A dialog on the new proposals.
I think they ought to have waited for the details, but ... they didn't. These are really knotty problems, and I don't think this proposal is going to carry its burden.
1. How do we prevent another AIG?
Well, it looks like the kinds of contracts they sold will be set-up so that it would have been obvious that they were so exposed.
Whether AIG FP would have been declared a 'systemically important' firm or not is open to debate. Afterall, the HQ was in London, yes?
Of course, there is the matter of AIG's 'securities lending' losses. Wassup with that? How much incremental capital do you need for insanely stupid? In other words, let's not pretend that hanging out a sign "AIG & Co, Inc., AAA Systemically Important Firm with Punative Capital Requirement(s)" solves the problem. It just designates the risks.
2. How do we prevent another LTCM?
It looks like hedge funds of a certain size will need to register and report their positions. If they don't, ... well, there are no new civil or criminal penalties proposed.
Now, this proposal doesn't specifically say, that LTCM would have been "out of bounds", as it was then constituted, IF it had remembered to register. Maybe they would have cleared through a Canadian firm, to avoid the one-world, regulatory hassles...
Structured products, like CDOs or linked notes - those aren't 'OTC traded derivatives', so let's not pretend that that embedded risk is captured by new clearing systems.
3. How do we prevent more Lehman and Bear Stearns weekends?
The Fed - Ben Bernanke? - wants out of it. No more weekends at Ben's. That's how I read the proposals, at least.
Where does the discount window (liquidity pinch) end and the Treasury/FDIC start? Who knows, exactly, except at the (overnight?) point of insolvency....
Somehow, Lehman might have been operated in temporary "conservatorship". Do you see that happening, for a broker-dealer operation?
Otherwise, the options are those already just on the table: an equity stake from the government, but at the discretion of two Presidential appointees with no limits proposed (a bailout without strings attached?) .
No interest in equity? Well, they propose they could buy debt or guarantee liabilities. The first seems inconsistent with the spirit of the idea of 'eliminating too big to fail' and the second, with the notion that the firm is 'temporarily insolvent' (but not impaired, I guess).
4. Who does all the new watching.
Not the safety-and-soundness Fed, who are the natural group to do it, one would guess.
Friday, March 27, 2009
I'm More Systemically Important Than You!
Subscribe to:
Post Comments (Atom)
No comments:
Post a Comment