risk

Eco ideas: Anat Admati – “Five Years of Financial Non-Reform”

Today reading is Anat Admati – “Five Years of Financial Non-Reform”

Anat Admati, Professor of Finance and Economics at the Stanford Graduate School of Business
http://www.project-syndicate.org/commentary/the-failure-of-bank-reform-since-2008-by-anat-admati

Five years after the collapse of Lehman Brothers triggered the largest global financial crisis since the Great Depression, outsize banking sectors have left economies shattered in Ireland, Iceland, and Cyprus. Banks in Italy, Spain, and elsewhere are not lending enough. China’s credit binge is turning into a bust. In short, the world’s financial system remains dangerous and dysfunctional.

Worse, despite years of debate, no consensus about the nature of the financial system’s problems – much less how to fix them – has emerged. And that appears to reflect the banks’ political power.

Regulations everywhere appear to be based on the false notion that banks should have “just enough” equity. Equity is not scarce for viable banks, and the “science” of complex risk weights and stress tests is a harmful illusion. Instead, regulation should seek to force banks’ investors to bear much more of their own risk, and thus to care much more about managing it, in order to limit the collateral damage of their excessive borrowing.

Some say that banks are inherently special, because they allocate society’s savings and create liquidity. In fact, banks have become special mainly in their ability to get away with so much gambling at others’ expense. Nothing about financial intermediation justifies allowing banks to distort the economy and endanger the public as much as they do.

Unfortunately, despite the enormous harm from the financial crisis, little has changed in the politics of banking. Too many politicians and regulators put their own interests and those of “their” banks ahead of their duty to protect taxpayers and citizens. We must demand better.

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Economic report from Economist Intelligence Unit (EUI)

Manning the barricades
March 2009
Economist Intelligence Unit

In the month  of march  Economist Intelligence Unit have issued a special report about the economic distress of the world –Manning the barricades, so I’m gonna point out some notes from the this report.

Collapsing credit has plunged the world economy into the deepest recession in more than 70 years. What began as a property bubble in the US has spread rapidly as troubled banks have stopped lending and consumers and businesses
have stopped spending. As demand in the US and Europe evaporates, once thriving emerging markets are losing their best customers and biggest investors. An increasingly synchronised global economy will contract in 2009 for the first time since World Wa r II .

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