Levin's "shitty deal":
(via Clusterstock)
vs South Park's City Wok:
If you watched the hearings this morning, you MUST read Bess Levin's sarcastic liveblogging recap of the proceedings. If Bess's recap doesn't make you laugh, you need to get your sense of humor checked.
-KD
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8 comments:
What, if any, reforms or regulations would you propose to try and make our financial system safer and more stable?
tough question for a comment thread, Daniel, but i think the most important thing is to limit leverage - make sure that people can lose their OWN money, but not endanger the system and everyone ELSE's money.
next, i think it's essential that buyers are responsible for their actions. the MORE we hold buyers responsible, the MORE responsible they will have to be - they won't just be able to play the victim when shit hits the fan and claim that they didn't know what was going on. this part is important because leverage wouldn't have solved the problem of managers buying shit they didn't understand.
how do you solve the problem of people buying stuff they don't understand? i don't know if you can - except by banning all complicated products, which i think is a horrible answer. so you start by making sure they are accountable. you can't ever legislate away losses, ignorance, or stupidity
I agree with KD on leverage and responsibility. It's the same moral hazard you face with bailouts. At some point people need to be responsible for the consequences of their actions.
The same people appalled by the bailout of the banks should be the ones appalled by the idea we can free investors from personal responsibility.
Fraud is one thing, but it's ridiculous to assume you can protect pensions,institutions etc from everything that might be working against them. To be honest the entire concept of ratings and buy/sell/upgrade/downgrade is in itself a giant problem. You can't compress investing into bite sized chunks to guide your decision making. It's sort of absurd.
Leverage is obviously another big issue. What banks can use as collateral / capital for credit should not include most of the debt instruments or derivatives in the world.
Leverage limits and regulating derivatives on exchanges may very well be fine ideas, but remember that there were leverage limits in place that were relaxed for GS and the other top financial institutions.
Part of the creeping rot that has damaged the federal gov't is Congress increasingly abdicating its power to the Executive. Federal agencies have incredibly broad powers to do things like set leverage limits and craft regulations. The upshot of this is that, rather than front-loading the difficult work of convening blue ribbon panels to prepare policy documents guided by empirical data BEFORE passing legislation, Congress leaves those tedious details to the federal agencies they establish or empower to deal with these issues after the fact.
So the trend is for politicians to use legislation as political cover to conceal lack of vision/planning/intelligence. "I voted for greater oversight over derivatives!" Great. What will that really MEAN? It will mean whatever the party in control of the Executive wants it to mean. IMO this is a shameful trend in our system and unless it reverses itself you'll continue to get 2 - 4 regulatory 180s during every business cycle -- with a net skewing towards de-regulation.
I yield the soapbox.
yes transorZ - step one should be to enforce the laws we already have!
Yes, even Bill Black is on board with that. But my larger point is more that laws don't mean much if they give a lot of discretion to interpret those laws in the Executive. Enforcement parameters need to be more clearly defined in the laws themselves, not left to the White House.
Partisan sabotage by non-enforcement (or, to be fair, over-enforcement) has got to be toned down. It's killing us.
KD, glad to see some humor relating to yesterday's hearing. Watching Levin uselessly flap his gums and Blankfein perplexingly stutter through questioning made me want to vomit.
Read an Asness piece ("Keep the Casinos Open") this morning that I thought was pretty insightful over at stumblingontruth.com. Worth checking out.
yeah - i read that Asness piece, and i think it's good:
http://www.ritholtz.com/blog/2010/04/keep-the-casinos-open/
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