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Preventing the next financial crash

Discussion in 'Economics' started by wm1965, Jul 6, 2012.

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  1. I firmly believe Basel III and Solvency II sets us up for a a far worse crash than the previous one. Simply because the regulations have become far more prescriptive and while backwards looking appear great, they are not very forwards looking. Leverage caps seem prudent and perhaps the best area they've touched is the cleaning and increasing of common equity requirements. Still, not forwards looking and biased (0% r.w. govies etc.)

    Why did CDOs fly out of the door? Risk-weighting and regulatory "arbitrage", the same with off-balance sheet SIVs etc.

    More than ever the risk-weightings attributed to existing asset classes skews banks' businesses away from what they would naturally do for prudent, profit maximization.

    My solution? Start simple:
    1) A fixed risk-weighting for all assets of 5%;
    2) Full disclosure of net and gross bucketed market positions every quarter, 3 months delayed.

    This would result in full transparency, albeit delayed for market sensitivity, for shareholders to make informed decisions i.e. self-regulate to an extent, would increase competition and prevent distortions to banks' business. You would know exactly what kind of bank you are investing in.
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  2. Well more transparency seems key and Basel III seems like an ineffectual half measure but I must admit I don't understand the mechanics.

    I can't help thinking the sheer scale of our Byzantine institutions is a problem and given financial history a lot more attention should be given to robustness in failure as they are liable to **** up big time however they are regulated by national governments which appear to have increasingly limited practical sovereignty in these matters.
  3. I think the way people can survive the next round of financial difficulites/crash is to wake up to the real world.

    1, the bank has its own interests at heart, which is making money, depositors/investors/shareholders do so at their own risk.

    2/ recognise many "high flyers" are actually psychopaths, and are risk takers by their very nature. Do not befriend or trust them.

    3/ Make your own money rather than rely on someone else to do so.Ie invest in your own enterprises/ time.

    4/ accept that you are not in, and never will be in, the rich club. Stop pretending, live within your means and be clean and you can look anyone in the eye on a level basis.

    5/ there is no such thing as financial equality, and never will be. Nor should there be. Money is only a means to an end, not an end in itself.

    6/people equal shit.
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  4. Don't lend money to people who will never be able to afford to repay it
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  5. And countries too!
  6. Feck me, what a load of shite.
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  7. Banker, I'm sorry you feel that way. Could you explain your thoughts?

    I hope you can see I know my RoE from RoA and MiFID II TCA from MiFID not-worst-execution!

    I've spoken to quite a few senior management MDs about this over the years and they are in agreement. It's not like Basel II worked!
  8. A fixed risk weighting is a potential solution however it would be very unpopular and would not allow firms to choose to be specialists in a given asset class. I am not sure that an industry of generalists is necessarily a good thing.
  9. Do share your views on IFRS 9.
  10. Would the re-impostion of a Glass-Stegal Act in America go a long way to try and prevent those big banks engaging in nefarious dealings again such as the Sub Prime mortgage scandal which triggered the last financial crisis?

    Would similar legislation here in the UK make any difference, or do we have a Financial Services that has the legal teeth to investigate alleged wrongdoing by the big banks?