Saturday, June 27, 2009

Financial Reforms...

George Soros:

I am not an advocate of too much regulation. ... While markets are imperfect, regulators are even more so. ... Three principles should guide reform. First, since markets are bubble-prone, regulators must accept responsibility for preventing bubbles from growing too big. Alan Greenspan ... expressly refused that responsibility. ...

Don't let bankers make huge risky bets with other peoples money--without having their own capital to back it.

Reich notes:

Best of all would be a requirement that investment banks return to being partnerships and the capital on their books be their own, not yours or your pension fund’s. When investment banks were partnerships, every partner took an active interest in what every other partner and trader was doing. The real mischief started once they started selling shares to the public.

No too big to fail's --seperate commericial and investment banks...

Also via Soro's again:

we must reconceptualise the meaning of market risk. The efficient market hypothesis postulates that markets tend towards equilibrium and deviations occur in a random fashion...

But the efficient market hypothesis is unrealistic. Markets are subject to imbalances... If too many participants are on the same side, positions cannot be liquidated without causing a discontinuity or, worse, a collapse. In that case the authorities may have to come to the rescue. That means that there is systemic risk ... in addition to the risks most market participants perceived prior to the crisis.

Posted via web from Jim Nichols

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