Thursday, October 16, 2008

Old-fashioned footdragging at work?

A year ago, Congress was warned in no uncertain terms that regulators lacked and needed the valuable data required to make apt policy decisions, during market crisis. See Bookstaber, here.

Now that we have prices at full blown panic levels, perhaps the political will in Congress to push, not just "encourage the industry to develop ...", will exist.

Having people working day and night on that has to be at least as timely and important in the long term, as anything that Kashkari is working on ...


These words suggest just how much regulators lack a framework, for these decisions that are so critical. It's not offered up to point fingers or to lampoon or degrade. It's offered up as a matter of rigor, as a physician might dispassionately look at the symptoms of a patient in order to make a diagnosis.

Donald Kohn, June, 2008:

"Clearly, capital is a critical defense against unexpected losses. Even with the recent turmoil, the U.S. banking system remains well capitalized."

Either those estimates are correct, and we have just added superfluous capital to the banking system, as a step to instill confidence. Or, something is wrong with the way we measure and think about adequacy.

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