Tuesday, November 13, 2007

Common Sense From Some Economists

"Governments should consider requiring financial houses that make loans and then sell then off as securities to retain some of the risk on their books to prevent a repeat of the current problems sparked by mortgage-backed securities, a group of prominent economists and current and former policy makers said. ... 'The regulators as a class missed the accumulation of these highly complex financial instruments that were probably mispriced [Richard] Portes [President of the Centere for Economic Policy Research] said at a news conference. ... 'This is a financial turmoil, but not a systemic financial crisis: There has been no failure of a large complex financial institution nor a widespread decline of asset prices', he added", WSJ, 13 November.

Who are these "prominent" economists? No one asked me. If Portes believes the assets were mispriced, did he short Citigroup about a year ago? I suggested mortgage security orginators be forced to retain 10% of their loans as far back as 1999! Yes I did. And they should not be permitted to hedge their interest rate or credit risk. As for the lack of "large complex financial institution" failures and "widepread decline of asset prices", so? That's because the regulators protect the financial institutions and don't want them to sell the assets in question. What's Hank Paulson trying to do with MLEC? Look at the dollar. Enough said.

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