20 December 2014

Kicked to the Curb

In some businesses, it makes sense to kick to geezers to the curb when downsizing. Newspapers isn't one of them since it takes a bit of time listening to the liars to figure out what a lie sounds like, but they do that nevertheless. This is Floyd Norris' last piece for the NYT. You should read it.

He opens with:
What happens when you turn over regulatory responsibilities to people who think there is really no need for regulation?

Of course, the Right Wingnuts will likely dismiss, and not bother to read, what follows. They're always right, of course.
To a significant extent, derivatives enabled risk to be shifted from those who understood it to those who did not. Securities deemed risk-free by the rating agencies turned out to be worthless. Much of the financial innovation that so impressed Mr. Greenspan had been designed to let banks find ways to reduce their capital levels without the regulators noticing.

And for the quants:
Bank capital rules came to allow the banks to use their own -- presumably sophisticated -- models to calculate how much capital was needed for any asset they owned. Countries like Ireland and Iceland developed large banking systems and were hailed for finding high-paying, nonpolluting jobs.

Naturally, they ended up polluting the global economic structure. And the cleanup Superfund comes from, in the case of Ireland, almost wholly on the backs of small taxpaying citizens. Moral hazard? Of course not, from the banks' point of view.

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