Schwartz, Howard S., What is the Occupy Wall Street Protest a Protest of? A Psychoanalytic Investigation (February 9, 2013). Available at SSRN: http://ssrn.com/abstract=2214377:
Schwartz, Howard S., What is the Occupy Wall Street Protest a Protest of? A Psychoanalytic Investigation (February 9, 2013). Available at SSRN: http://ssrn.com/abstract=2214377:
They were said to be among the most talented of their generation, recruited after exhaustive interviews and gruelling internships. They worked at firms prepared to spend small fortunes to attract and retain them lest they take their skills elsewhere. Yet the moral bankruptcy of traders implicated in the rigging of the London Interbank Offered Rate (LIBOR), one of the world’s most important interest rates, is matched only by the incompetence with which they covered their tracks.
Take traders at the Royal Bank of Scotland (RBS), who left a trail of evidence in a trove of e-mails and audio recordings detailing how they set about trying to manipulate LIBOR, even after they knew investigators were looking into the issue. “We’re just not allowed to have those conversations over Bloomberg anymore,” said one trader, laughingly, in a call to another who a little earlier had asked in writing for a rigged rate. “Its [sic] just amazing how libor fixing can make you that much money,” was the verdict of another trader.
These exchanges, and many others, were part of a settlement announced on February 6th in which RBS admitted to rigging rates. It agreed to pay fines of $475m to American regulators and another £87.5m ($137m) to Britain’s Financial Services Authority. By the arcane mathematics determining the severity of regulatory fines, RBS is adjudged not to have been as bad an offender as UBS, which last year agreed to pay penalties of $1.5 billion, but is being dealt with a bit more harshly than Barclays, which paid fines of £290m. Regulators said they found attempts to rig LIBOR hundreds of times in at least four and a half years at RBS, compared with the “thousands” alleged in the case of UBS.
But what to do going forward? That's where I come in with Reforming LIBOR: Wheatley versus the Alternatives (January 31, 2013). UCLA School of Law, Law-Econ Research Paper No. 13-02. Available at SSRN: http://ssrn.com/abstract=2209970:
The London Interbank Offered Rate (LIBOR) is the trimmed average interest rate for interbank loans by a panel of leading London banks. LIBOR is the most widely used benchmark rate. An estimated $350 trillion in financial products are based on the LIBOR rate.
In late June 2012, a major scandal broke when Barclays PLC — one of the panel banks whose rates went into calculating LIBOR — agreed to pay $453 million in fines to UK and US regulators to settle allegations that Barclays had attempted to manipulate the LIBOR rate. The probe by multiple national regulators around the world quickly spread to include several other global banks.
In response, the United Kingdom’s Chancellor of the Exchequer charged a commission led by Martin Wheatley with conducting an independent review of the setting and usage of LIBOR. In September 2012, Wheatley released a report proposing a comprehensive 10-point reform plan. In October, the UK Government announced that it accepted “the recommendations of Martin Wheatley’s independent review of LIBOR in full.”
Even though Wheatley’s recommendations likely will have been implemented by the time this article appears in print, they are still deserving of analysis. First, changes and amendments may be necessary to further improve the process, perhaps including some of those suggested in this Article. Second, while LIBOR is one of the most important benchmark rates, it is not the only such rate. Some of these other benchmarks are already under scrutiny. Assessing the merits of various LIBOR reforms therefore may be helpful as regulators evaluate whether these other benchmark rates require similar reform.
In light of LIBOR’s systemic importance as a global interest rate benchmark and the compelling evidence of rate manipulation by panel banks, reforming LIBOR was both a political and economic incentive. This Article explores a number of alternatives that were available to the UK government.
The Article concludes that leaving the problem to market forces had failed and, moreover, was politically unfeasible. Switching to a government-supplied alternative benchmark was both impractical and unwise as a policy matter, as was installing a government agency as a replacement for BBA as the LIBOR administrator. Although vesting the LIBOR administrator with sufficiently strong intellectual property rights to ensure an adequate stream of licensing fees to provide adequate incentives for the administrator and panel banks is an important part of a reform package, but — contrary to what some commentators have suggested — is not viable as a stand-alone reform.
In contrast to the alternatives, the Wheatley Review provides a comprehensive reform package that has proven politically attractive and seems likely to significantly enhance LIBOR’s credibility and attractiveness as a interest rate benchmark. To be sure, the Wheatley regime is not perfect. To the contrary, this Article suggests a number of ways in which it can be expanded and improved. Over all, however, the analysis of the Wheatley Review herein strongly suggests that it will prove a viable starting point as a blueprint for reforming LIBOR and other interest rate benchmarks.
Prominent and respected corporate law professor Larry Cunningham has teamed up with former AIG CEO Hank Greenberg to write The AIG Story. According to Amazon:
In The AIG Story, the company's long-term CEO Hank Greenberg (1967 to 2005) and GW professor and corporate governance expert Lawrence Cunningham chronicle the origins of the company and its relentless pioneering of open markets everywhere in the world. They regale readers with riveting vignettes of how AIG grew from a modest group of insurance enterprises in 1970 to the largest insurance company in world history. They illustrate AIG's distinctive entrepreneurial culture and how its outstanding employees worldwide helped pave the road to globalization.
The AIG Story captures an impressive saga in business history--one of innovation, vision and leadership at a company that was almost destroyed with a few strokes of governmental pens. The AIG Story carries important lessons and implications for the U.S., especially its role in international affairs, its approach to business, its legal system and its handling of financial crises.
- Corrects common misconceptions about AIG that arose due to its role at the center of the financial crisis of 2008.
- Unique account of AIG by one of the iconic business leaders of the twentieth century who developed close relationships with many of the most important world leaders of the period and helped to open markets everywhere.
- New critical perspective on battles with N. Y. Attorney General Eliot Spitzer and the 2008 U.S. government seizure of AIG amid the financial crisis.
- Confidential information shared publicly for the first time.
I've been reading it and have been fascinated. Highly recommended.
A judge on the Federal Claims court ruled last summer that if what Greenberg argues is true, the government may really have acted illegally.
Greenberg's legal team, led by David Boies, argues that the government pushed away sovereign wealth-funds and other foreign investors who might have been willing to invest in the company before it was bailed out. This, they argue, prevented AIG from being able to raise capital and contributed to its downgrading by ratings agencies, which in turn put the company into even more dire straits. This forced AIG to accept the unfair terms the government offered in its loan agreement, the lawyers say.
Greenberg's lawyers also raise questions about the events around one of the oddest episodes of the AIG-Treasury relationship. You might recall that in the summer of 2009, the government converted its preferred shares into 79.9 percent of the common stock of AIG, something that it was entitled to do under the terms of the government's loan. This was accomplished by means of a reverse 20:1 stock split.
You might not recall precisely why the stock split occurred. At the time, then-chief executive Ed Liddy said it was necessary to prevent the stock from being delisted on the New York Stock Exchange. That might be true. But it is also true that the split was a necessary part of the conversion from preferred shares because AIG's charter didn't authorize enough common stock to allow the government to take 79.9 percent of the common stock. So when the government converted to common, it was issued unauthorized common stock.
When common shareholders were asked to authorize the additional common stock—which would have badly diluted their interest in the company—they voted no. Because the government's stake was in unauthorized shares, it didn't get a vote.
So another vote was held about the reverse split of all issued stock—including the government's unauthorized shares. This time, the government got to vote its 79.9 percent stake on this question because its unauthorized shares were also affected. And so the measure prevailed. After the split, the total number of shares outstanding no longer exceeded the number authorized in AIG's charter, so the government's shares were now officially authorized.
That's more than a little bit confusing, I'll admit. And it does sound more than a bit questionable, even to someone as jaded about shareholder rights as I am. But Greenberg's lawyers say it's even worse. They say that this procedure was engineered to circumvent a Delaware court order meant to protect the rights of the common shareholders when the government took over the company.'
If you have the stomach for gross violations of the rule of law by the federal government, go check out the rest.
You'll recall that the other day I praised the Frank Partnoy and Jesse Eisinger article in the latest Atlantic on the problems with bank disclosure and regulation. John Carney has replied to Partnoy and Eisinger with an interesting analysis:
Eisinger and Partnoy think that a regulatory regime that threatened bank executives with jail time if it turned out that their financial statements weren't accurate and adequate would go a long way to clear away the black-boxiness. They want this standard of accuracy and adequacy to be intentionally left vague, figuring that prudent chief executive types would err on the side of better disclosure. ...
I'm not sure that's really the way things would go. The threat of jail might result in even less disclosure because it is obviously easier to prove negligence—the standard Eisinger and Partnoy would employ—for actual errors than for omissions. The best way to avoid saying things that aren't true is not to say anything at all. This is part of the reason we're in the mess to begin with.
It's no coincidence that the era of bank financial opacity has coincided with the era of securities litigation. Serious litigation reform that made it far more difficult for the securities bar to bring cases against companies for what is said in public filings would probably improve the filings. Repealing Regulation FD, for starts, would allow a company like Wells Fargo to actually answer questions put to it by people like Eisinger and Partnoy, rather than just kicking them back to the annual statement filed with the SEC.
If investors really would value more disclosure from banks—and I have no doubt that they would—banks would compete for better disclosure, absent some kind of market friction. So if banks aren't competing for investor dollars with better disclosure, something must be standing in the way. It's not collusion. Believe me,Bank of America would love to crush JP Morgan Chase with far better disclosure practices. If Eisinger and Partnoy realize that " these changes would be for the banks' own good," you can be the executives at these banks realize it also. So it's likely the very regulations already in place that are standing in the way.
You need to read both.
In a wonderful article in the latest Atlantic, Frank Partnoy and Jesse Eisinger track the continuing major problems with the major banks, which makes for very scary reading. They then offer a new approach to bank regulation:
Until the 1980s, bank rules were few in number, but broad in scope. Regulation was focused on commonsense standards. Commercial banks were not permitted to engage in investment-banking activity, and were required to set aside a reasonable amount of capital. Bankers were prohibited from taking outsize risks. Not every financial institution complied with the rules, but many bankers who strayed were judged, and punished.
Since then, however, the rules have proliferated, the arguments about compliance have become ever more technical, and the punishments have been minor and rare. ...
What if legislators and regulators gave up trying to adopt detailed rules after the fact and instead set up broad standards of conduct before the fact? For example, consider one of the most heated Dodd-Frank battles, over the “Volcker Rule,” named after former Federal Reserve Chairman Paul Volcker. The rule is an attempt to ban banks from being able to make speculative bets if they also take in federally insured deposits. The idea is straightforward: the government guarantees deposits, so these banks should not gamble with what is effectively taxpayer money.
Yet, under constant pressure from banking lobbyists, Congress wrote a complicated rule. Then regulators larded it up with even more complications. They tried to cover any and every contingency. Two and a half years after Dodd-Frank was passed, the Volcker Rule still hasn’t been finalized. By the time it is, only a handful of partners at the world’s biggest law firms will understand it.
Congress and regulators could have written a simple rule: “Banks are not permitted to engage in proprietary trading.” Period. Then, regulators, prosecutors, and the courts could have set about defining what proprietary trading meant. They could have established reasonable and limited exceptions in individual cases. Meanwhile, bankers considering engaging in practices that might be labeled proprietary trading would have been forced to consider the law in the sense Oliver Wendell Holmes Jr. advocated.
Implementing this approach, they argue, requires just two simple rules:
First, there must be a straightforward standard of disclosure ...: describe risks in commonsense terms that an investor can understand. Second, there must be a real risk of punishment for bank executives who mislead investors, or otherwise perpetrate fraud and abuse.
Today's must read.
Todd Zywicki reviews David Skeel's book The New Financial Deal: Understanding the Dodd-Frank Act and Its (Unintended) Consequences at considerable length. Here's the teaser:
Those looking for a roadmap that lays out the basic ideas that animate Dodd-Frank and its key provisions should turn to David Skeel’s book, The New Financial Deal: Understanding the Dodd-Frank Act and Its (Unintended) Consequences. Skeel summarizes Dodd-Frank in 200 readable pages that leads the reader through the basic provisions of the historic legislation and its consequences, both intended and unintended.
During the final debates over the passage of Dodd-Frank, Texas Republican CongressmanJeb Hensarling observed that “There are at least three unintended consequences on every page of this legislation.” Quite a few for a bill that ran to 2,319 pages. Skeel picks up on this theme and after starting by explaining the intended goals of Dodd-Frank and the ways in which the legislation attempts to implement them, concludes that in fact Dodd-Frank will have negative unintended consequences that will vastly exceed the beneficial intended effects of the legislation.
Go read the review, but be sure to buy the book. It's a great read.
The indispensable Alison Frankel reports on an 89-page opinion by U.S. District Judge Paul Engelmayer dismissing claims againt the Fed by a former major AIG shareholder:
Starr’s lawyers at Boies, Schiller & Flexner and Skadden, Arps, Slate, Meagher & Flom offered a different (and singular) view of recent financial history, in which the U.S. government pushed AIG to the brink of bankruptcy by refusing it access to capital; seized control of the company via an offer AIG’s board had no choice but to accept; plundered the company’s assets while paying off AIG’s credit-default swap counterparties in full; and then illegally engineered a reverse stock split to dilute the interests of AIG’s pre-bailout shareholders. “Starr’s amended complaint paints a portrait of government treachery worthy of an Oliver Stone movie,” Engelmayer wrote.
What's striking about Engelmayer's opinion is that he decided the case as a matter of law. In other words, assuming all of Starr's claims to be true, what the Fed did was okay as a matter of law because of dire economic necessity:
The judge, in a gracefully written decision, concluded that, indeed, Delaware fiduciary law is pre-empted by the Fed’s mission. “(The Fed’s) challenged actions with regard to AIG during the financial crisis were integrally bound up in the rescue loan packages it furnished AIG in fall 2008, made with the goal of stabilizing the American economy,” he wrote. “And, where imposing state-law duties upon a federal instrumentality would squarely conflict with its federal responsibilities, as would subjecting (the Fed) to Delaware fiduciary duty law in connection with the terms of its serial rescues of AIG, such state law is pre-empted.”
One wonders what if any limits will remain on the Fed's power to screw creditors and shareholders if Engelmayer's analysis is upheld. If the government can "treachery worthy of an Oliver Stone movie,” could the Fed use unmanned drones to conduct targeted assassinations? And, if not, where's the damned line?
Fortunately, as Ms Frankel reports:
Judge Thomas Wheeler of the U.S. Court of Federal Claims kept alive Starr’s parallel claim that the Fed’s takeover of AIG, including the company’s common shares, was unconstitutional under the takings clause. Wheeler said that the takings claim rests on whether AIG’s board was forced to accept the terms of the government bailout or did so voluntarily; he split with Engelmayer and said that Starr had presented sufficient facts to support the theory that AIG had no choice.
Starr counsel at Boies Schiller sent an email statement, pointing out that Monday’s ruling by Engelmayer will have no impact on the Court of Federal Claims case, which also seeks $25 billion.
Unfortunately, since Kelo, I've completely lost faith in the court's willingeness to use the takings clause to defend private property from government theft.
¶1 In his latest book, Corporate Governance After the Financial Crisis, Professor Stephen M. Bainbridge asserts that, in the wake of the significant economic setbacks of the past decade, Congress abandoned its traditional reticence on the matter of corporate governance, yielded to emotionally charged mainstream political demands, and enacted a deeply flawed set of corporate reforms. Specifically, Bainbridge objects to the various corporate governance provisions included in the Sarbanes-Oxley Act of 20021 and in 2010’s Dodd-Frank Act.2 Soundly denouncing both laws, he rejects these purported reforms as “quackery . . . lack[ing] strong empirical or theoretical justification” (p.15) and submits that the offending “provi- sions erode the system of competitive federalism that is the unique genius of American corporate law by displacing state regulation with federal law” (id.).
¶2 A prolific author and blogger and a self-proclaimed “Burkean conservative,”3 Stephen M. Bainbridge serves as the William D. Warren Distinguished Professor of Law at UCLA where he teaches courses on business associations, corporations, and corporate governance. In the past few years, Bainbridge has written several law review articles and books addressing the law and governance of public corporations.4
¶3 In Corporate Governance After the Financial Crisis, Bainbridge argues that Congress blundered badly with both of its recent efforts to regulate in these areas, in each case reacting hastily to a postcrisis atmosphere dominated by anticorpo- rate sentiment and passing legislation that usurps state corporations laws (most critically those of Delaware) and effects federal control over significant aspects of corporate governance. In the late 1990s and early 2000s, the bursting of the dot- com bubble and the massive corporate and accounting fraud uncovered at companies like Enron and Worldcom prompted populist pleas for federal intervention, pleas that soon led to the Sarbanes-Oxley Act. In 2007–08, as the collapse of the housing bubble and the subprime mortgage meltdown were followed in quick succession by the failures of Bear Stearns and Lehman Brothers and the ensuing credit crisis, federal legislators received similar pleas and reacted again, this time with the Dodd-Frank Act. Bainbridge sees a pattern here: “scandals and economic reversals” (p.38)5 regularly mark the aftermath of economic boom times, leading Congress to intervene in corporate governance with reactive bubble laws that are passed quickly under rising political pressures provoked “by populist anti-corpo- rate emotions” (p.16). This cycle, according to Bainbridge, “tends to result in flawed legislation” (id.).
¶4 Bainbridge presents his argument in a straightforward fashion, defending his position chapter by chapter and provision by provision, and he employs a scholarly style well suited for legal and academic audiences with preexisting knowledge of basic corporations law and economic theory. The book’s title, Corporate Governance After the Financial Crisis, however, is something of a misnomer; Bainbridge devotes far more space to detailing the faulty corporate governance provisions in Sarbanes-Oxley than he does to discussing Dodd-Frank, legislation actually passed in response to what is commonly known as “the financial crisis.” (As Bainbridge admits, it may yet be too early to fairly assess the full effects of Dodd-Frank.) Throughout the book, Bainbridge assiduously champions the views of Roberta Romano, a Yale law professor who maintained in a partisan 2005 article that the federal legislative process typically—in the case of Sarbanes-Oxley, specifically—produces “quack corporate governance.”6 Bainbridge specifies in rather redundant terms how both Sarbanes-Oxley and Dodd-Frank meet the cri- teria that define such legislation, but his arguments are less than completely per- suasive, and his persistent allusions to “quack” governance impart a polemical tone to what is otherwise a thoughtful treatise.
¶5 Bainbridge’s analysis of federal legislative responses to economic crises is generally well presented, and his position is bolstered by a variety of academic studies. However, many of Bainbridge’s arguments can be and are countered by authors with similar credentials citing equally credible studies in support of their assertions. Columbia law professor John C. Coffee, who dubs Bainbridge, Romano, and similarly disposed academics the “Tea Party Caucus,”7 suggests in a recent article that even flawed federal legislation is better than nothing and proffers, in direct response to the caucus, that with time and reflection most statutory defects will be corrected.8 With respect to Sarbanes-Oxley, scholars Robert A. Prentice and David B. Spence, both with the University of Texas at Austin’s McCombs School of Business, reject the notion that the act interferes unduly with state authority, argu- ing convincingly that it more accurately represents “a congressional attempt to shore up a federal system of securities regulation that has generally served the nation well.”9 They further assert that the very “empirical evidence that [Sarbanes- Oxley’s] critics believe Congress ignored strongly indicates that vigorous securities regulation is necessary for capital markets to reach their potential.”10
¶6 Ultimately, it is Bainbridge’s evident concern over the “creeping federalization of corporate governance” (p.19) that delineates his position within the wider political context. Federal versus state, reform versus free market, shareholder versus management, main street versus Wall Street—these are the constructs that make up the overarching themes of this book. These topics are also particularly relevant in light of today’s highly divisive political climate, and despite some weaknesses, Cor- porate Governance After the Financial Crisis is a worthy contribution to the debate. It is recommended for academic libraries, particularly those associated with schools of law or business, and to anyone interested in corporate governance practices.
1. Sarbanes-Oxley Act of 2002, Pub.L.No.107-204,116 Stat. 745 (codified as amended in scattered sections of 15 & 18 U.S.C.).
2. Dodd-Frank Wal Street Reform and Consumer Protection Act,Pub.L.No.111-203,124Stat. 1376 (2010) (codified as amended in scattered sections of 7, 12, 15, 18, 22, 31 & 42 U.S.C.).
3. Stephen Bainbridge@ProfBainbridge, Twitter, http://twitter.com/profbainbridge (last visited Aug. 14, 2012).
4. Stephen M. Bainbridge, Response, Director Primacy and Shareholder Disempowerment, 119 hARv. L. Rev. 1735 (2006); Stephen M. Bainbridge, Dodd-Frank: Quack Federal Corporate Governance Round II, 95 Minn. L. Rev. 1779 (2011).
5. Quoting MarkJ.Roe,Washington and Delaware as Corporate Lawmakers, 34DeL.J.Corp.L. 1, 8 (2009).
6. Roberta Romano, The Sarbanes-Oxley Act and the Making of Quack Corporate Governance, 114 Yale L.J. 1521 (2005).
7. John C. Coffee, Jr., The Political Economy of Dodd-Frank: Why Financial Reform Tends to Be Frustrated and Systemic Risk Perpetuated, 97 Cornell L. Rev. 1019, 1024 (2012).
Economist Eugene Fama in a selection from a fascinating interview opines that:
Basically, the institutions that are con- sidered to be too big to fail have their debt priced as if it’s riskless, which gives them a low cost of capital and makes it very easy for them to expand and become an even bigger problem. Plus, everybody now accepts the assertion that they are too big to fail, which creates a terrible moral hazard for the management of these financial institutions. Business leaders won’t consciously tank their com- panies, but too big to fail will push them toward taking more risk, whether they realize it or not. I don’t think Dodd–Frank (the Dodd–Frank Wall Street Reform and Consumer Protection Act) cures that moral hazard problem. Even if lawmakers could devise the perfect regulation for such a cure, the chance that it will be implemented by the regulators in the way designed is pretty close to zero.
The simplest solution would be to raise the capital requirements of banks. A nice place to start would be a 25% equity capital ratio, and if that doesn’t work, raise it more. The equity capital ratio needs to be high enough that a too-big-to-fail financial institution’s debt is riskless, not because of what is essentially a government guarantee but because the equity ratio is very high.
In a letter to the SEC, former Comptroller of the Currency John D. Hawke, Jr. cautioned that requiring money market funds to utilize a floating NAV would accelerate the flow of assets to “Too Big to Fail” banks, further concentrating risk in that sector. The former federal official, now with the Arnold & Porter firm, noted that, even bank regulators have acknowledged that a broad shift of institutional cash to the banking system could lead to a large increase in uninsured, “hot money,” deposits, which would increase systemic risk. Similarly, and importantly, he noted that requiring a floating NAV would force current users of money market funds to less regulated and less transparent products, which alternatives may be more susceptible to market risk. More broadly, he said that a review of the record developed by the SEC over the past three and a half years reveals no evidence of any benefits that would be derived from requiring money market funds to use a floating NAV.
Go read the whole thing.
Big Wall Street banks caused a financial crisis and brought the nation to the brink of economic collapse; President Obama signed the Dodd-Frank Act to punish those banks and end government bailouts of too-big-to-fail financial institutions.
That’s what President Obama believes, at least. He said so when he signed Dodd-Frank into law on July 21, 2010 ...
Gray and White explain just how wrong Obama was:
As many analysts and officials have explained, Dodd-Frank subsidizes large, influential Wall Street financial institutions, while imposing disproportionately heavy burdens on Main Street banks and the communities they serve. Even if we take President Obama, Senator Dodd, Representative Frank, and the rest of Dodd-Frank’s supporters at face value when they protest that they actually intended to rein in Wall Street banks, the laws they passed accomplish the opposite result. Intentional or not, a kiss is still a kiss.
Ammon Simon explains that:
Over at Media Matters, David Lyle responds to my Washington Times op-ed, claiming that the Dodd-Frank constitutionality lawsuit is just another non-delegation case. As CEI’s complaint explains, it’s actually a separation-of-powers challenge:
While the Supreme Court may have approved the constitutionality of any single removal of a check or balance in isolation—e.g., a limit on the Congress’s power of the purse—the Court has never approved all of Title II’s delegations, and eliminations of checks and balances, in a single law. In particular, the Supreme Court has never sustained the constitutionality of a statute that prohibits any meaningful judicial review of the Government’s action in the manner of Title II of the Dodd-Frank Act. Title II’s combinations of delegations, and eliminations of checks and balances, is unprecedented and unconstitutional.
I can find common ground with Lyle on one matter though: “Supporters of Wall Street reform should not take this anti-Dodd-Frank lawsuit lightly.”
Erik Gerding notes that:
On Thursday, I travelled to Houston and gave a statement before the Public Company Accounting Oversight Board in a roundtable hearing, as the PCAOB considers whether to impose a mandatory auditor rotation rule. In using its new inspection powers, the PCAOB has found worrying evidence of auditors compromising their independence, objectivity, and professional skepticism (see the PCAOB’s concept release soliciting public feedback).
This problem and whether mandatory auditor rotation is an appropriate solution present a bramble bush of questions that have solicited a great deal of comments (you can see the statements at the Houston roundtable (including my own) here); the PCAOB also held roundtables previously inWashington, D.C. and San Francisco).
Gerding then proceeds to review the state of the art in legal scholarship on the foundational question of whether true auditor independence can ever be achieved. It's a very good summary, which I recommend highly. (FWIW, I tend to come down on Bill Bratton's side of the debate.)
In any case, I don't see how mandatory auditor rotation can work in an environment in which there are only 4 big accounting firms. Because most public companies get a variety of non-audit services from one or more of the Big 4, as well as having another as their independent auditor, mandatory rotation will create huge conflict of interests.