Safe and Sound Banking: A Role for Counter-Cyclical Regulatory Requirements?

During the Autumn term, we have had the pleasure of hosting Jerry Caprio as a Fulbright Scholar.  He has written a very interesting paper on this topic: it is available here.

8 thoughts on “Safe and Sound Banking: A Role for Counter-Cyclical Regulatory Requirements?”

  1. Naif and obfuscatory!

    As usual, he glosses over the facts. The collapse of banking credit is a constant feature of banking. Regulations imposed by FDR in the USA were dismantled from the 1980s onwards imn the USA, at the behest of bankster lobby!

    Whay feature of any regime, accounting based or stutory does our author suggest to combat this? Why none!

    He assumes that there is a consensus that the cycle is an evil. Clearly it is deliberately induced, as exposed by Spitzer citing Bush’s Federal attempts to override state protection of borrowers. As it is deliberatley induced some view such a bust as a legitimate way of doing business! In the ensuing overshoot, which to his credit the author mentions, those who exacerbated the bust, having the capital through careful extraction in the last years of the boom, swoop and garner the resources that will found the leverage of the next boom.

    They display long term thinking. These plans take decades to accomplish and involve the selection of key personnel, such as Goldspan and Bernanke as allies in such plans. Bravo! I applaud them!

    The trouble is that the herd suffers! This paper is typical economics from the Goldspan school. Perhaps young Mr Caprio will make it to the Fed? He certainly serves the interests of those whop engineer these malinvestment booms! They make $ on the way up and on the way down.

    This time is exactly the same as the last!

    AS there are many astute observers here, I expect none will agree with me as they know upon what side is the butter!

  2. I don’t think we should use the made-up word “Goldspan” on this site – it sounds vaguely anti-semitic or could be interpreted that way. Not that it was intended that way but someone could take offense.

  3. Welcome to Jerry Caprio – the more scholars looking around with open minds the better …………

    @Gregory Connor

    Wha! Drop all these ‘made-up word'(s) on this blog? what about ‘special purpose vehicle SPV’? and Naa-Maa? and ‘er … long-term-value (the IMF apparently love the terminology – see today’s IT – the ‘theatrical’ section …..) …… in its ‘ideal form’, to borrow a sometimes useful fiction from your own area, a functioning blog allows for open discussion, validity claims related to objective (your half a rood a rock I presume), social (norms – such as the norm of not attempting to dictate the mode of discourse ab initio – which a few of us were trying to get through to you yesterday – you yourself practicing insider-outsider on potential respondents on a theme related to insider-outsider – strange – ), and subjective worlds. Attempts to reduce substantive friction do not make sense here in unknowns and uncertainties – and reduce the potential efficacy (plausible pragmatic and maybe implementable ideas) of this blog. This may appear merely procedural, which it is, but it places barriers to any substantive exchanges. Simply join the conversation –

  4. Thanks for linking the paper Philip. I noticed it contains some reference to South America, Spain etc. I was quite impressed by the contributions of Hernando De Soto when he came to Trinity College for a visit this year. His efforts to look at western economic prosperity from the point of view of property and ownership enshrined in the legal system.

    John Ihle’s article in the Tribune today:

    “Although Tarp was initially conceived as a Nama-like plan to buy bad assets to help US banks unload risk from their balance sheets, it very quickly turned into a straightforward recapitalisation vehicle as US treasury officials realised just how big the problem was.”

    http://www.tribune.ie/business/article/2009/dec/20/the-clock-ticks-backwards/

    Contained the above quote.

    It is funny. De Soto who was quite close to investigations in the White House in relation to TARP had a different explanation for the change of strategy towards re-capitalisation. De Soto was informed in discussions that the US simply could not find the trouble assets – their trail from one institution to another was simply too complex.

    To ‘deliver’ some assistance to the economy, the faster route was found to be the re-capitalisation route. Even though it may be much less effective. It is a bit like watching an episode of ‘House MD’ on the television, where House decides the patient will be dead before they have a chance to do a proper diagnosis, so he starts to treat the patient in an attempt to uncover what the symptoms really are.

    What Hernando de Soto observed from his consultancy work in the first and third worlds, is that the problems experienced in both places are very similar today. Basically, we have difficulty in finding the assets – they have not been properly logged in the system anymore. We have skipped that.

    Whenever I listen to Elizabeth Warren speaking from her own legal perspective about banking and the economy, I am reminded very much of De Soto’s observations too.

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