22 thoughts on “The financial crisis: more transparency, less regulation”

  1. Posted 02/12/2008 at 11:03 | Permalink

    And so say all of us! The 1870 Insurance Act required life insurance companies to publish some limited information to the market and publish the basis on which it was calculated. The focus was the market and not the regulator. There was almost no expertise within the regulator and the regulator could send (and publish) letters to the company if it was unhappy – and that was all. In 75 years of operation there were about two insolvencies – neither of which affected policyholders greatly.

  2. Posted 02/12/2008 at 11:03 | Permalink

    And so say all of us! The 1870 Insurance Act required life insurance companies to publish some limited information to the market and publish the basis on which it was calculated. The focus was the market and not the regulator. There was almost no expertise within the regulator and the regulator could send (and publish) letters to the company if it was unhappy – and that was all. In 75 years of operation there were about two insolvencies – neither of which affected policyholders greatly.

  3. Posted 02/12/2008 at 11:28 | Permalink

    Exactly. Regulation is nonsense, but a bit of sensible banking supervision wouldn’t go amiss. Anybody with any knowledge of this would have known that Northern Rock was going off the rails at least two years before it actually went *pop* (click link above for explanation).

  4. Posted 02/12/2008 at 11:28 | Permalink

    Exactly. Regulation is nonsense, but a bit of sensible banking supervision wouldn’t go amiss. Anybody with any knowledge of this would have known that Northern Rock was going off the rails at least two years before it actually went *pop* (click link above for explanation).

  5. Posted 02/12/2008 at 12:20 | Permalink

    Well said. I would like you to recall all the financial crisis during the last decade starting from Thailand when Bangkok Bank went bancrupt and then caused went to linked S.Korea, Singapore, Japan etc. Experience shows that investing to mortgage loans is unsafe. At the same time, this tool was implemented to allow middle man to get a house. So, ironically if (globally) we still want a house for working person, we need global regulation to be set – and ruled! Circumstances changed.

  6. Posted 02/12/2008 at 12:20 | Permalink

    Well said. I would like you to recall all the financial crisis during the last decade starting from Thailand when Bangkok Bank went bancrupt and then caused went to linked S.Korea, Singapore, Japan etc. Experience shows that investing to mortgage loans is unsafe. At the same time, this tool was implemented to allow middle man to get a house. So, ironically if (globally) we still want a house for working person, we need global regulation to be set – and ruled! Circumstances changed.

  7. Posted 06/12/2008 at 18:19 | Permalink

    The arguments for greater transparency in the banking sector are persuasive, especially as a way to alleviate the crisis of depositor and investor confidence.

    Furthermore, the provision of a central clearing house for the CDS market is one sensible way of increasing transparency in the markets.

    I do have some significant disagreements with the other propositions in this article however and, due to the constraints on space, will post my criticisms in successive posts.

  8. Posted 06/12/2008 at 18:19 | Permalink

    The arguments for greater transparency in the banking sector are persuasive, especially as a way to alleviate the crisis of depositor and investor confidence.

    Furthermore, the provision of a central clearing house for the CDS market is one sensible way of increasing transparency in the markets.

    I do have some significant disagreements with the other propositions in this article however and, due to the constraints on space, will post my criticisms in successive posts.

  9. Posted 06/12/2008 at 18:20 | Permalink

    “regulators have a vested interest in allowing matters to degenerate into crises”

    Although cynicism is not always unfounded this argument ignores the fact that the emergence of a crisis reflects badly on the regulator itself (see: John McCain’s knee-jerk insistence on firing the SEC Chairman Christopher Cox during the US Presidential campaign).

  10. Posted 06/12/2008 at 18:20 | Permalink

    This is analogous to suggesting that the Department of Defence is purposefully negligent in defending the United States of America because it enjoys the prestige and funding associated with fighting multiple wars; a far-fetched argument to say the least.

    This also ignores the fact that the SEC has been chronically underfunded for some years, perhaps a more salient reason for the ‘failures’ of financial regulation and oversight.

  11. Posted 06/12/2008 at 18:20 | Permalink

    “regulators have a vested interest in allowing matters to degenerate into crises”

    Although cynicism is not always unfounded this argument ignores the fact that the emergence of a crisis reflects badly on the regulator itself (see: John McCain’s knee-jerk insistence on firing the SEC Chairman Christopher Cox during the US Presidential campaign).

  12. Posted 06/12/2008 at 18:20 | Permalink

    This is analogous to suggesting that the Department of Defence is purposefully negligent in defending the United States of America because it enjoys the prestige and funding associated with fighting multiple wars; a far-fetched argument to say the least.

    This also ignores the fact that the SEC has been chronically underfunded for some years, perhaps a more salient reason for the ‘failures’ of financial regulation and oversight.

  13. Posted 06/12/2008 at 18:22 | Permalink

    “Currently, these managements take bad risks precisely because they know that the public will not find out. “They have to inform their regulators…”

    Unfortunately, they don’t have to inform their regulators. The main culprits behind the extensive exposure to sub-prime assets were the ‘shadow’ banking sector. Not the Moral Hazard beleaguered GSEs but the large investment banks such as Goldman Sachs, Morgan Stanley, Merrill Lynch, Lehman Brothers and Bear Stearns.

  14. Posted 06/12/2008 at 18:22 | Permalink

    http://krugman.blogs.nytimes.com/2008/11/17/fannie-freddie-data/

    Once more, Cox (SEC Chair) complained about the fact that the SEC could not force large investment banks to report their capital, maintain liquidity or submit to leverage requirements. He even asked for statutory authority to regulate investment bank holding companies before Congress this year.

  15. Posted 06/12/2008 at 18:22 | Permalink

    “Currently, these managements take bad risks precisely because they know that the public will not find out. “They have to inform their regulators…”

    Unfortunately, they don’t have to inform their regulators. The main culprits behind the extensive exposure to sub-prime assets were the ‘shadow’ banking sector. Not the Moral Hazard beleaguered GSEs but the large investment banks such as Goldman Sachs, Morgan Stanley, Merrill Lynch, Lehman Brothers and Bear Stearns.

  16. Posted 06/12/2008 at 18:22 | Permalink

    http://krugman.blogs.nytimes.com/2008/11/17/fannie-freddie-data/

    Once more, Cox (SEC Chair) complained about the fact that the SEC could not force large investment banks to report their capital, maintain liquidity or submit to leverage requirements. He even asked for statutory authority to regulate investment bank holding companies before Congress this year.

  17. Posted 06/12/2008 at 18:23 | Permalink

    There are even some parallels with the crash of 1929 where the Federal Reserve was powerless to stem the flow of corporate funds into call loans, because its remit only extended to the traditional banks.

    The SEC was also never given the authority to regulate the CDS market which has now ballooned to $60 trillion and intensified the initial consequences of the sub-prime meltdown.

    It is difficult to square this fact with the suggestion that the ‘regulated’ banking sector was responsible.

  18. Posted 06/12/2008 at 18:23 | Permalink

    “The banks and other financial corporations…know that their regulators will bail them out, so they take risks which they would never have taken in the absence of state regulation.”

    No one would deny that the problems of Moral Hazard permeate the banking industry. However, maybe this has less to do with the existence of banking regulators and more with the fact that the banking sector as a whole, and particular banking institutions, have become ‘too big to fail’.

  19. Posted 06/12/2008 at 18:23 | Permalink

    There are even some parallels with the crash of 1929 where the Federal Reserve was powerless to stem the flow of corporate funds into call loans, because its remit only extended to the traditional banks.

    The SEC was also never given the authority to regulate the CDS market which has now ballooned to $60 trillion and intensified the initial consequences of the sub-prime meltdown.

    It is difficult to square this fact with the suggestion that the ‘regulated’ banking sector was responsible.

  20. Posted 06/12/2008 at 18:23 | Permalink

    “The banks and other financial corporations…know that their regulators will bail them out, so they take risks which they would never have taken in the absence of state regulation.”

    No one would deny that the problems of Moral Hazard permeate the banking industry. However, maybe this has less to do with the existence of banking regulators and more with the fact that the banking sector as a whole, and particular banking institutions, have become ‘too big to fail’.

  21. Posted 06/12/2008 at 18:25 | Permalink

    In such a situation, although greater transparency remains important, the existence of a regulator is surely warranted.

    (I would suggest that more comment space be provided in order to allow for a fuller debate on the merits of each case)

  22. Posted 06/12/2008 at 18:25 | Permalink

    In such a situation, although greater transparency remains important, the existence of a regulator is surely warranted.

    (I would suggest that more comment space be provided in order to allow for a fuller debate on the merits of each case)

Comments are closed.