Optimal Rules of Governance to Compete Globally


1. A Fundamental Problem in the Current Financial System
A financial holding company (FHC) can adopt a highly leveraged short-selling strategy as follows:

1. Form a legally permissible, firewalled, bankruptcy-remote entity (onshore or offshore) with some equity capital parent FHC and additional debt obtained from one of its insured bank subsidiaries.
2. Let the subsidiary sell securities short, massively.
3. Plow all profits from the subsidiary as long as profits are being made to the parent FHC.
4. Legally liquidate through Chapter 7 the assets of the subsidiary, when the subsidiary turns deeply insolvent longer profitable.

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