http://americaspeaksink.com/2009/10/charlie-crist-and-the-film-outrage/

I suggest we need to be prescriptive in generating a starter set document else apologists seeking to maintain an actor set advantage will seek to derail any fix effort. This is not to imply that other folk have not prepared similar documents so plagiarising (with permission) should be OK. alternatively access such completed document and critique same?

This document is then followed (Part 2) by a linked solution set and action plan for consideration. OK is seems so simple but we appear to be nationally spinning wheels while such stoppers as ‘TBTF, can’t be done, will destroy the economy’ are continually blocking advance. Note that such negatives seem to be unsubstantiated opinions!

I suggest comments to date are helpful but don’t constitute a tool set for the President to consider. If he rejects this suggestion at least it can be placed in the public arena and discussion encouraged to add pressure for acceptance and action?

We have to have a strategy with the tactics to achieve our goals. A finite document can be campaigned against doomsayers, contrarians and crooks.

May I suggest a distillation of blog contributions to date will probably provide needed data.

My required outcomes list thoughts are:
1. Recovery of public funds and reasonable rent.
2. Cease further public funds deployment.
3. True disclosure of all matters such as asset valuation (MtM?), dark pool trades in real time view of all investors.
4. No deals without real interest (derivatives gambling a no-no)
5. Derivatives to be subject to regulation to extent other assets are traded.

This list is not prioritised and is an offered as a suggestion only.

Any comments?

How do I become a big bank?

1. Derivatives are necessary because they provide liquidity, risk sharing, blah blah blah.

2. We can’t monitor (hence regulate) modern derivatives because they are too complex and no one can figure out the impact of failure scenarios.

How can these statements both be true at the same time?

The way things are, this problem, which is the real issue in re-regulation, will not go away, and will lurk until it breaks the economy further. They say that 2010 will be the year of the foreclosure, including lots of commercial loans, so the assets become more toxic by the day.

Time for the Fed to remove all guarantee support from the TBTF’s.

Re: your CDS point– although this is tempting, what constitutes a valid interest? Suppose you are trying to hedge systematic credit risk using an index (CDX). Does this constitute valid interest in the underlying? If I hold debt, paper or equity, does buying CDS to hedge constitute valid interest? It seems it would, but at this point there isn’t really any direct tie to the firm from a non-investment perspective.

Yes, some people buy CDS to speculate, but a lot of CDS is used for hedging purposes. Also, CDS makes a lot more sense if it’s relatively liquid. A lot of liquidity is driven by buy side index arb, which transfers risk to the right places (i.e. away from the tax-payer) but has many benefits to anyone using the underlying for hedging.

It’s just not so cut and dried.

1. Regulation by its very nature has to assume basically decent, social actors who just get stupid or carried away and make mistakes.

But that’s not what we have with today’s bankers. They are, on the contrary, nothing but antisocial gangsters. There is zero common ground between them and the public interest. The null set.

2. Regulation would therefore be a permanent war of attrition, which the regulators, having far less resources and unstable professional/ideological will (subject to the vagaries of politics, change on administrations etc.).

3. Even if (1) and (2) weren’t operative, the problem is still too complex. As we’ve seen with this Smith post and her previous one she was following up on, even given her desire to “regulate” she has to throw up her hands and say it can’t be done.

Put these three together and the thing is clear: we can’t regulate any of this, we simply have to get rid of it.

I agree. At the very least, 100% is probably a number that can be shown to be valid.

If CDS contracts could only be issued if the counterparty had a valid interest in the underlying asset, then these arrangements would be much less complex.

IMO the real problem is that top financial policy makers are suckers for “the market knows best” belief. To appreciate how messed up this situation is, just imagine if FCC or FDA of FAA suffered from the same reverence to the industries they regulate! Yet, this is exactly what the Fed and Treasury have been preaching for years and under varying administrations.

It is not the inability to regulate that is a challenge, but the lack of desire to regulate on the part of those who are in charge of regulation.