Tuesday, February 24, 2009

Lack of Due Process risk...

Another interesting anecdote in the article below describing the dangers of investing in jurisdictions that lack a fully-fleshed out legal rule-set.

Without a definitive set of due-process rules and some concept of Habeas Corpus, a company can be without the services (or even contact) of its executives for indefinite periods.

It's no wonder Hillary is not pushing the Human Rights issue too much...another comparative advantage that America will enjoy for decades.

Institutions survive and evolve...capital does not.

See Douglass North for more on that. Krugman also commented on the precarious situation capital rich economies experience without correspondingly strong institutions. America is no accident in that respect.


Greaves hasn’t seen or spoken to Huang, 39, since. One morning in November, the dapper, baby-faced tycoon failed to turn up, along with his Maybach limousine, at Gome’s Beijing headquarters, where he normally worked such long hours that he had installed a double bed in the office adjacent to his own.

Under Investigation

On Nov. 24, the company halted trading in its shares on the Hong Kong exchange. Three days later, Beijing police disclosed that one of China’s most celebrated entrepreneurs was under investigation for share manipulation.

Three months later, Huang and his wife and former co- director, Lisa Du Juan, remain incommunicado, along with Zhou Yafei, Gome’s former chief financial officer, somewhere in China’s penal system, leaving Greaves and his remaining co- directors scrambling to avert the company’s collapse.

Gome’s investors -- which include Capital Research & Management, a unit of Capital Group Cos., the largest U.S. manager of stock and bond mutual funds; Warburg Pincus LLC; and clients of JPMorgan Chase & Co. and Morgan Stanley -- still can’t trade the suspended stock. All four fund managers declined to comment.

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