstract business. There are no cooks in a brokerage house. The other side of it, and we’ll actually do this case before we’re done. The other side of it was a highly restrictive labor union contract with Local 217, here and that contract doesn’t go away when you close the door. It turns out under Connecticut labor law that the contract, if you reopen a restaurant there, you would normally expect you would have to honor the contract.

Now it turns out we have a loophole that’s going to get us more — a better deal than that. I’ll give you an idea of what the — so what that means is that given the labor law the value of the building is affected by the existence of the union contract. It becomes almost like paint in the way it adheres to the thing. It included, for example, the provision that there should be four people called cashiers who count the cash each night; only one on duty each night, they rotated. They were all part timers. One of them was s full time teacher at a local high school, and they were required that you — we were required to pay them four hours for each appearance and each appearance was — how much cash do you think you take in these days in a restaurant of that kind? None; there might on a good night be $100 to count but the contract obliged Mory’s to employ these guys, and worse yet, to pay them vacation time. We have a high school teacher being paid five days of vacation time by Mory’s while he is on vacation, paid vacation, from The Branford School System. That’s a deal. Analyzing what gets built on this framework is a little complex.

Let’s go through the big story in de Soto about the informal property systems in the United States. Can anybody summarize it for us in 100 words? Got a taker out there? Are you headed for a taker? Okay I’ll do it. The system of property is built on nation states. Nation states are the underlying unit. When you have a frontier society, which the United States remained until about 1880, you have a vast area where there is effectively no state or if there is a state it is a very weak state with very limited capacities to enforce any property system. The key Green v. Bittle case, which arose in Kentucky, asserted the following. It said informal property rights count for nothing, only formal property rights issued by a part of the United States Government, at either the federal or the state level, count as real. This provoked a rebellion that included violence.

It also created an enormous inefficiency because the existing informal system of property rights based on preemption and occupation, so called Tomahawk rights or cornfield rights; you occupy the land, improve the land, demonstrate that you’re making a living from the land, and it becomes yours. Homesteading was the name for it. In 1862, The Homestead Act, adopted into Federal law that system of informal law and made an integration between the two levels. The wealth that was built in the United States in the — in everything outside the original East Coast colonies is built up on that peace treaty between formal and informal. The — he does a brilliant job, de Soto does, with the mining camps in California and with the land claim associations in the Midwest, and you can read the details for yourselves. The gist is that a well functioning system of property will have both the formal and the informal rights in sync with one another, not in tension with one another. If we go finally to the finer details of business structure — we’re done now. I’ll use this at the beginning of class on Wednesday. I’ll talk about how Mory’s is being restructured and you should — the case as scheduled for Wednesday is the one about the mortgage meltdown in Cleveland, Ohio and the URL has been posted on Classes V2.

[end of transcript]

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