the problem with the current mess is that many of those
responsible acted bona fide. greenspan was very sure he
did the right thing. and those people, the crowd, who
look for guys to blame do not see their own embedment.
i find it frightening when politicians and fed chairmen
truly believe that if credit flows again everything will
return to normal. the problem is the way the average
american deals with credit in the first place. if they can
bail the system out too quickly, nothing will change in
this respect. a while back i saw the US savings rate
over decades and its quite sudden decline in the nineties.
and actually the whole thing is an american misperception
of economics that grew over time. and it is shared by
both parties. the mortgage twins, as far as i know, were
deeply rooted in the democratic family. that pointed
finger towards the failed bush policies seems to be a
little stretch of reality.
people, especially crowds, do not learn the easy way.
if i had to clean the trouble, i'd make two regulations.
first: financial institutions are only allowed to use
exchange traded derivatives for hedging. all other
trades do not offset risk, but increase it. in the futures
market we know that only a fraction of the futures
that are brought to the market, really make it. the
others vanish due to too weak market structures. so,
if structured credit desks want to hedge something
they cannot just go out and create their private game,
like cdx or itraxx.
second is company size. this must be reduced. my guess
would be about USDbn 10-20 in market cap. when
companies grow bigger they are torn apart. yes, that
would kill some economies of scale. yes. google is bigger.
yes, microsoft, yes GE and so forth. my guess is the world
would be way more competitive and way less
corrupt, since all of a sudden the material power of
certain groups ... vanish.
funny thing with this latter point is that it sounds
weird, but we actually have it in place already, just
the size which is seen as critical is some orders above
my proposal. the real point is that we are in a post
industrial era and the point of economies of scale is
way less valid than it was 100 years ago ...
anyways ...
responsible acted bona fide. greenspan was very sure he
did the right thing. and those people, the crowd, who
look for guys to blame do not see their own embedment.
i find it frightening when politicians and fed chairmen
truly believe that if credit flows again everything will
return to normal. the problem is the way the average
american deals with credit in the first place. if they can
bail the system out too quickly, nothing will change in
this respect. a while back i saw the US savings rate
over decades and its quite sudden decline in the nineties.
and actually the whole thing is an american misperception
of economics that grew over time. and it is shared by
both parties. the mortgage twins, as far as i know, were
deeply rooted in the democratic family. that pointed
finger towards the failed bush policies seems to be a
little stretch of reality.
people, especially crowds, do not learn the easy way.
if i had to clean the trouble, i'd make two regulations.
first: financial institutions are only allowed to use
exchange traded derivatives for hedging. all other
trades do not offset risk, but increase it. in the futures
market we know that only a fraction of the futures
that are brought to the market, really make it. the
others vanish due to too weak market structures. so,
if structured credit desks want to hedge something
they cannot just go out and create their private game,
like cdx or itraxx.
second is company size. this must be reduced. my guess
would be about USDbn 10-20 in market cap. when
companies grow bigger they are torn apart. yes, that
would kill some economies of scale. yes. google is bigger.
yes, microsoft, yes GE and so forth. my guess is the world
would be way more competitive and way less
corrupt, since all of a sudden the material power of
certain groups ... vanish.
funny thing with this latter point is that it sounds
weird, but we actually have it in place already, just
the size which is seen as critical is some orders above
my proposal. the real point is that we are in a post
industrial era and the point of economies of scale is
way less valid than it was 100 years ago ...
anyways ...