May 21, 2009

But let the markets’ see more with their own eyes

Sir as you must know by now I full heartedly agree with William Poole’s proposal of introducing more market discipline for banks by forcing them to issue substantial amounts of long term subordinated notes “A market solution to secure the future of banks” May 21.

That is of course as long as some of that fog that comes from having the assets reported as seen through the eyes of the credit rating agencies and risk-weighted arbitrarily by the regulators is dissipated. As is everyone, regulators included, might keep on focusing on the wrong exposure where a real 40 to 1 leverage is reported as only a 10 to 1 assets to capital leverage. Let the markets have a better look at what’s really in the banks… otherwise we will just have the blind leading the blind.