Archive for the ‘financial crisis’ Category

[New & Improved links] Welcome to Big Brother III: More on the "Financial Stability Board"

December 24th, 2009 No comments

Please note my preceding posts, about the establishment of global financial governance, which has astonishingly thin coverage given its importance and implications. Has everyone been distracted?

Here is some background and discussion that may be useful, in chronological order:

G-20 Shapes New World Order With Lesser Role for U.S., Markets“, Rich Miller and Simon Kennedy, Bloomberg, April 3, 2009

Financial Stability Board Portends Economic Global Governance“, Jim Kelly (Director of International Affairs for the Federalist Society for Law and Public Policy Studies and Co-Director of Global Governance Watch), Global Governance Watch, April 21, 2009

The End of America’s Financial Independence?” Gary D. Halbert,, April 28, 2009

The Bloodless Coup of the Global Financial Stability Board: From Guidelines to Rules“,  Ellen Brown (author, “Web of Debt”) HuffPo, June 24, 2009


Financial Stability Body Could Co-ordinate Global Banking – FSA“, Reuters, Oct 14, 2009

Global banking body may be needed-FSA“, Huw Jones,, October 19, 2009

The proposed European Systemic Risk Board is overweight central bankers“,  Wlillem Buiter, Maverecon blog, Financial Times, October 28, 2009 (re: similar proposal to consolidate regulation in the EU)

“Thirty financial groups on systemic risk list“, Patrick Jenkins and Paul J Davies, Financial Times, November 29 2009

“Regulators list systemic risk institutions -FT“, Reuters, November 29, 2010

The Financial Stability Board Lists Thirty Systemic Risk Institutions“,, Nov 30, 2009

Regulators Resist Volcker Wandering Warning of Too-Big-to-Fail “, Gadi Dechter and Alan Katz, Bloomberg, December 4, 2009

is leading a chorus arguing for restricting the size or primary
functions of financial institutions. … Volcker, who heads President Barack Obama’s Economic
Recovery Advisory Board
, told Kentucky’s Georgetown College
students “we need to produce more, finance less””

What international experience tells us about financial stability regulatory reforms“, Michael Pomerleano, forum, December 21, 2009

Finally, here is a link to the publications of the Financial Stability Board itself.


Here is a useful excerpt from Gary Halbert`s piece (The End of America’s Financial Independence):

“What follows are verbatim excerpts from the G-20 Communiqué that
pertain to the new Financial Stability Board (be sure to read the
bullet points below).


failures in the financial sector and in financial regulation and
supervision were fundamental causes of the crisis. Confidence will not
be restored until we rebuild trust in our financial system. We will
take action to build a stronger, more globally consistent, supervisory
and regulatory framework for the future financial sector, which will
support sustainable global growth and serve the needs of business and

We each agree to ensure our domestic
regulatory systems are strong. But we also agree to establish the much
greater consistency and systematic cooperation between countries, and
the framework of internationally agreed high standards, that a global
financial system requires. Strengthened regulation and supervision must
promote propriety, integrity and transparency; guard against risk
across the financial system; dampen rather than amplify the financial
and economic cycle; reduce reliance on inappropriately risky sources of
financing; and discourage excessive risk-taking. Regulators and
supervisors must protect consumers and investors, support market
discipline, avoid adverse impacts on other countries, reduce the scope
for regulatory arbitrage, support competition and dynamism, and keep
pace with innovation in the marketplace.

To this end we
are implementing the Action Plan agreed at our last meeting, as set out
in the attached progress report. We have today also issued a
Declaration, Strengthening the Financial System. In particular we agree:

  • to
    establish a new Financial Stability Board (FSB) with a strengthened
    mandate, as a successor to the Financial Stability Forum (FSF),
    including all G20 countries, FSF members, Spain, and the European
  • that the FSB should
    collaborate with the IMF to provide early warning of macroeconomic and
    financial risks and the actions needed to address them;
  • to reshape our regulatory systems so that our authorities are able to identify and take account of macro-prudential risks;
  • to extend regulation and oversight to all
    systemically important financial institutions, instruments and markets.
    This will include, for the first time, systemically important hedge
    [emphasis added]
  • to endorse and
    implement the FSF’s tough new principles on pay and compensation and to
    support sustainable compensation schemes and the corporate social
    responsibility of all firms;
    [emphasis added]
  • to
    take action, once recovery is assured, to improve the quality,
    quantity, and international consistency of capital in the banking
    system. In future, regulation must prevent excessive leverage and
    require buffers of resources to be built up in good times;
  • to
    take action against non-cooperative jurisdictions, including tax
    havens. We stand ready to deploy sanctions to protect our public
    finances and financial systems. The era of banking secrecy is over. We
    note that the OECD has today published a list of countries assessed by
    the Global Forum against the international standard for exchange of tax
  • to call on the accounting
    standard setters to work urgently with supervisors and regulators to
    improve standards on valuation and provisioning and achieve a single
    set of high-quality global accounting standards; and
  • to
    extend regulatory oversight and registration to Credit Rating Agencies
    to ensure they meet the international code of good practice,
    particularly to prevent unacceptable conflicts of interest.

instruct our Finance Ministers to complete the implementation of these
decisions in line with the timetable set out in the Action Plan. We
have asked the FSB and the IMF to monitor progress, working with the
Financial Action Taskforce and other relevant bodies, and to provide a
report to the next meeting of our Finance Ministers in Scotland in


You noticed that I highlighted the key word “all” in
the bullet points above from the G-20 Communiqué. If the FSB, in its
international wisdom, considers a financial institution or company or a
hedge fund “systemically important,” it may regulate and oversee it.
This provision extends and internationalizes the recent proposals by
Treasury Secretary Geithner and the Obama administration to regulate all firms that are deemed to be “too big to fail,” in whatever sectors of the economy they so choose.”

I see NO coverage of the FSB at ANY libertarian institution (based on a quick Google; if they have, I appreciate if it is brought to my attention).

I also note that the following is relevant to a portion of the FSB agenda: Reducing Interference with Accounting Standards and Devising Securities to Price Moral Hazard, Statement No. 277, Shadow Financial Regulatory Committee, AEI, September 14, 2009

Welcome to Big Brother II: WSJ brings us "The Future of Finance"

December 23rd, 2009 No comments

Further to my prior post, I decided to take a whack at laying out the WSJ`s online report and describing some of its contents.

The master page is here – is not outlined as clearly as the Asian print edition, which is in the following order, which I`ve linked to corresponding section of the online version:

Fixing Global Finance (intro)

A Call to Action (“A ranking of the 20 recommendations at The Wall Street Journal’s Future
of Finance Initiative, aimed at rebuilding the global financial system.”) Participants were divided into four groups, each one looking at a specific aspect of the future of finance:

• How to deal with financial institutions deemed too big to fail.

• How national regulatory authorities can effectively oversee global institutions.

• How to deal with financial institutions at the regulatory frontier that act like banks but aren’t regulated as banks.

• How to address complex, innovative products, like credit-default swaps and collateralized debt obligations.

Each group came up with five top priorities for how to rebuild its area of the financial system. All participants then voted on the order of prirority.

It is useful to actually review the four groups’ discussions, which are here:

Too Big to Fail

International Regulation

Financial Innovation

Regulatory Frontier

Paul Volker: Think More Boldly

Other articles that are linked at the main page do not appear in the print edition; I will look at them later.

The top 20 priorities identified are these (my emphasis, identification of buzz words & comments):

1) Higher Capital Requirements

Financial institutions whose “systemic importancerequires national
authorities to underwrite them if they fail
[they are apparently the institutions identified here] should be required to hold
more capital.
This should include increasing risk weightings,
asset/liability limits based on the business model rather than on
simple capital ratios, as well as “contingent capital” [a form of debt that converts to equity whenthe bank is in trouble] and “dynamic
provisioning”. [“Too big to fail” has been formally identified globally!]

2) Empower the 
The Financial Stability Board [created by the G-20 in April to “address vulnerabilities and to develop and
implement strong regulatory, supervisory and other policies in the
interest of financial stability
” and supported by a secreariat in the BIS; national member organizations are here] should be empowered to define and seek
agreement on broad-based principles that national regulators should try
to make operational in consultation with market participants. [This is our new global financial overlord]

3) Promote Risk Management

should be required to demonstrate a full understanding of risks
inherent in new products.
Elevate risk managers to at least the same
level as product makers and give them adequate representation at board
. Create globally recognized qualifications for risk managers, and
implement standard certification through a risk “driving test.”

4) Improve Regulator Resources

Ensure that regulators are high quality and have deep knowledge of the
industries and institutions they oversee. Regulator compensation should
be competitive with compensation in regulated industries. Industry
should “second” senior people to support the Financial Stability Board
and regulatory bodies. [Too big to fail firms, are required to place senior execs within the regulator.]

Better Governance

Hold systemically important institutions to “higher standards of
governance”. Chief risk officers should report to the board and not the
chief executive
. “Achieve greater transparency”.[Hard to see if any of this is meaningful; in any event, firms should be governing themselves, not adding governance structures to please the state.]

Avoid Regulatory Arbitrage

To make global co-operation feasible and promote a level playing field,
regulations should be of an achievable scope. Financial activities of
similar substance and economic reality should be regulated in the same
way from country to country. [Regulation has been foisted on the industry only because governments have taken control of money supply, and insure deposits. Surely we should be talking abot restoring markets, not beefing up government. Coordination of regulation may spread systemic risk, and make larger^scale gaming possible.]

Overhaul Rating Agencies

Restore investor confidence in rating agencies by eliminating conflicts
of interest between agencies and issuers, returning to an
“investor-pays” model, distinguishing between ratings of corporate debt
and structured financial products, and promoting new entrants to the
credit-rating business. [So rating agencies are further regulated? Why not scale back deposit insurance, and end the “investment grade” requirements that banks only cared about in a check-the-box kind of way? That there is little competition among rating agencies is also due to federal fiat.]

Market Infrastructure

Create a market structure to facilitate orderly unwinding of failed
financial institutions, including greater use of central clearing. [Maybe a development that makes sense on its own, if market participants want such clearing houses. But this will be forced on every Too Big bank, and smaller institutions will likey have to follow suit.]

) Countries Should Follow the Financial Stability Board

G-20 countries should commit to implement in their jurisdictions the
regulatory provisions put to them by the FSB, without significant
amendment or supplementation. [Big Brother replaces national legislatures!]

New-Product Transparency

Improve structural and price transparency of new products, using
modeling and stress testing to ensure that downside scenarios are as
visible as upside scenarios. [Transparency is a concern that should be one left entirely to market participants; governments are simply imposing new requirements on top of those that led to gaming, profits, opacity and market freeze-up. Since when has it become the job of government to help everyone make credit decisions?”]

Regulators Adopt Priorities

Global regulators over the next 18 months should achieve agreement on
the adoption of accounting standards set by the International Financial
Reporting Standards and “appropriate capital and liquidity standards”. [Accounting standards should also be entirely private; they became public as a result of government decisions to regulate stock markets, and the reporting of “public” companies.]

Effective Enforcement

The consequences of bad actions must include real “wallet harm” in
order to be effective, and enforcement must be consistent across
national boundaries. {Big Brother controls the stick everywhere.]

Global Imbalance Focus

The G-20 should focus on resolving global economic imbalances and
integrate that process with discussions on financial stability.

Rebuild Responsibility

Regulation alone is not the cure. The financial-services industry must
show cultural leadership and promote responsible behavior by all
practitioners. [Sure, but by strengthening regulation, market self-discipline is necessarily weakened. Does siimply mouthing the words make the moral hazard of the past decades go away? The KEY problem in fuelling government intervention has been the limited liability – and loosening control – of owners, leading to risk-shifting to the public and greater internal freedom of managers.]

Strengthen Infrastructure

Ensure financial infrastructure is “commensurate with the innovation” it supports, both at the firm and the market level. [Um, isn`t this a concern solely of a firm`s owners? Why is further regulating innovation the job of regulators? Aah, “systemic risk” introduced by deposit insurance and reserve regulation! Why not step back from underlying causes?]

Resist Over-regulation
Because financial innovation is central to growth and critical to a
speedy recovery, the G-20 and successors should recognize that new
rules and protocols should not thwart innovation, and the cost of
regulation must be balanced against the benefits.[Empty words. Who is to resist, and who will have the ability to do so, in the face of a global regulator?]

Regulatory Mandate
Regulators should have a clear and strong mandate for financial
stability, and should cooperate across borders and maintain a level
playing field.

Living Wills
Systemically important banks should present regulators with living
wills demonstrating how they would wind down business in the event of
unsustainable losses. Cross-border arrangements should provide for
burden-sharing in the event of failure. [Window-dressing to reassure taxpayers that Too Big to fail doesn`t mean Too Big to fail, and bailouts.]

Don’t Regulate Borrowers
Regulators should focus on the source of credit, not on borrowers,
using [bank] capital requirements to restrict excessive leverage among
borrowers, including alternative-asset managers. [This means that Big Brother will determine how much lending goes to ther unregulated financial sector!]

Clarify IMF Role

The International Monetary Fund should focus on global imbalances and
defer to the Financial Stability Board on financial-stability
principles while continuing to have surveillance responsibilities. IMF
quotas should be revised to reflect global economic realities. [Division of labor withing Big Brother.]


As I noted previously, Paul Volker seems to have noticed that our financial system has become an enormous drag on the economy, but while he comments that the regulated need to be bolder, and that they haven`t gone far enough in addressing moral hazard, he seems completely oblivious to the role of government in aiding and abetting the moral hazard.

More than a little wrong-headed and disturbing.

That`s it from me for now. Looks like 1984 is coming in 2010.




Wall Street Journal organizes financial industry’s plan to destroy market discipline, take over regulation globally – hello?

December 23rd, 2009 No comments

[Update: My follow-up post outlines the WSJ`s report and chief recommendations.]

I thought I’d elevate what was a side and closing comment on Stephan Kinsella’s Avatar thread, about an appalling group of articles at the Wall Street Journal, which seems to have absolutely no clue about how the financial crisis stems from a chain of   government interventions, was fuelled by a government-inflated bubble and was “intermediated” by a financial industry rife with moral hazard.

The WSJ is great at drumming up fears about a world-wide climate change cabal, consisting of everyone one who showed up at Copenhagen, blogged about it or thought about it (fears of regulatory over-reach are perfectly understandable, but nary a cui bono question about the “skeptics” industry), but just what in the heck are they trying to pull here – help to CREATE world government, directed by the same firms and regulators who brought us market opacity, arbitraged investment and capital requirements intended to backstop deposit insurance, rampant profit-taking, financial meltdown and tremendous risk-shifting (to shareholders & taxpayers)? Is the WSJ really so naive about rent-seeking, moral hazard and mission creep?

I urge everyone to take a very close look at the WSJ’s “Future of Finance Initiative” and their recent “Fixing Global Finance” report.

Here’s a copy of my comment, as noted in my prior blog post (with some bracketed additions and changes to order):

What happens abroad at the “Avatar” is pretty basic, but the same
nonsense, with taxpayers, investors and consumers playing the role of
victim, can be seen at home. Has anybody seen the jaw-droppingly
appalling report that the WSJ has run on “Fixing Global Finance”, based
on their “Future of Finance Initiative”, in which they cheerlead a
bunch of financial firms in their efforts to abandon free markets and
to structure global regulation and regulators, to be staffed by a
revolving door of themselves?

[I think I’m being fair to see this as posing a threat to markets and
freedom at least as great as what others see in the more multi-faceted
climate change muddle.]

Even Paul Volker was appalled, not at
their willingness to create more regulation, but at their unwillingness
to confront the moral hazard problems (tied to regulation of public
corporations and the financial sector) that lie at the core of the
financial meltdown. [Volker seems to overlooked the crucial role of
government in driving and feeding the moral hazard problems.] Here’s the link, for those of you who missed it: Property rights, corporations and government-complicit theft? Hmm.

[Sounds familiar. Maybe some of those who want to battle corporate
excesses might not be so crazy after all, even if they neglect to
understand the risks of negative consequences of seeking help from
government. And maybe someday libertarians will get a little more
serious about addressing the festering
concatenation of corporate-linked problems that are generating so much
rot at the core of our government and public company/financial company

Corporations have very unfortunately been inescapably tainted
with statism from the get-go, in ways that play out negatively both
abroad and at home. I’ve devoted a fair amount of time to examining the
entanglement of corporations and government:

Our state governments were wrong to get into competition with each
other to grant corporate status to investor-owned enterprises, in
exchange for fees and later taxes. Corporate status freed investors
from down-side risk, by limiting liability to the amount of capital
contributed. This incentivized investors to encourage corporations to
embark on risky activities that shifted costs to innocent third
parties; the concentration of wealth in corporations (that now have
unlimited lives and purposes, subject to survival in the market); the
corruption of the court system that once protected third parties from
damages caused by others (by replacing strict liability with balancing
tests); and the ensuing battle over legislatures and courts to check
corporate abuses.

I will try to come back later and provide more details of the WSJ initiative/report, but for now let me note that I have relevant discussion at some of my posts on limited liability (see link above) and on “Rot at the Core“.

Clips of Peter Schiff, Jim Rogers and Nouriel Roubini on financial mismanagment and economic consequences

December 19th, 2008 No comments

I attach below a few clips of what looks like relatively perceptive financial and economic commentary by Peter Schiff, president of Euro Pacific Capital Inc., Jim Rogers, well-known investor (and co-founder with George Soros of the Quantum Fund) and Nouriel Roubini, professor of economics at the Stern School of Business, New York University, and chairman of RGE Monitor, an economic consultancy. 

They are all very critical of the role of US financial authorities (especially Fed chiefs Alan Greenspan and Ben Bernanke) and politicians in laying the foundations for the mess that the rest of the world is also sharing, and believe that a substantial period of readjustment is unavoidable and necessary.  (While Schiff and Rogers prefer hands off approaches, saying that the pain IS the cure, Roubini does appear to be an advocate for policy action.)

I hope readers will suggest other clips and commentators that they find useful.

You Tube user Phil DeCarolis seems to do a good job keeping clips by Peter Schiff up to date.

Peter Schiff


PETER SCHIFF – 6 YEARS AGO — “…and they will panic” – PT1 (9:48)


Peter Schiff Was Right 2006 – 2007 (2nd Edition)


Dollar Collapse – The Schiff Has Hit The Fan – End Game 2012 (Bear Stears) (4:40)


9/27/2008 Ron Paul Advisor Peter Schiff On Your Money (9:45)


10/4/2008 Part 1 Ron Paul Advisor Peter Schiff On Your Money (5:53)


10/4/2008 Part 2 Ron Paul Advisor Peter Schiff On Your Money (7:11)


10/13/2008 – Peter Schiff On Glenn Beck: Inflation Nation? (9:39)


Peter Schiff BLOOMBERG 28 Oct 2008 Part 1 (11:00)


10/28/08 Peter Schiff predicts doomed economy under Obama (2:27)


Peter Schiff On Squawk Box: Economic Impact Of Obama Victory11/3/2008 (7:57)


11/20/2008 Peter Schiff On Fast Money – “The Man Who Called The Collapse” (6:35)


Peter Schiff on CNN International 11/24/2008 (4:27)


Dollar Collapse – Peter Schiff Versus Steve Forbes (8:05)


12/10/2008 Part 1/3 Peter Schiff On Kudlow & Co: Market Drilldown (2/3)


12/16/2008 Part 1/4 Peter Schiff On Kudlow & Co: Target Rate To Record Low (9:20) (2/4) (3/4)


Peter Schiff 6 years ago on the recession that Greenspan’s bubble delayed


Jim Rogers


Jim Rogers: ‘Lost decade’ 1/1 (6:32)


Jim Rogers on Bloomberg 2007.08.03 part 1 (9:38)


Rogers: FED is using taxpayers money to buy Bear Stearns maseratis (5:59)


Jim Rogers on FED money injection – PART 1 (10:00)


Jim Rogers’ quarrel with CNBC 2008.10.22 (7:52)


Jim Rogers Bloomberg 24 October 2008 (10:24)



Nouriel Roubini:


20081110 Roubini predicts further 20-25% drop in stocks (1:24)


Roubini: Worst Recession in 40 Years – P1 (8:51) P2 (8:52)


Roubini:`Panic’ May Force Market Shutdown P1 (October 22, 2008) P2 P3 P4 P5


Roubini: ‘Print Baby Print’ P1 P2


Roubini on Charlie Rose


Council on Foreign Relations: The Financial Crisis: Where Do We Go From Here? (57:09)




Ron Paul on the bailouts 

Categories: financial crisis, Jim Rogers, Roubini, Schiff Tags: