Bernanke Has This Idea Dead Wrong

Some things in life are quite simple.  Like the childhood analogy that illustrates deductive reasoning, “if it walks like a duck and quacks like a duck, it must be a duck.”  Money market mutual funds have guaranteed the value of deposits, paid interest, and allowed withdrawals through checks.  Acting like deposit accounts at banks, but avoiding the regulation, and insurance used to stabilize runs on banks.  A great deal if your the manager.   But what acts like a bank should be a bank. Continue reading “Bernanke Has This Idea Dead Wrong”

Geithner On Banking–Nice Try

Saw this article Geithner Says Administration Will Ensure Bank Access to Funding and could not help but make a quick note.  Bulls???  Until the government knows how much money was lost, there is no way to ensure funding.   The premise underlying the actions to date is that the US government can borrow more than the bankers lost (or more than the bank asset holders are going to welsh on in the future).  I’m starting to have my doubts. Continue reading “Geithner On Banking–Nice Try”

Financial Regulation For The Next Generation

Professor James Van Horne, of Stanford University, recently wrote an article identifying sixteen United States’ credit crises during the last two hundred years. Even if he were off by one or two, Enough! I remember too many in my lifetime. As a way forward, I suggest the next set of regulation rid itself of three premises:

  1. Sophisticated investors need less protection, and
  2. People, unchecked by peers, will honor large dollar contracts
  3. Business models should be independent of financial structure

Alan Greenspan notoriously reiterated that our economic systems relies on trust. Unfortunately, the reality suggest that too much trust facilitates financial crisis. Continue reading “Financial Regulation For The Next Generation”

Good News For Financial Markets

Regulation to credit default swaps is coming.  Hoooray!   With the agreement on November 14, 2008 between the SEC, Federal Reserve, and the Futures Trading Commission, a great deal of uncertainty is soon to be lifted of the shoulders of the financial markets.  Hopefully, global markets will follow suit.  The regulation, hopefully, brings the transparency needed about the nature of transactions, and importantly, creates a level of guarantee that people who sell swaps, have the resources to back them up if called upon.

Thank goodness the rest of us will be able to interpret a consensus risk of default, from a well understood market, rather than guessing at from a closet market.   Alan Greenspan should be thanked for many things, but effectively leaving a credit default swap market unregulated is not one of them.

With this news, look for markets to have reduced volatility in the first quarter of 09 and well run companies, (that is to say, proper leverage) will be rewarded with strong gains.