BusinessWeek is reporting Powers back plan to halt financial crux.
Finance officials from the world’s top economic powers endorsed a plan Friday aimed at preventing another financial crisis like the credit and mortgage debacles that erupted in the United States and quickly sent tremors around the globe.
“Rapid implementation” of the plan “will not only enhance the resilience of the global financial system for the longer term but should help to support confidence and improve the functioning of the markets,” the G7 officials said in a joint statement.
My Comment: This sounds brilliant but exactly what is the plan?
Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben Bernanke hosted the Group of Seven discussions, where officials embraced a plan that would seek to increase the openness, or transparency, of financial markets and to sharpen regulators’ response to urgent financial problems.
My Comment: Dare I ask again “what exactly is the plan?” Certainly we have not seen openness or transparency. Instead we have seen lies, deceit, and an alphabet soup of facilities that encourage lies and deceit.
- GE Blames Bear Stearns For Miss
- Fed Is Not King Midas
- Fed Uncertainty Principle
- Dear Citigroup Customer ….
- Fed’s New Role as Pawnbroker
- SEC Openly Invites Corporations To Lie
That’s quite a list but I could easily add another 20 items. For now, let’s return to the article.
“The turmoil in global financial markets remains challenging and more protracted than we had anticipated,” the G7 officials said.
“Given the significant short-term downside risks, we are taking action,” Paulson said of the G7’s decision to adopt the plan. “There may be more bumps in the road,” he warned.
My Comment: For Christ’s sake. What the Hell is “The Plan”?
The plan is designed to make financial markets less secretive and improve supervision, which in theory would help prevent a repeat of the current financial debacles.
My Comment: The “plan” is the biggest kept secret in whole world.
It calls for strengthening oversight to make sure financial companies have sufficient capital, cash and risk-management practices to handle problems. It also would bolster transparency and the valuation of complex investment products, improve the operation of credit-rating agencies, strengthen authorities’ responsiveness to risks and put in place arrangements to deal with stress in the financial system.
My Comment: Is that the plan? Sheeesh. The market has already eliminated liar loans, 0% down payments, no doc loans, asset backed commercial paper (ABCP), etc etc etc. So far, as best as I can tell “The Plan” is to do what the market has finally done on its own accord.
One recommendation is to have banks, securities firms and other financial institutions disclose their holdings of risky securities, such as those backed by subprime mortgages given to people with tarnished credit. Those subprime mortgages, which soured with the collapse of the U.S. housing market, were at the heart of the U.S. crisis.
My Comment: Clearly that is not the plan. The TAF, the TCLF, and the PDCF are designed explicitly to hide the value of risky securities.
Another involves having credit rating agencies distinguish the ratings they give for regular securities, such as corporate bonds, from those they assign to more complex investments. These agencies have been criticized for contributing to the problems by not accurately assigning risk to mortgage-backed investments.
My Comment: Anyone that trusts the rating agencies at this point has holes in the head. Instead I propose it’s Time To Break Up The Credit Rating Cartel.
The plan also calls for the Basel Committee on Banking Supervision, an international body of regulators, to make sure banks have enough capital to cover any potential losses.
My Comment: This clearly is NOT the plan. If it was the plan we would see a call for the end of fractional reserve lending, the TAF, the TCLF, and the PDCF. The only way to insure there is enough capital is to disallow the use of leverage, and to let failing institution go bankrupt rather than bail them out.
“There have been at times sharp fluctuations in major currencies, and we are concerned about their possible implications for economic and financial stability,” the G7 statement said, pledging to closely monitor the situation and “cooperate as appropriate.”
My Comment: There is no need to monitor any such thing. Left alone, the market will monitor currencies quite nicely. Those that do not like what currencies are doing should look at root fundamental causes as opposed to intervention.
The G7 finance officials had a dinner scheduled for Friday night that was to include executives of some of the world’s biggest financial companies. The idea: Look at the causes and consequences of the recent financial turmoil. Officials invited to those talks included top executives of Citigroup, Deutsche Bank, Barclays, Credit Suisse, Lehman Brothers and Morgan Stanley.
My Comment: Instead of having dinner with those that caused the problem and have no idea how to fix it, the powers that be should have instead sat down with the top 20 economic bloggers as to what to do. We have been warning about these problems for years.
Careful review shows there is no plan other than lies, deceit, and what best suits those who caused the problem.
Mike “Mish” Shedlock
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