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Mother tongue: Polish Joined: February 18, 2003 Location: Poland
RE: Understanding the Financial Crisis
More good news from the Warsaw Stock Exchange (soon to be owned by Deutsche Börse):
A thoroughly amended law on the trading of financial instruments, designed to stimulate the development of the Polish capital market, has come into force.
The law embraces the provisions of EU directives on financial instrument markets and on the financial reliability of investment firms and lending institutions.
Two years ago, the Markets in Financial Instruments Directive (MiFID) came into force, requiring the use of different categories of clients based on their various profiles. This means that there should be different levels of protection, allowing for the tailoring of the services offered according to a broad list of criteria such as financial knowledge, experience, risk tolerance and investment strategy. A recent check of Polish financial institutions showed that most of them do not care about who their investors are and keep pushing, for example, highly risky equity instruments to the retired and elderly...
Gerhard Strate, a well-respected lawyer based in Hamburg, has seen a lot of things over the years. But he still has a hard time believing the story of the Deutsche Bank funds db Kompass Life 1 and 2, calling it "unbelievable" and "absurd." The closed-end funds buy life insurance policies from Americans and assume responsibility for paying their future premiums. When the original policy-holder dies, the entire payout goes to the fund. It is like short-selling US life expectancy.<script type="text/JavaScript">
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Deutsche Bank collected some €500,000 ($750,000) from customers for its macabre money-making scheme. But the fund quickly turned into a mega-flop. So far, not one investor has received even a single dividend payment and some may lose their entire principal.
Chasing ambulances is really nothing. Now they will short sell your life.
Expert Mother tongue: English Posts: 1822 Joined: February 1, 2008 Location: United States
RE: Understanding the Financial Crisis
I heard a story on NPR (National Public Radio) regarding Bernie Madoff and how the SEC people totally missed what he was doing. They would ask for his confirmations to show that he was actually doing trades, and he would say, "yes, I will send them over", and he would then forget. But the SEC never followed up. And the reason is that many SEC people are making maybe $ 70,000 a year, but could make 10 or more times that, by just "crossing the street" and going to work for the very people being "watched". It is absurd. The FBI should - according to the person being interviewed - take it over, because that temptation would not exist.
Financial reports this month from federal regulators and industry analysts detail a new cycle of uncertainty that they fear could cripple the economic recovery. Billions of dollars in commercial debt will have to be paid back or refinanced at a time when property values have plummeted. About $500 billion will come due in 2010 alone and an equal amount every year through at least 2012, according to the Federal Reserve.
Many banks that cater to regional and community developments were largely unscathed by the residential mortgage meltdown. But now they are facing huge numbers of possible defaults by builders who erected thousands of office towers, condominiums and shopping centers with the easy credit available five years ago. With few tenants, those developments are turning into what industry insiders call zombie buildings.
"Causes of the Financial Crisis." Critical Review 21, nos. 2-3 (2009). Read
This special issue of Critical Review includes a dozen articles by prominent economists with differing beliefs and emphases. Together, they yield a helpful and important guide to serious debates over what happened and why. Joseph E. Stiglitz argues that the roots of the crisis lay in decisions made by banks facing misguided incentives and lackluster regulation. John B. Taylor, conversely, argues that the crisis was "caused, prolonged, and worsened by a series of government actions and interventions." Articles by Jeffrey Friedman, Viral Acharya and Matthew Richardson, and Amar Bhidé detail how the crisis evolved from a set of regulations and practices that were well adapted to old situations but not new ones. Peter Wallison argues that credit-default swaps were not to blame for the financial crisis, while Lawrence White asserts that the peculiar authority granted by the government to credit-ratings agencies like Standard and Poor's, Moody's, and Fitch was very much part of the problem.
Mother tongue: Polish Joined: February 18, 2003 Location: Poland
RE: Understanding the Financial Crisis
Is Morgan Stanley Blackmailing the Government?
Will Increased Capital Requirements Kill a Recovery? Morgan Stanley Wants You to Think So.
[snip] The bottom line, translated: Let us adjust our balance sheets (downwards to some degree) and continue with our existing business models (including unconstrained bonuses), and we will bring you back to growth eventually. If you mess with us, unemployment will stay high for a long time. And any future crises that may befall us are just a cost of doing business, and making us whole is just what you have to do.
But this is all wrong. The essential premise of the Morgan Stanley reasoning (heard much more widely on Wall Street) is that the size of our biggest banks cannot be constrained--because it would raise the cost of equity for these smaller units. This misses three points: ...
Expert Mother tongue: English Posts: 1822 Joined: February 1, 2008 Location: United States
RE: Understanding the Financial Crisis
I still think that such crises as the current crisis will happen every 15 years or so. The only way to prevent it would be to over-regulate, and go back to 2 % growth-days. But even in a highly (over)-regulated economy such as Japan had in 1989, a major crisis can occur. So obviously, regulation is not the answer.
I think that the true answer is to make everyone pay for his or her own mistakes. Banks and hedge funds should be forced to take out "systemic risk" insurance, to insure themselves against crises. Instead, we have them going to the government and demanding bailouts, which hurts everyone and carries with it moral hazard. So if a bank did not take out that insurance and came to the taxpayer, we would just say, "sorry, in a capitalist system, you pay for your own mistakes".
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