Monday, March 23, 2009
Utopian Regulators
The people touting the market can plausibly say, "We never gave it a shot." But those blaming the housing bubble on deregulation don't really have a strong position. There really wasn't deregulation, but instead changed regulation (or reregulation) after the changes in financial regulation that allegedly spawned the boom.
The mysterious von Pepe and I were emailing about credit default swaps, and how a bank could meet its capital reserve requirements by buying a CDS and (for purposes of regulation) effectively take the volatile asset off its books. The bank would still hold the volatile asset, but it supposedly now had taken care of the downside because of the CDS which acted as an insurance policy against default.
So as I said to von Pepe, "People keep saying that the CDS market allowed firms to evade regulation. No, the regulation allowed firms to use CDSs to evade capital requirements."
The mysterious von Pepe and I were emailing about credit default swaps, and how a bank could meet its capital reserve requirements by buying a CDS and (for purposes of regulation) effectively take the volatile asset off its books. The bank would still hold the volatile asset, but it supposedly now had taken care of the downside because of the CDS which acted as an insurance policy against default.
So as I said to von Pepe, "People keep saying that the CDS market allowed firms to evade regulation. No, the regulation allowed firms to use CDSs to evade capital requirements."
Comments:
So as I said to von Pepe, "People keep saying that the CDS market allowed firms to evade regulation. No, the regulation allowed firms to use CDSs to evade capital requirements."
I don't see how that's an argument against regulations. The capital requirements are themselves regulations, and presumably banks would have used even more leverage with even less downside protection if the noble regulators hadn't kept them tame (or so the case would go...)
I don't see how that's an argument against regulations. The capital requirements are themselves regulations, and presumably banks would have used even more leverage with even less downside protection if the noble regulators hadn't kept them tame (or so the case would go...)
Chinese want to shift to a basket of international currencies (hat tip to Keynes) for the new global currency.
Expletives! Since they have the productive capacity to set the rules I'd hoped they'd go for gold and get a proper foundation set up.
As Ralph Raico says, "Are we to be spared nothing?"
Expletives! Since they have the productive capacity to set the rules I'd hoped they'd go for gold and get a proper foundation set up.
As Ralph Raico says, "Are we to be spared nothing?"
# posted by 
: March 23, 2009 at 8:31 PM
: March 23, 2009 at 8:31 PM
Silas (and perhaps Anonymous), my point is that the experiment wasn't, "Let's try no regulation for a few years and see what happens."
No, the experiment was, "Let's change the way we regulate the wildcat banking sector. We will still have 10,001 hoops they have to jump through, but hey, I'll relax this one requirement if they buy an airtight CDS. I can't possibly imagine a problem with that."
So it was still regulators screwing up.
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No, the experiment was, "Let's change the way we regulate the wildcat banking sector. We will still have 10,001 hoops they have to jump through, but hey, I'll relax this one requirement if they buy an airtight CDS. I can't possibly imagine a problem with that."
So it was still regulators screwing up.
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