Roger Lowenstein on Financial Reform
Roger Lowenstein, author of When Genius Failed and Origins of the Crash, is working on a new book on the bailouts and meltdown.
In his most recent Bloomberg column, Lowenstein looks at the current spate of flailing financial reforms. He notes that most of the proposed fixes are “incremental changes that don’t seem likely to prevent a future bubble.”
Here is his down and dirty overview of what caused the crisis; I cannot say his views differ from mine very much:
The crash exposed six serious problems:
No. 1: Mortgage regulation was too lax and in some cases nonexistent.
No. 2: Capital requirements for banks were too low.
No. 3: Trading in derivatives such as credit default swaps posed giant, unseen risks.
No. 4: Credit ratings on structured securities such as collateralized-debt obligations were deeply flawed.
No. 5: Bankers were moved to take on risk by excessive pay packages.
No. 6: The government’s response to the crash also created, or exacerbated, moral hazard. Markets now expect that big banks won’t be allowed to fail, weakening the incentives of investors to discipline big banks and keep them from piling up too many risky assets again. It’s time to end too big to fail by making it less palatable for banks to remain big.
Just about right . . .
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Source:
Banking Fix Made Easy With Six Simple Steps
Roger Lowenstein
Bloomberg, Nov. 17 2009
http://www.bloomberg.com/apps/news?pid=20601039&sid=ag6XVCM_C.j4
November 17th, 2009 at 10:52 am
the main culprit was overlooked. repeal of glass steagall. when that happened, it allowed all the miscreants to band together and conspire to produce all the scams that helped to put down the system
November 17th, 2009 at 11:24 am
interesting that ‘rates held too low for too long’ is not on that list.
November 17th, 2009 at 11:24 am
okay, so what else is new, ain’t gonna happen, i haven’t read his book, yet, the premise on problem solving is when a problem is not solved multiply by .5 too add the time frame when the problem may or may not be addressed, and then repeat, it’s been a year since we could of done them, call me in may when we have spring flowers, and i’ll take five too one we are still exactly where we are today, lower interest rates for forseable future, yada yada yada
November 17th, 2009 at 11:24 am
along with the excluding of any regulations for the credit derivatives. and allowing the 40-1 leverage in the investment banks. and removing over sight of the credit ratings agencies
November 17th, 2009 at 11:28 am
First Shot Off The Bow, spwra, solar outta california, uhmmmmmm, there chinese mfg plant cooking some numbers up for dinner, oh how fun………………things come in three’s, what chinerese company will be next, time frame 6 weeks, good odds on that one
November 17th, 2009 at 11:38 am
the doom loop?
http://baselinescenario.com/2009/11/17/banking-in-a-state/
November 17th, 2009 at 11:50 am
no offense BR *.. but I am getting miffed at all the disaster capit’ism paper pushing going on .. at our misery expense .. book writers and thinktanks and accountants and lawyers and politicians and media reporters (for profit ?)
I know .. thats just the way that it is .. on 21st century earth
* Mr Pioneer
November 17th, 2009 at 12:06 pm
the doom loop, lol, corresponds with the advent of the ATM, coincidence?
November 17th, 2009 at 12:50 pm
The first (of many) necessary steps is to align the interests of bank execs and taxpayers. The simple solution is to make all payments (salary,bonus,pension) to execs subject to clawback if a bank requires tax payer bailouts. The rule would apply for all payments made up to 5 years before the bailout and would apply to all execs regardless of whether they were still employed or not.
Its much simpler to make people act in their own self-interest than try and come up with complex regulatory schemes which will be evaded.
November 17th, 2009 at 2:41 pm
To me, the most important question is: what has changed with the new administration and new congress? Has anything on Lowenstein’s list truly been rectified?
They DO have the benefit of more knowledge as time has gone by. They DO have the benefit of being able to be reflective and not having to make decisions in a true crisis. They DO have the benefit of controlling all aspects of the federal government.
But are they doing anything of any substance? Are they acting as if this is still the number one issue facing this country? Or are they spending the vast majority of their time dealing with issues that should be further down on the list, such as health care reform, cap and trade legislation, flying all over the world, moving gitmo trials to NYC?
As I look at Lowenstein’s list, I have very little confidence anything has changed. And no one seems to be putting much pressure on this administration and congress to shift gears and make truly good change in this area.
Some day, these leaders will no longer be able to blame the former administration for everything, and they will be held accountable for what change they truly did bring to the table. Hopefully, they will not be dealing with a bigger financial crisis of their own when that day comes.
November 18th, 2009 at 5:46 am
Let ‘em fail, just like smaller banks. Limit the Federal role to DIP finance. Period. The fall of Lehman was not a policy mistake. However, misleading the markets to believe that nothing of the sort would be allowed to occur was the huge one. The only systemic risk is that of concurrent failures. So stagger the bankruptcies with life-support loans, if necessary. Using insolvencies to make the big yet bigger, a la subisidizing WFC’s take-over of Wachovia and JPM’s take-over of both WaMU & BS, may help out the FDIC’s obligations in the short-term but in the longer term–”longer term” = 1 year per recent history–it produces only more economic and risk concentration.
November 18th, 2009 at 2:23 pm
I use technical analysis to identify trends which can also tell us where the economy is headed.
My long term USD indicator has been giving BULLISH warnings for some time and I am expecting a USD rally.
My indicators can identify trend changes before they occur.
They warned me of an impending market crash back in early *2007*
The VIX index continues to give bullish warnings as well.
Is the bear market rally ending ?
http://twitter.com/GrandSupercycle