Wednesday, September 15, 2010

Today's Best Reads

1--Geithner met with Blankfein more often than Pelosi, Shahien Nasiripour, Huffington Post (More proof that Geithner is Wall Street's point man on Capital Hill. Rubin, too)

2--The U.S. Needs a New and Improved New Deal, Mark Thoma, The Fiscal Times

3--Fed Watch: Yen Intervention, Tim Duy, (a "must red", as always)

4--Charging Forward, James Suroweicki, Columbia Law School magazine
Key Quote: “A lot of what’s in the law ... doesn’t actually do much about some of the things that had quite a lot to do with the crisis. The mortgage-backed securities market and the explosion in the number of financial instruments, like CDOs [collateralized debt obligations] and CDOs squared, for instance, were central to what happened, but the law doesn’t really touch them.” (Summary--Fin-reg falls short of its goals. Expect another crisis)

5--New Bank Regulations Would Bless Lehman's Risk-Taking, Zach Carter, ourfuture.org
Carter nails it with this:

"While it's good to see minimum capital ratios increase from 4 percent to 7 percent, the reality is less exciting. Those percentages do not correspond to hard asset values, but rather to "risk-weighted" asset values. Right now, risk-weights are basically determined by ratings on various securities—ratings which proved fundamentally unreliable and potentially fraudulent over the past decade. Combined with the fact that banks themselves get to apply the risk-weightings to their assets, the new Basel III standards are subject to an obvious source of abuse, and will encourage new risks. Banks will apply inappropriate risk-weights in order to take on more leverage while technically conforming to the letter of the law, and they'll systematically seek out assets that have inappropriately low risk-weights in order to take on higher leverage, fueling asset bubbles in things like, say, subprime mortgage-backed securities.

Under the standards released last night, international regulators did agree that banks must hold equity equal to 3 percent of total assets. That's as hard as any leverage or capital standard can be, it's just completely inadequate. To reiterate: 31-to-1 leverage brought down Lehman Brothers, and Basel III will permit 33-to-1 leverage." (That says it all. Basel is a hoax just like Fin-Reg)

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