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Part 4 Dialogue on Moral Hazard, fixing the financial sector and certainty of knowledge:

September 25th, 2013 No comments

Cross-posted from “we build our society” Facebook group:!/groups/webuildoursociety/permalink/426598337444055/

Terry, 2007-09 flow from various government interventions, not limited to those I just outlined, that served the purpose of blowing a bubble and freeing those playing with money from personal responsibility. This meant that smart men focussed on how they could game the system for their own profit. It happened continually and is still underway, though 1994 in Boca may be a good example.

Doug, [Jekyll Island 1913] was just the creation of the Fed (and just part of my item(3) above); the roots go much deeper to other state interventions I noted. The pre-Fed booms/panics also flowed from the state-level creation of banks as corporations and monopolies, and interventions to save banks that essentially broke promises to depositors by creating un-backed paper money. See Rothbard’s History of Money and Banking in the United States,

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Part 3: Dialogue on Moral Hazard, fixing the financial sector and certainty of knowledge

September 25th, 2013 No comments
Cross-posted from the “we build our society” Facebook group:
Terry, yes the entire financial sector is rotten/corrupt and rife with moral hazard. And things are now WORSE, as the banks are now TWICE as large as they were previously, and banking reform has served to squeeze smaller banks out of business…. Most of the approaches you suggest would be worthwhile (as would heads on pikes), but none of them actually address the roots of the moral hazard–
(1) the centralizing/federalizing Deposit Insurance by which Govt pretends to “protect” us, but instead builds a regulatory house of cards that puts the robbers in charge of the larger banks, and ultimately leads to taxpayers holding the bag when the bank fails or the “unexpected” but entirely natural/predictable “crisis” occurs and forces “responsible” pols/bureaucrats in DC to bail out the firms whose employees/managers/execs have done all the looting,
 (2) the federal effort (on behalf of favored elites) to take control of the money supply,
(3) the state/federal replacement of paper money as redeemable warehouse receipts for physical currency with just IOUs (and now backed by nothing), as long as the bank maintains “reserves” of cash or “secure assets” like federal bonds (so that the govt can loot the banks to fund pet “public infrastructure” projects; and
(4) the state creation of banks as limited liability local monopolies in the first place (in exchange for money to the state treasury/pols hands), and the then subsequent protection of bankers (by banking “holidays” etc) when they found it convenient to rob their customers by issuing more IOUs than could be redeemed in physical currency. Limited liability has always been the core intervention.
 The Big Boys now have entirely too much power to effectively regulate on a large scale, but we MIGHT be able to pare back deposit insurance, which would restore to some savers (rather than taxpayers) responsibility for figuring out where to put their money (and would create a REAL market for bank analysis). What we also need is to offer much lighter regulation to new banks that are exempt from any federal or state deposit scheme–and let depositors and shareholders manage their own risks, as they are now doing in private companies that are avoiding the public securities markets.

Part 2: Dialogue on MoralHazard, fixing the financial sector and certainty of knowledge:

September 25th, 2013 No comments

[Cross-posted from the “we build our society” Facebook group:]

Doug said: “I honestly don’t know how to punish or hold those responsible for screwing up the economy. I don’t know the best recommendations. I don’t know what should be regulated and what shouldn’t. I do know that I want the violence to end, because that approach, I believe, has gotten us here. My approach would be this: first, let’s take away the moral hazard created by government regulators and the Fed. Maybe in so doing, we would make things like derivatives completely obsolete because they wouldn’t be profitable. In fact, in that sort of environment, I don’t even think we would have a financial sector, at least, in the form it is in currently.”

Terry then added (my responses in brackets inside):
“There is no first; it’s all or nothing. Maybe you don’t know what business has done, but I surely do. And I just as suredly know what would be the right medicine.
[There is no perfect knowledge, so in general, economies do well that leave problems and solutions in the hands of the people who have the most skin in the game, rather than centralizing them.]

The gov’t didn’t initiate moral hazard in instituting regulation, moral hazard is “in economic theory, a moral hazard is a situation where a party will have a tendency to take risks because the costs that could incur will not be felt by the party taking the risk.” Moral hazard was exclusively created by the business activity of risk reduction by uncontrolled credit default swaps of structured debt that backfired and caused 2007-2009. The gov’t didn’t create the moral hazard, business did. And it influenced the regulations in order to get away with it.
[Wrong–the #MoralHazard in the banking/financial sectors was very much created by government, though of course the self-interested within the regulated firms did their best to influence what government did. I will comment on the roots of MoralHazard separately. What those within the regulated business (and government) did was to act in their own self-interest, freed from much concern that they would be help personally accountable by depositors, shareholders, counterparties or citizens for what they did.]

We have to address gov’t snippings and business snippings at the same time. And I would argue, I think largely rightly, that the violence the gov’t perpetrated on us was in the bailout.
[The roots are much deeper, but the bailouts were certainly wrong, both morally and as a “cure” for the “crisis”.]

So, get rid of what I have suggested both in business and gov’t. My plea was for proper regulation (ie, addressing business fraud, derivatives — credit default swaps — and infrastructural items such as microfrequency trading, a freeze on all new negotiable investment banking instruments until economists have had time to work out the consequences, kicking business out of gov’t regulation, possibly doing away entirely with the non-commodities side of Wall St except as information providers for individual decisions, and prosecutuon for those responsible for 2007-2009) and infrastructural changes. Both parties must be operated on at the same time. Absolutely. Swiftly.
[I am for strict regulation of financial firms, for as long as government is holding the rest of society hostage to its false “protection” of us. But the REAL solutions involve in making everyone involved in the sector, starting with the depositors and shareholders, more personally responsible for looking out for their own financial interests. This may only happen if we free up responsible, well-managed competitors, such as offering lower regulation for banks that have lower deposit insurance, or that are operated as partnerships rather than as corporations.]

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Dialogue on Moral Hazard and fixing the financial sector

September 25th, 2013 No comments

[Cross-posted from the “we build our society” on Facebook:]

[Brackets are my comments; some edits.]

Terry said this (edited)

“Now, I don’t know if you’ll so much like the following, because it is taking scissors to how business is done. The regulation that gov’t can do on business.
1) Business cannot be too big to fail, and ever hold America hostage again.
[Okay; how to de-link businss and politics is a deep issue.]

There must be complete and utter transparency in all negotiable instruments, nothing can be hidden in the books. Anything else is fraud.
[No–the problem isn’t lack of complete transparency, but lack of ACCOUNTABILITY. In the case of privately-held/not publicly-listed/not govt-insured business, those who own the company or deal with it on a voluntary basis are entirely capable of being satisfied with the financial condition of the company, or choosing not to deal with it.]

2) There must be a review of derivative trading. It must be either tossed or highly regulated. Trading should be on intrinsic value.
[We care about banking, finance, securities and publicly-listed companies only because government has stepped in to “manage” these particular businesses (in response to risks flowing from the MoralHazard set in motion by their govt-granted LimitedLiability status), and to “protect” ordinary people, who no longer pay much attention or have much if any of a personal voice. Besides that, there is no such thing as “intrinsic” value; things physical or not have value only because people value them, based to their use to such persons–and everyone has different purposes and values things differently.]

3) Uncontrolled swaps of structured debt should not be allowed. [No; this doesn’t address the real problems.]
4) There should be immediate and thorough review of any new proposals for contracting of negotiable instruments. None of this going ahead with credit default swaps like JP Morgan did without submitting itself to review.
[No–we should remove the public support for banks/investment banks, and for their shareholders, and let them manage their own risks.]

5) NO businesses writing regulation. They can have input, but they can’t be, or buy off. or put pressure, on regulators.
[Nice to say, but the fact of the matter is that the more regulation their is from government, (1) the greater the incentive of regulated business to invest in influencing/controlling the rules of the game, (2) the greater the corruption/unaccountability of public figures and (3) the less the influence that We the People actually have/the more hostage we are to a corrupt process.]

6) I don’t suppose too many people have entertained the notion that Wall St may not need to exist in a form other than regulated informative, with liars being held accountable (jail time) for Ponzi-ing us, or even misleading us about investments (non-transparency). We have the internet, we ourselves can decide what to invest in, and should then be able to invest by ourselves. I don’t think there should be a class that can decide how to invest our money. They should be there to give us all the background. Let us make the decision, not build their porfolio quotas or fund their schemes.
[YES! Agree 100%.]

7) We need to stop high frequency microsecond transactions. They leverage the market, and cause market computer failures. Sorry to put you out of work, you who work in that little building 300 yards from Wall St central, but you should have gone to work at CERN, where your skills would have been used better.
[This IS a problem, but only because of govt regs that purport to “protect” shareholders in publicly listed companies, but instead leave them at the mercy of smarter men to be gamed. Shareholders are at the mercy not only of the listed companies, but also to the securities companies that once used to own the markets and have incentives to make them relatively safe places. Now, they prey on the investors that government purports to “protect.”

And finally, (8) prosecution of the fraud and robbery that was 2007-2009. In short, either there has to be a complete review of how Wall St does business really, or Wall St should be shut down entirely. This of course would require potential investors to educate themselves.

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Why do the best lack passionate intensity, and disapprove of moral disapprobation? Horwitz on the Financial Crisis and Recession

October 28th, 2011 No comments

In a letter to the editor cross-posted to Cafe Hayek on October 23, Steven Horwitz, in responding to a reader who croticizes George Will’s recent column on Elizabeth Warren, challenges “a number of fallacies about the recession and financial crisis”.

In trying to distinguish ‘capitalism’ from the “government intervention and crony corporatism” that Horwitz sees as the cause of our current mess, Howitz seeks to lay blame off on government, while absolving from responsibility the firms that benefitted from the government inverventions:

If all the traffic lights in Watertown were stuck on green, we’d hardly blame the drivers for the ensuing accidents. When government distorts the signals and incentives facing producers and consumers, the blame for the resulting disaster should fall on government not the private sector.

Nonsense. Even if it was government that created signals that mucked up the works, government acted in response to pressure from people who stood to benefit, and we have every right – nay, we OUGHT – to be upset with them, as well as with others who acted to suit themselves, knowing that the downside would be borne by others.

Our outrage is our final line of defense against damaging behavior; we should tune and direct it, not dampen it. More on “Moral suasion” here.

I left the following comment (emphasis and link added; slight edits):

TokyoTom October 26, 2011 at 8:28 am

Let’s face it: our financial sectors is a massive, stinking mess, resulting proximately from rampant moral hazard encouraged by government laws and regulations – chiefly, the deposit insurance that substituted Government and .taxpayers’ pockets for oversight by depositors who no longer considered that they were putting their money at risk.

The central role of ‘government’ does NOT. however, eliminate the responsibility of men and women in various institutions that took advantage of incentives to maximize personal gain while shifting risks and losses to others.

In this, I have to disagree strongly with Steve, who seems to want to hold only ‘Government’ responsible. Emphatically No – to increase responsibility we must not simply restore risk, but also demand better behavior and call out those whose actions are shameful.

The relaxation of leverage standards much discussed above took place only because investment bankers who had gone public – and thus were playing largely with public investors’ capital and not their own – wanted to load up on risk, the better to reap massive profits during the bubble and downloading risks to shareholders (in addition to risks deliberately played off to insured banks, Franie and Freddie, and to other market participants giddied by the bubble).. They all played this game so well that they made billions in bonusses, even as they made their own institutions so opaque that they could no longer measure each other’s counterparty risk and brought each other crashing down. Lehman’s CEO Fuld, who made over $100 million annually in compensation and bonusses in each of his last few years, is just one example.

Those who sought, took advantage of and approved of this nonsense, and then sought and approved of bailouts ALL richly deserve and NEED our strongest condemnation.

None of this “We can’t blame drivers for ‘accidents’ that hurt others, because Government messed up the signals” for me.


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Despite financial crises, BP's mess in the Gulf and now TEPCO's costly meltdowns in Japan, Matt Ridley doesn't understand the attractiveness of a little 'precaution'

June 13th, 2011 No comments

In the wake of the recent deaths and illnesses in Germany from a dangerous strain of E. coli, thinker and former banker Matt Ridleywho’ve I discussed before in the context of nuclear crony capitalism –  has an article in the June 11 Wall Street Journal on “When Precaution Trumps Public Safely“.

As I thought Matt’s post to be curiously uncurious as to the factors driving the ‘precautionary principle’, I ventured to address the deficiency with a thought or two of my own, and left the following comment at Matt’s blog:

Matt, ever wondered where the ‘precautionary principle’ comes from?

Ever heard of ‘once burned, twice shy’?

It seems clear to me that the insistence of many on the precautionary principle has it roots in massive externalities (pollution) by government activities and by corporations, those great pools of anonymous and irresponsible capital who shareholders, freed by the government grant of limited liability from downside risks, decided to turn a blind eye to risk management.

If we want more risk-taking, we should demand more responsibility by investors. Saying that it’s the common man who has to have the greatest skin in the game is a recipe for continued stonewalling.


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Limited liability & financial crisis (& BP): someone else sees the obvious "black swan" of executive/trader moral hazard after investment banks went corporate

June 29th, 2010 No comments

A libertarian analysis of the corporate form, particularly the state grant of limited liability to shareholders, does not begin and end with the question of whether such a government intervention has any libertarian justification (it clearly does not), or even – as Stephan Kinsella continually suggests – with the narrow question of whether, in hie case of a particular “corporate tort,” it is fair to impose liability broadly on shareholders who had no personal role in a tort. Rather, as I have have long argued in my posts on limited liability, one must also examine the systemic consequences of the grant.

It is my own humble view that limited liability of shareholders, when combined with other corporate attributes like unlimited life and  purposes and an ability to further ring-fence risky activities in separate subsidiary entities, has had profound and pervasive consequences: relative anonymity of ownership, remoteness of owners from communities in which the firms operate, an explosion of powerful firms and wealthy investors and their ability to influence judges, legislators, bureaucrats, the press and mass media, and a steady erosion of common law and growth in the centralized regulatory state – as citizens fight to limit the risks and costs that corporations impose on individuals and communities. The growth of corporations is accompanied by growing moral hazard, not simply because dividends paid to an anonymous and morally blind shareholder class  cannot be clawed back when risks are materialized, but shareholders find it increasingly difficult to rein in a self-interested class of executives and employees.

The toxic combination of statism and limited-liability moral hazard -and the steady shifting of risks to society that both entail – can be clearly seen in both the BP Gulf oil disaster (see my BP posts) and in the financial crisis.

I recently ran across a post by an informed observer of the financial crisis that pointed to these problems; The Ten Trillion Dollar Black Swan in the January 26, 2009 online edition of American Thinker by Mike Razar, who describes himself as a “Phd in math from Harvard, a math professor, independent option floor trader, sr. vp swiss bank corp, 9 years on board of directors of the CBOE (options exchange), chairman of product development cmte., financial software development”; some excerpts follow (emphasis added):

As a poor taxpayer, I am at least entitled some entertainment for my money.  Fire all the top executives and sue them for every penny they have on the grounds that they totally abandoned even a fig leaf of fiduciary responsibility to their share holders and bond holders. I bet we can get some lawyers to do that pro bono! But no, instead we have to vomit every time one of those self-serving empty suits who run the banking industry appears on TV telling us that we are too dumb to understand the intricacies of modern finance. Then he shakes his head solemnly, while proclaiming to us how unlucky they were.

It is unfair to blame every bank CEO. Just to name one, (I know there are others) Wells Fargo Bank share holders were sent a note of apology because earnings were off by 7% from the previous year because of bad mortgage loans. Gee whiz! They took what was believed to be a prudent risk and it didn’t work out. So the shareholders took a tiny hit, not in value, but in potential increased value. That is true capitalism. But small risk equates to small bonuses. How could you have expected  the heads of Bear Stearns, Lehman Brothers, AIG, Morgan Stanley, Goldman Sachs, etc. to disappoint their employees with mere 6 or 7 figure bonuses?
And oh yeah. The aforementioned CEO of Wells Fargo was summoned to Washington by the Treasury Department’s secret police and water-boarded for 48 hours until he agreed to accept $25 billion or so, in order to save his badly managed competitors any embarrassment.

Am I being too harsh? After all we are repeatedly assured (as if we were the morons) that it was a perfect storm. No, worse than that. A black swan!  Sure, hindsight is 20/20, but who could have anticipated it?  Let’s see. You leverage your firm 30 or 40 to 1. That means (public school graduates) that you have a billion dollars of your own money. Then you use your “strong” balance sheet (no silly marking to market) to borrow another $39 billion. You loan out $35 billion of it and pay the other $4 billion to yourself or other co-conspirators. Your risk managers fire off e-mails telling you that if housing prices decline by as little as 5% to 10%, the entire firm is lost. What a bunch of academic worry-warts! Everyone knows that housing prices can never go down. Maybe one intrepid risk analyst (who earns less that 1% of your well deserved compensation) has the temerity to remind you that the latest reports show an excess supply of more than 2 million homes nationwide as compared to people who need a home to live in. After firing her, you console yourself with some caviar and truffles washed down with a $10,000 bottle of wine.

There was a time when the greed factor cited above was balanced by its equally famous sibling, the fear factor. Before 1970, investment banks and other NYSE members had to be individuals or general partnerships. When they converted to publicly traded corporations the risk was transferred to the shareholders but the rewards still went disproportionately to the senior managers. Why is that important? When that e-mail warning of the risk hit the CEO’s computer, he could ignore it, knowing that he had accumulated tens or even hundreds of million dollars in prior years. At worst, he could retire comfortably. Had he been the managing partner, the firm’s creditors could go after every penny he had to his name. Say goodbye to Mister [Fear] and hello to Mister [Greed]! …

This rant would be incomplete without a nice metaphor to take home. It was not a black swan that caused this crisis. It was a whole flying wedge of white swans flying over Wall Street marking the market in their own charming way.

One commenter left the following note:



Posted by: bob bradley <!–
–><!– Comment: #33 –> 
Jan 26, 06:43 PM

Report Abuse

the key point hear is the move from partnerships to public companies by the investment houses while still operating their compensation systems(at least on the bonus side) like they wre still partnerships. in this assymetrical, i win but cannot lose structure, traders used the firms(now shareholders) capital as their own personal gambling pot.this was an inevitable train wreck for us poor shareholders who did not get it .talk about the proverbial “other people’s money”!

Razar refers implicitly to successful lobbying by the investment banks to expand their permissible leverage, but fails to note that the moral hazard was further enabled by government bailouts. This combination of corporate risk shifting and rampant, government-fuelled moral hazard is also present in the case of the BP disaster.

Would we have healthier offshore oil and gas development and oversight if government did not license and pretend to regulate it, but rather those whose livelihoods are put at risk by spills? And if those engaged in it did not act through corporations, but partnerships with unlimited liability and without liability caps and royalty incentives set by government?

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Ed Dolan on Other People's Money: Government, Oil Spills, Financial Crises & Limited Liaibility

June 8th, 2010 No comments

Ed Dolan (Professor at Stockholm School of Economics in Riga, Latvia and editor of the Austrian classic, The Foundations of Modern Austrian Economics (online here), and author of the classic pamphlet TANSTAAFL: An Economic Strategy for the Environmental Crisis (1971), has a post up at his new economics blog that ties together the above subjects, each a favorite of my own.

As I noted in a recent post referring to BP and ocean ecosystems :

Aren’t there huge and obvious commons-related problems that stem from government ownership and “management” of resources – be they federal lands, the seas, our fiat currency, or our financial institutions and publicly-listed companies?

But enough of me; here is the meat of Mr. Dolan’s post, What Oil Spills and Financial Crashes Have in Common: Gambling with Other Peoples Money (emphasis added):

:What do the Gulf oil spill and the recent financial crisis have in common? Both of them are the result of risk-taking gone wrong. …

The real trouble comes when you have a chance to gamble with other people’s money. Then you start looking for strategies that usually give you at least a modest payout even though they involve a small chance of catastrophic loss. These are called negatively skewed risks. You take these risks, even if you know they have a negative expected value, because you think you will pocket a gain most of the time. You expect that when disaster finally strikes, you will be able to walk away with your past winnings in the bank while sticking someone else with the loss.

Several common situations in business life give rise to the temptation to gamble with other people’s money. Executive compensation plans that emphasize short-term bonuses, include golden parachutes, and lack clawback provisions are one example. Not only top executives face such incentives–mid-level traders, engineers, and analysts may also take risks in the hope of bonuses or promotions, with the expectation that the worst that can happen in case of catastrophe is that they lose their jobs. Stockholders may condone such risk taking because they are protected by limited liability.

Both the Gulf oil spill and the financial crisis had their origins in negatively skewed risks. Investigators in the Gulf disaster are looking at whether BP and its contractors underplayed downside risks when they made technical choices, ignored warning signs, and neglected preparations for dealing with a worst-case spill. In the financial crisis, negatively skewed risks involved excessive leverage, manipulation of ratings, design of complex securities, and several other factors.

What can be done? Regulations can be made stricter, but who will regulate the regulators? Who will ensure they are not captured by special interests? Compensation plans can be changed–but if shareholders do not take the initiative, can outsiders fix the system for them? Corporations can be held to strict standards of legal liability, but individuals who make bad decisions are not necessarily the ones to pay when their corporate employers are found liable.

There is no magic bullet. We can only hope that after a couple of really big disasters, people will be more alert to early warning signs the next time.

What Ed has failed to note is that both the financial crisis and the BP oil spill/Gulf crisis are examples of the “Tragedy of the Commons” – when the commons are either the government pocketbook itself, or resources owned/managed by the government. Solutions to management of the Gulf lie in giving more rights – such as “catch rights” and a veto over oil and gas development – directly to resource users like fishermen. With their livelihoods on the line, they would be much more diligent than government can ever be in making sure oil and and gas development proceeds safely.

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James Galbraith castigates a "disgraced profession [that] failed miserably to understand the forces behind the financial crisis."

May 17th, 2010 No comments

I thought I would bring to readers’ attention this concession/semi-confession by James K. Galbraith in testimony to the US Senate Judiciary Committee earlier this month.

Galbraith’s testimony is interesting and useful, but nevertheless shallow – he completely misses the role of government regulkation and money manipulation in fostering moral hazard run rampant, or the insights of Austrians, who generally had a great idea of the problems – for decades 

Galbraith focusses solely on financial fraud, and ignores the deeper failures of Keynesianism. His litany of failures is sobering, but he provides zero insights into why those failures occurred – other than the greed understandably manifested when those who govern are busy playing with OPM – Other People’s Money. Still, I can’t argue with his closing(emphasis added):

Some appear to believe that “confidence in the banks” can be rebuilt by a new round of good economic news, by rising stock prices, by the reassurances of high officials – and by not looking too closely at the underlying evidence of fraud, abuse, deception and deceit. As you pursue your investigations, you will undermine, and I believe you may destroy, that illusion.

But you have to act. The true alternative is a failure extending over time from the economic to the political system. Just as too few predicted the financial crisis, it may be that too few are today speaking frankly about where a failure to deal with the aftermath may lead.

In this situation, let me suggest, the country faces an existential threat. Either the legal system must do its work. Or the market system cannot be restored. There must be a thorough, transparent, effective, radical cleaning of the financial sector and also of those public officials who failed the public trust. The financiers must be made to feel, in their bones, the power of the law. And the public, which lives by the law, must see very clearly and unambiguously that this is the case. Thank you.

Readers might also enjoy this interview/debate Galbraith did on the Scott Horton Show/Anti-War Radio with Robert Higgs, Senior Fellow in Political Economy at the Independent Institute.

Galbraith is Professor of Economics at The University of Texas at Austin, and is author of The Predator State: How Conservatives Abandoned the Free Market and Why Liberals Should Too.


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[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