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> (email exchange)
> On Wed, Jul 8, 2009 at 7:24 PM, wrote:
> By the way, I forgot to mention it the other day, but I’m sure you all saw the front-page
> report in Monday’s Financial Times. It seems that Goldman Sachs and Barclays are now
> marketing “insurance” products that can help buyers dodge capital adequacy rules. You
> can’t make this stuff up. The term that comes to mind is “impunity.”
> When are regulators in the US and EU going to put an end to this nonsense? Wasn’t the
> collapse of AIG a sufficient example of the deliterious effects of using structured credit
> to window dress corporate balance sheets?
It is up to Congress to decide if ‘taxpayer money’ is adequately ‘protected’ by bank capital which takes the initial losses.
However, the public purpose of using the public private partnerships we call banks, rather than just have the government make the loans directly, is the notion that the private sector can better ‘price risk’ than the public sector.
Banks will price risk differently as a function of capital requirements.
With no capital required and all FDIC insured deposits they will take lots of risk! etc.
So I look at any new fangled notion of what constitutes capital from this perspective of public purpose and the pricing of risk.
> > The film WALL STREET (in all its cheesy glory) happened to be on TV the other night,
> > and I was amazed to see how plainly some of the issues we now face are laid out.
> > Dan Berger’s piece does a great job of illuminating this:
> > Link