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AOL/Time Warner and WorldCom:Corporate Governance and the Effects of the Deregulation Paradox
Unformatted Document Text:  3 AOL/Time Warner and WorldCom: Corporate Governance and the Effects of the Deregulation Paradox INTRODUCTION The U.S. economy is experiencing a period of economic instability, somewhat reminiscent of the 1930s. What is similar is not the depth of the recession, but the level of corporate misconduct, failure of checks and balances, and total loss of investor confidence (Nussbaum, 2002). How did this happen? The common element found in both time periods is the conflict of interest that benefited insiders (Kuttner, 2002). In contrast to the Chicago School of economic theory, which espouses the benefits of a deregulated economy, market forces were unable to detect or discipline the self-dealing and opportunism that proved irresistible during the high growth years of the 1990’s. Despite President George W. Bush’s assertion that some corrupt individuals failed the system, the argument can be made that it is the current system of deregulation that has failed (“Let the Reforms Begin,” 2002, pp. 26-27). The telecommunications industry in particular has been in a state of economic turmoil. Investors have lost some $2 trillion as stock prices have fallen more than 95% from their previous highs. Since 2001, more than a half a million workers have lost their jobs in the media and telecommunications fields in what was once regarded as the strongest part of the US economy. Dozens of debt ridden companies ranging from Winstar to Global Crossing have filed for bankruptcy. And on July 21 st , 2002 the telecommunication industry experienced an unprecedented level of instability when corporate giant WorldCom filed the largest bankruptcy claim in US corporate history.

Authors: Gershon, Richard. and Alhassan, Abubakar.
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3
AOL/Time Warner and WorldCom:
Corporate Governance and the Effects of the Deregulation Paradox
INTRODUCTION
The U.S. economy is experiencing a period of economic instability, somewhat

reminiscent of the 1930s. What is similar is not the depth of the recession, but the level

of corporate misconduct, failure of checks and balances, and total loss of investor

confidence (Nussbaum, 2002). How did this happen? The common element found in both

time periods is the conflict of interest that benefited insiders (Kuttner, 2002). In contrast

to the Chicago School of economic theory, which espouses the benefits of a deregulated

economy, market forces were unable to detect or discipline the self-dealing and opportunism

that proved irresistible during the high growth years of the 1990’s. Despite President

George W. Bush’s assertion that some corrupt individuals failed the system, the argument

can be made that it is the current system of deregulation that has failed (“Let the Reforms

Begin,” 2002, pp. 26-27).
The telecommunications industry in particular has been in a state of economic

turmoil. Investors have lost some $2 trillion as stock prices have fallen more than 95%

from their previous highs. Since 2001, more than a half a million workers have lost their

jobs in the media and telecommunications fields in what was once regarded as the strongest

part of the US economy. Dozens of debt ridden companies ranging from Winstar to

Global Crossing have filed for bankruptcy. And on July 21
st
, 2002 the telecommunication

industry experienced an unprecedented level of instability when corporate giant WorldCom

filed the largest bankruptcy claim in US corporate history.


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