Posts Tagged ‘Soros’

Just as we don’t allow strangers to take out life insurance policies on those to whom they have no real relationship, it would be appropriate to scale back the huge credit-default-swap markets to those who are actually parties to the underlying transactions. What has happened instead is that a secondary markets many times bigger than the real markets purported to be insured have developed, creating paper obligations and exposure greater than the entire world economy. George Soros opines on this matter sensibly in yesterday’s Wall Street Journal, suggesting that until this is resolved and CDS is brought down to earth, the threats of “systemic risk” will remain from this newfangled financial instrument.

Along these lines, Hernando de Soto suggests that clear property rights are important to avoid fraud and the lack of transparency in commercial paper markets, and that some public registry of various paper assets (much like UCC or real property registries in US states) would smooth out some of the confusion generated by MBS and ABS assets. His analysis makes a great deal of sense since some MBS holders, it turns out, do not have clear title to the security, can’t easily identify and examine the collateral their paper is putatively secured by.

Sadly, our political class is more interested in peacocking about bonuses, when the real problem has been the decoupling of Wall Street’s activity from generating productive economic assets, its penchant for creating impossible-to-value byzantinely-complex financial instruments, and the perverse incentives from the combination of loose money and accounting rules that allow banks and bankers to get paid today while shift the cost to others (lately the taxpayers) tomorrow. Some attempts to reduce the scale, increase the transparency, and align incentives in the financial industry more closely with the public good would make a great deal of sense. Outright attacks on property, pay, and the basic profit motive, of course, are very dangerous and hurt the most productive classes and productive corners of the economy in general, most of whom work far from Wall Street.

So long as Obama, the Congress, and various interests aim to switch rules in midstream and threaten to micromanage every aspect of business, nothing done to reform and recapitalize banks will work, because these efforts will be eclipsed by the infinte costs imposed on potential borrowers in the form of uncertaity, redistribution, and the anti-productivity pet issues (like capping carbon emissions) of Obama and the far left.

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I know almost nothing about the events in Burma.  It appears like your basic poorly governed third world country that the people have had enough of.  There is talk of a military coup.  What I do know is that we tend to get all-too-hopeful in these times, as if the military regimes do not have supporters, clients, and, at a minimum, the ability to govern and keep order.  From Ukraine to Lebanon, recent popular revolts and their results have been disappointing after Geroge Soros and Andrew Sullivan have shifted their attention to other issues.

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