Comments on: The usual suspects? Or the usual bullshit? http://www.ipsidixit.net/2008/07/21/the_usual_bullshit/ A far off place Mon, 23 Jan 2012 20:47:55 +0000 hourly 1 http://wordpress.org/?v=3.3.1 By: sgroarke http://www.ipsidixit.net/2008/07/21/the_usual_bullshit/comment-page-1/#comment-3838 sgroarke Thu, 24 Jul 2008 06:45:13 +0000 http://www.ipsidixit.net/2008/07/21/92/#comment-3838 David comments above that the banks suffer "market penalties". Oh that they did! Take Northern Rock in the UK: market penalty? Nope. Taxpayers bail it out and the execs get fat severance packages. Last week, in the US, we've the potential catastrophe of Fannie Mae and Freddie Mac. And the "market penalty" was... A $200 billion (plus or minus, no sod really knows) donation from the US taxpayer. With penalties like those life must be sweet for a bank. While I, pragmatically, support the rescue of those institutions, it turns my stomach. On the one hand the only reason it's needed is that they are large enough for their failure to have a snowball effect and take down many other banks too. And then the governments compound their feebleness by doling out our money without fully nationalising the banks concerned. Here's billions of dollars (or pounds, or euros) as a gift from the proud citizens. Please now carry on as normal. Let us know if you need some more. David comments above that the banks suffer “market penalties”. Oh that they did!

Take Northern Rock in the UK: market penalty? Nope. Taxpayers bail it out and the execs get fat severance packages. Last week, in the US, we’ve the potential catastrophe of Fannie Mae and Freddie Mac. And the “market penalty” was… A $200 billion (plus or minus, no sod really knows) donation from the US taxpayer. With penalties like those life must be sweet for a bank.

While I, pragmatically, support the rescue of those institutions, it turns my stomach. On the one hand the only reason it’s needed is that they are large enough for their failure to have a snowball effect and take down many other banks too. And then the governments compound their feebleness by doling out our money without fully nationalising the banks concerned.

Here’s billions of dollars (or pounds, or euros) as a gift from the proud citizens. Please now carry on as normal. Let us know if you need some more.

]]> By: David Harper http://www.ipsidixit.net/2008/07/21/the_usual_bullshit/comment-page-1/#comment-3837 David Harper Tue, 22 Jul 2008 14:41:50 +0000 http://www.ipsidixit.net/2008/07/21/92/#comment-3837 But that's not the reviewer's point, which is important. Nobody is *really* pointing the finger at regulators (i.e., your car manufacturer). In my view, the regulators are the only folks who've escaped unscathed. Unlike the bank, which suffers market penalties, nobody monitors their performance. Reviewer is saying: many want to find a solution in better regulation (a "better" Basel II) but, missing the lesson of Basel I, they are not aware of the unintended consequences. He is saying, beware "mo better" regulation. Re the car, it's more like you are driving a NASCAR race, in a car owned by a team (shareholders, Board). Your job is to drive fast (maximize RAROC). What is a bank? management, shareholders, Board, bondholders, employees? You crash, CDO collateral and CDS intra broker dealers aren't even on the scene. Some victims (shareholders, laid off employees) are obvious some are not. Casting blame is non-trivial. But that’s not the reviewer’s point, which is important. Nobody is *really* pointing the finger at regulators (i.e., your car manufacturer). In my view, the regulators are the only folks who’ve escaped unscathed. Unlike the bank, which suffers market penalties, nobody monitors their performance. Reviewer is saying: many want to find a solution in better regulation (a “better” Basel II) but, missing the lesson of Basel I, they are not aware of the unintended consequences. He is saying, beware “mo better” regulation.

Re the car, it’s more like you are driving a NASCAR race, in a car owned by a team (shareholders, Board). Your job is to drive fast (maximize RAROC). What is a bank? management, shareholders, Board, bondholders, employees? You crash, CDO collateral and CDS intra broker dealers aren’t even on the scene. Some victims (shareholders, laid off employees) are obvious some are not. Casting blame is non-trivial.

]]> By: sgroarke http://www.ipsidixit.net/2008/07/21/the_usual_bullshit/comment-page-1/#comment-3835 sgroarke Tue, 22 Jul 2008 08:07:44 +0000 http://www.ipsidixit.net/2008/07/21/92/#comment-3835 Thanks for the input re Basel I versus Basel II. The reviewer did not say, and hence I assumed Basel II. However my general point remains: Basel I and/or II may encourage certain behaviours which in turn make it tempting to take unreasonable risks. On the basis that banks are not actually forced to take on such risks, then I still point the finger directly at them. Typically dodgy motoring analogy coming up: the car manufacturers may "encourage" me to drive very very fast by making available cars with insanely high top speeds. But when they cut my body from the smoking wreck, is it really their fault? True, they might have done more to discourage me, but I was the idiot. :-) Thanks for the input re Basel I versus Basel II. The reviewer did not say, and hence I assumed Basel II.

However my general point remains: Basel I and/or II may encourage certain behaviours which in turn make it tempting to take unreasonable risks. On the basis that banks are not actually forced to take on such risks, then I still point the finger directly at them.

Typically dodgy motoring analogy coming up: the car manufacturers may “encourage” me to drive very very fast by making available cars with insanely high top speeds. But when they cut my body from the smoking wreck, is it really their fault? True, they might have done more to discourage me, but I was the idiot. :-)

]]> By: David Harper http://www.ipsidixit.net/2008/07/21/the_usual_bullshit/comment-page-1/#comment-3834 David Harper Tue, 22 Jul 2008 03:13:04 +0000 http://www.ipsidixit.net/2008/07/21/92/#comment-3834 The economist, paraphrasing Soros, is referring to Basel I not Basel II. Basel II is still being implemented. In the US, all but 10 or 11 banks will continue under Basel I. Under Basel I, the well-known phenomena is called 'regulatory arbitrage:' it absolutely encouraged off balance sheet and seeking of riskier loans by lack of differential capital charges. Basel II is currently in various stages of adoption globally. The economist, paraphrasing Soros, is referring to Basel I not Basel II. Basel II is still being implemented. In the US, all but 10 or 11 banks will continue under Basel I. Under Basel I, the well-known phenomena is called ‘regulatory arbitrage:’ it absolutely encouraged off balance sheet and seeking of riskier loans by lack of differential capital charges. Basel II is currently in various stages of adoption globally.

]]> By: Tim Ramsey http://www.ipsidixit.net/2008/07/21/the_usual_bullshit/comment-page-1/#comment-3833 Tim Ramsey Mon, 21 Jul 2008 10:06:22 +0000 http://www.ipsidixit.net/2008/07/21/92/#comment-3833 I recently came accross your blog and have been reading along. I thought I would leave my first comment. I dont know what to say except that I have enjoyed reading. Nice blog. Tim Ramsey I recently came accross your blog and have been reading along. I thought I would leave my first comment. I dont know what to say except that I have enjoyed reading. Nice blog.

Tim Ramsey

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