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Friday, 28 June 2013

My comments re British Banks’ Comedy of Terrors by Simon Johnson - Project Syndicate

British Banks’ Comedy of Terrors by Simon Johnson - Project Syndicate:

good piece of commentary, thanks Prof Simon

IMHO, Prof Anat book is brilliant and highlighted (now seems obvious) very important facts, too much leveraged is not sustainable and should retained more profit to bulk up the balance sheet (hope I understood & paraphrased it ok? totally recommend the book!). Bankers are playing key role for sure, but are they alone in the party? 

To that end, I would also like to highlight wider capital market behaviour/cultural problems of short-term rent seeking/trading vs value creating negative culture (since we are in book recommendation mode), argued eloquently by Jack Bogle's book on "The Clash of the Cultures: Investment vs. Speculation".

of course, EVERYone might also be at fault, culturally, as the essence of 'shareholder value' maximisation might need to be 're-define' and re-adjusted..  long term goals setting with some punishment if need, please see the brilliant book by Prof. Colin Mayer on Firm Commitment. 

I do not see Basel III any better, surely by 2019 our economies might not be in any fixable states, and that is only looking at  7% of risk-weighted assets .. I am not expert, even 10% is low! and due to multitude of accounting/reporting standards/recognitions, and fact that everything is backward looking (definition of accounting!), some might argue that all these is meaningless as by the time we know about it, the company might fail anyway!!! 

It is sadly not fixable by one regulator, or even IMF/WorldBank/G8/G20 (please tell me if I am wrong! sincerely hope I am!) none of the key guys are in job long enough to understand enough and be able to put in the key 'long term' solution.. hence we keep hearing from ex-this and ex-that saying how it should be done!? 

To be frank, I would hate to be head of PRA/FCA/SEC.. as they are also faced with a stark challenge, as NO one country can legislate for the world, but what they do do, might affect how the big firms (with more money than the governments) might decide how they divert their operations/money and thus would affect their market adversely... therefore, "game theory of the whole trillion market" need also be considered very carefully also. 

WE have to learn from history, even the best intended policies might not work out as planned, see how TARP turned out!

NOT as simple as black & white as you might have put in your short and brilliant article. 

My take?? our financial world need a real pervasive solution: (Car mechanic analogy) not just monitor and oil the gears better. Indeed, it might be time to change the gears and indeed the gearbox!! Anyone thinking/working on that?? We have and sadly world does not want to be changed as 'efficient use of capital' is still defined by all as DEBT!  go figure! 

@GarethWong

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