ABSTRACT
Chapter 5 discusses the asset-misclassification, Earnings Management, Asset-quality Management, Incentive-Effects Management and Inequality Effects inherent in the following Financial Instruments and within the context of Standardized Contracts: i) Mutual Funds; ii) Auction Rate Securities; iii) the TARP/CPP related securities that were issued to US government agencies during the Global Financial Crisis of 2007–2014, as part of the US government’s failed “Economic/financial stabilization” programs and bailouts/bail-ins of financial institutions; iv) Structured Products; and v) SSETFs (Structured Synthetic ETFs). These Financial Instruments and vehicles are not “securities” (and Mutual Funds and SSETFs units are hybrid Contract-Intangibles and neither debt nor equity) and their legal classification has wide ranging implications for Public Policy, firms’ “Internal Markets”, Optimal Financial Contracting, many research fields and practitioners. These Financial Instruments and vehicles have been directly and indirectly used to finance economic development and corporate growth in many countries; and they have or can have economic and psychological Multiplier Effects and Inequality Effects that can spill over into other countries/continents. Chapter 5 also summarizes and critiques the literature on Optimal Financial Contracting.
