Comments on: Frog, Toad, Cookies, and Financial Regulation

By: Ben

Ben — Wed, 01 Apr 2009 15:59:41 +0000

Patrick,

We already have some isolation mechanisms for our financial system. Have you ever wonder what happens when you buy an stock option from someone you don’t even know in the stock market? Did you worry a lot about counter party risk? I won’t get into the technical details here but the stock market and brokerage system is a perfect example of isolation mechanism at work and it works very well.

Unfortunately, other derivatives (unlike stock option) are not traded through stock market like isolation mechanisms.

This is the broad direction the global financial system needs to advance toward.

By: Robert Johnson

Robert Johnson — Tue, 31 Mar 2009 00:13:57 +0000

Banks should simply be forbidden from holding debt in other banks.

By: Bubba AC

Bubba AC — Mon, 30 Mar 2009 15:07:22 +0000

Zeke hit it on the head. We live in a payoff society and we all want the fast money. Where did principles go? Six million Americans took out mortgages they couldn’t pay for houses they couldn’t afford and we’re blaming the lenders and Wall Street? Come on. We brought this on ourselves. The big banks and Wall Street sold us the tools to wreck our economy and we bought and used them. We should begin by imposing some rules about compensation in a sensible society.

By: Ben

Ben — Mon, 30 Mar 2009 07:22:36 +0000

Is burn baby burn now an economic plan? This stuff(i wouold prefer a stronger word) is straight out of a banana republic.

Before is gets worse… it gets worse…

–i forgot who said this

By: alyosha

alyosha — Sun, 29 Mar 2009 20:56:16 +0000

As a former software engineer I fully get the idea of isolation, or keeping all the parts loosely coupled instead of tightly coupled. This produces a desired quality called “resilience” – one failed subsystem doesn’t cripple the whole.

I’m hearing today that because of India’s byzantine and inward economics, that this country in particular is most isolated from the current mess, and is therefore one of the more resilient.

I heard a similar argument following the 1997-98 Asian meltdown, with regard to China at that time, that because its internal situation was so primitive, it was largely uncoupled from the other troubled economies and so the problems at that time were contained. Since then, each country’s economy has only gotten more tightly coupled with all other economies, and so one failure brings down nearly everybody.

This whole notion of designing societies for resilience is discussed in some detail in Thomas Homer-Dixon’s “The Upside of Down: Catastrophe, Creativity, and the Renewal of Civilization”.

By: Patrick

Patrick — Sun, 29 Mar 2009 04:36:57 +0000

I have to admit, I’m a big fan of treating political issues like programming issues. I’d love to put the legal system into SVN and just do an svn rollback to the Glass-Steagall Act. Maybe spend more time putting laws through QA and doing bugfixes, rather than tossing out the whole program because it has one bug. Moreover, I think we should practice more legal abstraction. If we have a good routine for indexing a law to inflation, we should abstract it in such a way that we can reuse it on other laws.

But having said that, I don’t think process isolation is really a feasible free-market solution. The reason that this is possible in computers is because we have the OS doing a *lot* of work to coordinate inter-process communication. Performing an analogous process isolation in the financial system would essentially commit the government to inspecting and validating every signal between any two firms. This is what a computer OS does and I don’t think that any government could perform this service practically.

By: Interfluidity

Interfluidity — Sun, 29 Mar 2009 03:53:06 +0000

Size really matters, if you define it right…

Not unusually, I was a bit incoherent in my previous post on bank size. On the one hand, I wrote…

…a sufficiently levered and inter-contracted microbank co……

By: Does Size Matter? « The Baseline Scenario

Does Size Matter? « The Baseline Scenario — Sun, 29 Mar 2009 03:11:27 +0000

[...] a comment » Simon argued in the Atlantic article, and I argued in “Frog and Toad” and “Big and Small”, that the best way to regulate the financial sector is to limit the [...]

By: adios amigos

adios amigos — Sun, 29 Mar 2009 01:18:27 +0000

Merlin,

Uh huh. Sometimes the truth hurts…..but, its still the truth….right? You do remember “the truth”, don’t you?

By: billy jones

billy jones — Sun, 29 Mar 2009 01:15:37 +0000

just a challenge to our leader. if you can’t lead,, get off of the porch. screw the correctness and do what is right. this ain’t the time for fuzzy politics. grow a pair.

By: adios amigos

adios amigos — Sun, 29 Mar 2009 01:15:36 +0000

Hi Beezer !
Are you an American? If yes, will you personally refund me the losses my pension took from buying toxic mortgage securities? I’m from Norway. My pension fund got wiped out because we purchased US toxic mortgage securities. You see Beezer, we were idiots. We actually believed the credit rating that your American ratings agencies were putting on these portfolios. Stupid….I know. Believing American business people! We’re idiots! How could we have been so stupid??? But, we did. So…..can you cut me a check to re-coup all the money that was basically stolen from my pension account?

By: billy jones

billy jones — Sun, 29 Mar 2009 01:08:23 +0000

for the good of the country all is said.

By: Merlin

Merlin — Sun, 29 Mar 2009 01:05:05 +0000

STFU

By: links for 2009-03-28

links for 2009-03-28 — Sun, 29 Mar 2009 00:42:49 +0000

[...] Frog, Toad, Cookies, and Financial Regulation – The Baseline Scenario [...]

By: billy jones

billy jones — Sun, 29 Mar 2009 00:32:03 +0000

obama is making mistake with afganistan. there has been too much bloodshed. he needs to think what he’s doing and get some balls and not be bullied. this aint no party, this aint no disco,,,,this is serious. don’t let me down.