Maybe not!

How about we immediately require Mark to market reinstatement. Immediately the banks have to reveal and eat their own poison. We seize them as major creditors, keep the normal banking services in operation and retain control until Basel III is in place.

DERIVATIVES: we legislate that derivatives are only allowable if approved and subject to regulation.
Unapproved derivatives are immediately unenforceable ontracts.
Traders transgressing regulations are banned.

Bankers can play ball or be rolled, it’s a free country!

To that end, I suggest: banks should be tightly
regulated a la Glass-Steagall, to insure that
they are properly capitalized and use their
funds for secured loans. And insurance companies
should insure only tangible, real-world assets,
like houses and ships. We can also consider
insurance agains disasters: e.g. earthquakes,
tornados, floods, etc.

The rest should be abolished, no? No derivatives,
no credit default swaps, no leveraging. And
strict controls on the amount of inter-bank
business.

NB: we’re not going to get these things any time
soon. But my idea, eloquently articulated by
Anonymous is: work out a theory of what is
desirable, so that we don’t, as Anon says, sit
on mountaintops and yell imprecations.

I don’t know if Messrs Johnson and Kwak read what
we all post here. If they do, perhaps one of
them will take up the challenge to frame a
desirable(albeit capitalist) financial system
that would abolish playing around with money,
and ensure that only financial services offering
some social service would be allowed.

Best wishes to all,

Alan McConnell, in Silver Spring MD

Since this is a treatment of finance at a global level, the mind boggles and seizes. Job 1 seems to be to scrap existing international entities like BIS, IMF, World Bank, and all the other junk that were brought to us by the bright fellows who carved up the world after WWII. There is a concerted effort underway to globalise currently. I don’t think we have to be afraid of globalisation, but we do need to worry about who’s driving it, and why. Perhaps we can wrest the new baby away from what appear to be murderous machiavellian sociopaths. I’ve poked around a bit, and am completely convinced that we have the brainpower and the resources to feed, clothe, shelter, provide medical care for, educate, and even entertain every living soul on the planet, and then some. What does it matter that we smooth out the “business cycles” and euthanize wolf-packs of hedge funds and arbitrageurs if people anywhere are suffering unnecesarily?

A lot can be accomplished with a website, a debate and voting mechanism, and other internet goodies. Maybe a group of elders consisting of sociologists, experts on jurisprudence, economics {cack}, history, psychology, PR & Media, finance and banking {cack}, etc., would be helpful too. Even if academics or other pundits are currently “captured,” it shouldn’t be too tough a sell to get them involved, genuinely, in a plan to change the world, soon, for real.

With any luck, thoughts will be clearer and less grandiose tomorrow.

**************

Excellent start for building consensus. This will be interesting as the 50 states descend into chaos, and national trade barriers continue to grow.

Needed:

Action plan, deadline, sense of urgency

Preplanning: identify similar existing efforts, settle on scope of project, announcement of project and open invitation to participate.

Phase 1) 1 month – concentrated brainstorming
Phase 2) 1 month – selection of final action items for debate
Phase 3) 1 month – open debate on each item, draft of proposal.
Phase 4) 1 month – selection of individuals and/or organizations to mount PR campaign; anticipation of objections, resistance, and pushback.
Phase 5) 2 months – dissemination of plan, final tweaks and formalization
Phase 6) International referendum??

Considerations: How many initial representatives from each country should participate? How do we vet? How do we prevent process from getting coopted? How can the whole process take place without being an affront, threat, to national sovereignties?

If critics approach the power wielders with a succinct and reasoned fix, we will receive more credibility rather than appearing to stand on various mountain tops and bewail the end of the world.

Here follows what I think I have heard from the assembled wise folk. It is not meant to be exhaustive and may not even be remotely correct. However we all could build a worthwhile document. I surmise that our blog owners having such a tool in their armory will achieve more than present?

Over to the clever folk:

A: Global goals:
1. Bank’s primary goal – to operate for:
1.1 their community good
1.2 stakeholders
1.3 staff fair reward
2. Mobilise and make capital prudently available to achieve …?
3. Operate banks to minimise risk of failures.
4. Global process guide for recovering failing or failed banks
5. Guard against rewards for gambling mentality

B: Problem statement:
1. Basel II
1.1 capital requirements rules based only on borrower scale and risk
1.2 prudential achievements – optimal deployment of capital not mentioned
1.3 rewards for size and immediate profit only
2. TBTF banks (crisis detonators)
3. Bank oligarchy (but not primary)
4. Regulate derivatives
5. Independent central banking
6. Ensure overt separation of Banking and Government .
7. Global reserve currency to be a basket-based index and not a national currency.

C: Possible action required:
1. Rewrite Basel II regulations in some way? (Pers to draft initial rewrite?) This need only be a meta statement with subject index
2 Reduce TBTF banks (probably by restoring the separation between normal banking services and the merchant banking exotica?) Also by defining some scale limit and ensuring they are NOT TBTF? Legislation to ensure banks know what is their fate if they transgress!
3. Banking oligarchs power limitation? – how?
4. Regulating the derivatives market – how?

Ok my friends, after you have picked yourselves up from rolling on the floor and emitting hysterical laughter, time to bell the cat. Else. return to mountaintop and demonstrate personal knowledge?

I am confident we can achieve something worthwhile. Do I have any allies?

I know, it won’t fix the problem, but it’s far more likely to happen than any regulation any of us might suggest, it seems. :-/

Please do not conclude from this that I advocate caps on executive compensation. Rather, I would seek ways of regulating incentives. There needs to be some way for the cost of risky behavior to be reflected in a P&L, a Balance Sheet, and a bonus check. We do this for insurance companies and banks, for instance, by requiring them to hold reserves to cover loss. Why not tie risk mitigation requirements to firm size or some other indication of risk (e.g. Beta, or troubled assets held, or default rates, market share, …..). If done correctly, there would be a tangible cost to growing larger that could only be offset if, in fact, economies of scale can be realized (a social benefit, given some limitations).

I am skeptical that regulators can control behavior. In general, they are inevitably limited to closing barn doors long after the horses have left. Markets are, and should be, flexible, adaptable, and resourceful. Bureaucracies are, and always will be, rigid, slow, and fixated on the read-view mirror. Any set of prohibitions one might imagine will be circumvented eventually. Far better, in my estimation, to focus on incentives.

Today, risk is externalized to shareholders and tax payers. Much better to internalize them as costs against earnings.

Laissez faire capitalism produces winners and losers. The winners get bigger, and use their market power to prevent or hinder competition. Large firms can drive out small firms out of business in a variety of ways. Failing that, they can buy them up, getting even bigger in the process. Yes, they also use political power, but that is not necessary.

It is true that eventually large firms fail, unless they are bailed out. There is the main point where welfare capitalism really helps. But suppose that gov’t kept hands off. What that would mean is that we would have decades of monopolistic economies, punctuated by crises and depressions. (The failure of Jay Gould ushered in the long depression of the 1870s and 80s.) When large firms failed, we would have periods of free markets, until competition winnowed the herd and monopolies could take over again.

but insofar my point concerned magnitude it was magnitude of disclosure and there you must admit that the more statistics are out there the more one can draw conclusions from them or model general schemes or accusations on them and that leaves very much in the opaque those who do not disclose – if they want to come clean let them disclose equally generously and then they may claim to be holier but before that they better keep quiet whoever they are

- the guy and the girl who used the US-statistics were far far from being US-friendly – they sounded like if scientist’s honour had allowed them to do it they would very happily have omitted that disclosure about the figures they concentrated on from their presentation
btw besides magnitude geographic location and time it is done in matter greatly i.e. Kipling’s honest six plus “how much” added http://www.kipling.org.uk/poems_serving.htm
Their names are What and Why and When
And How and Where and Who.

PS: if magnitude matters what about the difference between ruling and regulating over 300 instead of 60 millions?

Magnitude, keep in mind. For example, there was fascism in France, true, but it was developed on an entirely different magnitude by Hitler and his minions.

More is different. There is no doubt that if Americans were of the same aggressive mentality as the French, the bank bonuses would not happen. The Netherlands, BTW, have cracked down.

PA

I’m worried about my unimpressive job title

http://blogs.ft.com/dearlucy/2009/10/im-worried-about-my-unimpressive-job-title/
“I am a senior compliance manager in a big bank but my title is merely “controller”. Other people in my bank who do less senior jobs have much grandersounding titles.”

how are you going to be able to do things for Hope and Change if you do not have the power to do it?

the power game most of the time has been a dirty or at least not quite clean game, let’s assume Obama was sincere in his promises then we should pray that his Macchiavellian streak is well developped enough to enable him to impose his will – if he is lacking in ruthlessness not even the best intentions will help

analysis and adrenalin do not mix well
ideally one has two hats and can easily switch from one to another … and tolerate being called a cynic from time to time