Daily Archives: February 3, 2010

By Michael Pomerleano

The Basel II accord has done more harm than good for stability. In a previous post last month on the failure of financial regulation, I pointed out that Basel II has glaring deficiencies that virtually provide a navigational map to creating off-balance sheet instruments.

The regulatory incentives regarding capital requirements in Basel II contributed to the subprime crisis. It gave banks incentives to:

  • “originate and distribute” as opposed to originate and hold
  • securitise every asset and buy it back without changing the credit risk profile
  • use credit default swaps to reduce capital requirements even further
  • stuff toxic securities into structured investment vehicles       

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From the FT:
Medicine for Europe’s sinking south – Nouriel Roubini and Arnab Das
Why ‘too big to fail’ insurance is the world of all worlds – John Kay
Toyota: sorry is the hardest word to say – Dan Bogler
Central bank DeathMatch – Neil Hume, FT Alphaville

From elsewhere:
Are sovereign wealth fund investments politically motivated? -Roland Avendano and Javier Santiso, Vox
Deflation – Economist’s View
How China won and Russia lost – Paul R Gregory amd Kate Zhou, Hoover Institute
Never short of country with $2 trillion in reserves? – Michael Pettis, China Financial Markets