Sunday, January 13, 2008

WSJ Sees Some Light

"The business model for the big U.S. banks is broken. Let us count the ways. ... Change the incentives. An outfit that makes a loan should have to bear some of the risk that the borrower won't repay it. The same goes for everyone along the chain as mortgages are packaged into securities. ... No more 'structured investment vehicles' . ... No more banks pretending they aren't backstopping these entities and thus don't have to maintain a captial cushion against that lending. ... New and improved rules for global governments to monitor banks. ... But the fault also lies with government which enshrined the rating firms' role in law and limited competition among them. ... As with accounting firms following the corporate scandals of the 1990s, rating companies must change to recover credibility. ... And find a better way to pay the firms", David Wessel (DW) in the WSJ, 10 January 2008.

I agree in part with DW. I would not create "new and improved rules for global governments to monitor banks". Any such monitoring will be evaded. Period! Let some big banks fail. End the category of banks which are "too big to fail", see my 12 December 2007 post. Also stop telling the public that isn't Fed policy. Helicopter Ben, no one believes you. As for the rating agencies, see my 28 December 2007 post.

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