March 17, 2010

It’s good but please do not call it a financial regulatory reform!

Sir you are correct in what you hold in “Reform is in sight” March 17, namely that “When money is loose and prudential rules are lax, banks will find dubious assets to stuff leveraged-financed balance sheets”. The current crisis is a result of the regulators authorizing banks to leverage up to 62.5 to1, if their appointed risk surveyors, the credit rating agencies, deemed these assets all but dubious.

But precisely because of that you should perhaps better refrain from referring to proposals such a Senator Chris Dodd´s bill as a reform, since it contains nothing that truly addresses the above. To do so might cause the impression that the work has been completed when in fact it has almost not started.