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Here are some of the proposed solutions to the global crisis/recession/depression...

GREAT DEPRESSION- 2: The Austrian Cure for Economic Illness
Austrian economics explains and predicted the last depression and also the one unfolding now...

Measured by military and civilian deaths, World War II was four times worse than World War I. Likewise, the unfolding Great Depression-2 has the potential to become much worse and more protracted than the 19301946 Great Depression. In GD-1, the U.S. was a creditor nation. There were no subprime mortgages (and no property taxes), no credit cards (and thus no credit card debt), and no financial derivatives (there are $600 Trillion of them today). The country had a trade surplus. The U.S. now has a trade deficit (the gap between the nations imports and exports), ranging between $612 and $759 Billion a year since 2004. Nine months into Great Depression-2, U.S. federal debt is $11.3 Trillion ($37,000 per capita). The government also has $62.9 Trillion in unfunded liabilities. Part of that amount is for Social Security, a legacy of the New Deal. Tax receipts are plummeting. In the first six months of fiscal year 2009, which began in October 2008, income tax receipts fell 31 percent and corporate tax receipts, 64 percent. The budget deficit this April was $20.9 Billion, the first deficit in this tax-paying month in 26 years. April 2009 tax receipts dropped 44 percent compared with those in April 2008. Money collected by taxes is only going to cover half of the fiscal 2009 federal budget, requiring the government to borrow and print more than $1.8 Trillion to fund it. Equal-sized deficits loom for fiscal year 2010 onward. Tax receipts fell 50 percent in GD-1. Now eight months old, GD-2 is already rivaling that drop. In the 1930s the country had a strong manufacturing base and was self-sufficient in oil. Only 12.2 million people in a total civilian labor force of 154.7 million (8 percent) are now employed manufacturing goods, while the government employs nearly twice that number, 22.6 million people (15 percent of the labor force). The official government-reported "U3" unemployment rate was 8.9 percent in May. Using the older "U6" method it is 15.8 percent (this includes workers who have given up looking for a job and those working part-time who cannot find full-time work). The true rate of unemployment is closer to 20 percent, as John Williams shows in his Shadow Government Statistics Newsletter. For the last six months more than 500,000 people each month have lost their jobs. In March, 633,000 people lost their jobs; in April, 568,000 149,000 in manufacturing, 110,000 in construction, 269,000 in the service sector, and 40,000 lost jobs in the financial sector. One in every 10 Americans 32.5 million people now receive food stamps. Fourteen million homes in America stand empty, one out of every nine. And the United States now imports 62 percent of its oil. The U.S. economy today is in a much more precarious state than it was at the onset of GD-1. Americans trusted their currency in the 1930s, even after Roosevelt (in his April 5, 1933 Presidential Executive Order 6102) no longer allowed people to redeem their Dollars in gold only central banks could still do this. President Richard Nixon closed the central-bank "Gold Window" in 1971, taking the Dollar completely off the gold standard. During GD-1 the U.S. Dollar was worth a fixed weight of gold. Now it is a fiat currency. The Latin word fiat means "let it be done," and Nixon did it. The Dollar now is simply a piece of paper with printing on it, or it exists as electronic digits in a computer. It is not backed by any tangible assets. Nevertheless, the government declares the U.S. Dollar to be legal tender "for all debts public and private." It is the only form of currency that people can use as a medium of exchange in the U.S. economy...(Click here to read full extensive analysis).


What we need is Limited Purpose Banking (LPB), which would transform all financial corporations, including  insurance companies and hedge funds, into mutual funds. They would, henceforth, be called banks.

Under this system, banks would never fail for a simple reason. They'd never hold any financial assets and they'd never borrow except to finance their mutual fund operations. Instead, they'd be limited to their legitimate purpose--financial intermediation. Under LPB, people, not companies, bear risk as their mutual funds do well or poorly.

A new Federal Financial Authority (FFA)--would rate, verify, supervise custody, disclose and clear all securities purchased, held and sold by LPB mutual funds. Private rating companies could stay in business, but no one would need to trust them ever again.

Banks would initiate personal and business loans (including mortgages), send them to the FFA for processing and then sell them to mutual funds, including their own. Loans would activate when sold, so no bank would ever have an open position.

All mutual funds would break the buck with one exception: cash mutual funds. These funds would strictly hold cash and be valued at $1 per share. Owners of these funds would write checks against their balances and never have to worry about a bank run. Fractional reserve banking and the FDIC would be history.

LPB would include insurance mutual funds. These funds would pay off based on the losses experienced by contributors. If losses are larger than expected, less is paid out per loss. Hence, LPB prevents insurance companies from insuring the uninsurable, e.g., claiming they'll pay the same life insurance claims even if there's a plague.

All risk allocation arrangements can be run through mutual funds, including credit default swaps. Take a bank that markets the GE-Defaults-On-Its-Bonds-In-2010 fund. Under this closed-end fund, shareholders specify in advance if they want to get paid off if GE does default on its bonds in 2010 or paid off if GE doesn't default. All money put into the fund, less the mutual fund's fee, would be held in one-year Treasuries and paid out at the end of the year to the winning shareholders in proportion to their holdings.

Hence, Limited Purpose Banking can accommodate credit default swaps (CDS) as well as any other risk product. But what Limited Purpose Banking won't do is leave any bank exposed to CDS risk since people, not banks, would own the CDS mutual funds.

If such mutual funds sound revolutionary, they're not. Funds of this kind have been around for centuries. They go by the name "tontines," or systems of "pari-mutuel betting."

Limited Purpose Banking would enhance liquidity, since all funds would trade in the market even if their underlying assets are illiquid. It would permit the extension of as much credit as the public--which is the ultimate source of credit--wishes to provide by buying mutual funds that purchase household and business loans. And it would force banks to charge fees and pay their employees based on their mutual fund performances as determined by the market.

What LPB will eliminate is insider rating, freeriding on FDIC insurance, self-custody arrangements, no-doc loans, institutionalized gambling, me-now compensation plans, financial malfeasance and the possibility of future financial collapse. In other words, it would be a system we can trust...Extracted from Forbes by Laurence J. Kotlikoff and Edward Leamer, professors of economics at Boston University and UCLA.

A Soros Solution for the Global Meltdown
"It's the end of an era, as far as the United States is concerned, because the prosperity was built on a false foundation." – George Soros

By staff reporter Ye Weiqiang


(Caijing Magazine) What are the economic realities behind and possible solutions for the crisis gripping U.S. banks, emerging markets and the entire financial world? Caijing finance editor Ye Weiqiang traveled to New York to pose this and other questions to U.S. billionaire investor George Soros. Their discussion follows:


CJ: How do you identify economic cycles?


Soros: I have developed a theory about the financial market -- it’s really a philosophy -- which is at variance with the general theory, and it has given me perhaps a certain ability to identify bubbles when they develop. The prevailing theory, which is called efficient market hypothesis, holds that the market always reflects adequately or accurately all available information. I think this is false. I have a different hypothesis, which consists of two principles. One is that the market always distorts the available information. First of all, the market has to deal with the future, and the future is not predictable, and it always has a biased view, in some way a distorted view from the reality -- that’s the first principle. The second principle is reflexibility, as I call it. It says that mispricing of financial prices can have a way of affecting or changing the fundamentals of prices they are supposed to reflect.


So the two-way connection between the markets and the underlying reality is that the markets not only passively reflect, but also affect reality, and I call it the principle of reflexibility. This crisis now, I think, has proven that the effective market hypothesis is wrong. I think my interpretation provides a better understanding of what is happening.


Based on this general of reflexibility, I have in particular talked about what is happening now. The theory of bubbles is that to have a bubble, you have to have some trend that actually prevails over the reality, and there has to be a misconception about the trend, and the reflective interaction between those two can give rise to these bubbles that both the trend and the misconception mutually reinforce, and then eventually it becomes unsustainable, and it bursts. That’s the character of a bubble. It’s not the only form of reflexibility, but it’s very dramatic form because bubbles can be very powerful.


I have a special theory hypothesis with regard to what’s happening now. I say that the housing bubble in the U.S. was a regular small bubble but it acted like an atomic bomb -- a super-bubble which has been growing since the 1980s. So that’s why this crisis is not like other crises.


CJ: Is it good to change the game?


Soros: It’s not something you can control. It’s out of control. This is the situation now. The global financial structure has collapsed, so private sector credit has collapsed, and the financial system is actually broken. There is now artificial life support from the authorities.


CJ: Is faith in the authorities failing?


Soros: Yes. It’s more than confidence because, in reality, the international banking system has become largely insolvent. So it’s not just the problem of liquidity but also solvency; bank assets are falling in value, and so their liability exceeds their assets, and that means they are effectively insolvent.


CJ: Is nationalization necessary at this point?


Soros: Nationalization is a false label. Since the banks lost a lot of capital, and the private sector is not willing to replace the capital, the government has to do it. And one case when they decided not to do it, Lehman Brothers, set in motion this collapse.


The governments have determined not to let any other institutions that could endanger this system fail, so they are keeping them artificially alive. But it’s not enough to keep them alive; you also have to recapitalize them, and has to be done by the government.


But there is a big problem in emerging markets on the periphery of the system, where governments are not strong enough to provide guarantees for the banking system. The capital is moving out, creating a worse crisis than in the United States.


CJ: What is the current debate?


Soros: It looks like the government is not willing or able to recapitalize the banks in a way that will give them adequate capital to lend; all they do is prevent the banks from collapsing.


CJ: What is the current political barrier?


Soros: Unfortunately, the previous administration spent US$ 700 billion in an ineffective way, and it’s now politically difficult to secure additional funds needed for proper recapitalization.


CJ: What’s the government’s best course?


Soros: I advocate separating the existing assets of the banks and leaving the existing capital to be responsible… to suffer first loss, if the value of the assets decline, and put new capital into the future business of the bank. So separate past businesses from future businesses, and create a clean bank within the bank, which is not weighed down by these toxic assets that are losing value. And then put the new capital either from the private sector and the government into this new bank. Then this new bank would have adequate capital and would be eager to lend. That would restart the economy.


CJ: What’s the government’s approach, in reality?


Soros: The government is examining the balance sheets of banks, and that’ll take until the end of April. Then the decision will have to be made what to do in the case of individual banks. So the government is on the way, but for the time being it takes time to prepare and decide.


CJ: What should we consider when banks privatize?


Soros: You now have conditional collapsing credit; that’s very far from normal. You can’t get back to normal in a simple way; you have to first replace the credit with government credit, which means effectively creating money, increasing the balance sheet of the Federal Reserve Bank. But that’s too technical; it really means creating money. But when credit is restarted, and you put this very big base of money, suddenly the danger of deflation would be replaced by the danger of inflation, and then you have to shrink the money supply as far as credit is increased. So you have two steps: First you have to increase the money supply to replace shrinking credit, and then you have to reduce the money supply to offset the growth of credit.


CJ: After recapitalization, should the government control bank system decision-making?


Soros: No. The governments should regulate, but government is not suited to make economic decisions. It should regulate the amount of credit available, but how the credit is used should be determined by economic actors. Of course, the government is an economic actor itself responsible for a very large part of economic activity. But it’s not the only actor; it needs counterparties to balance.


CJ: How do you value toxic assets?


Soros: You don’t value it; you avoid the valuation problem. If you separate and auction it, then you will have to value it. But if you just keep it in the bank, and you keep the capital of the bank, the equity, and the subordinated debt to cover those assets, then you can wait and allow assets to be gradually liquidated. Then you will determine whether there is anything left for shareholders. What are values? It depends on the asset. Probably the asset will recover some value, especially over a long period.


CJ: How about the Obama administration’s stimulus plan?


Soros: It’s certain to help moderate the decline. It’ll be a counter-cyclical force. It’s just starting now. You need to recapitalize the banks, and you have to stabilizing the housing industry. By reducing foreclosures, and modifying the mortgages so that people can pay them to stay their houses, you reduce forced selling.


And then you have to, most important, do something about the rest of the world because the emerging market is more severely affected than the United States. Here, the government has credibility and government credit is accepted. But in other countries, the governments don’t have the means to guarantee, so you have to provide them with the means, somehow, lend them the money or make money available enabling them to protect their banking industry in a way we protect ours. A lot of their banks are actually owned by multinational American or European banks. Those American or European banks are taking money back. And loans are maturing without measures enabling those countries to roll over the debt. If they are not able to pay, the crisis will get worse. So we really place a serious problem on the rest of the world. And that can only be solved by international cooperation. It is very important that the United States and China, as the most important countries now, work together.


CJ: Our readers are interested in how the financial crisis will evolve.


Soros: I think China is much better situated than the United States to come out of the crisis. I expect China to be growing by the end of the year, because the crisis hit China hard and suddenly, and exports came to a standstill. That also affected production for domestic demand, so domestic demand also declined. It takes time for the government to respond, but it did put together a stimulus package that’s quite significant. And if it’s not enough, they will, I think, increase it. They are in a position to do it and they know what is expected. So they are determined to bring about growth. Now you can’t make exports grow, because the demand is not there. But you can stimulate domestic demand, and especially you can engage in infrastructure projects. The main push will come from the infrastructure. And that will stimulate domestic consumer demand as well.


Hopefully, China will cooperate with the rest of the world, will provide enough credit to the rest of the world. Then they can also engage in domestic stimulus and re-open the market for Chinese exports. By the end of the year, they may probably still decline, and then they may begin to recover. I think China is situated relatively above the United States. It will take longer for the United States and Europe to get out of the crisis.


CJ: Maybe next year?


Soros: I also don’t think we’ll ever get back to where we came from. In other words, it’s the end of an era, as far as the United States is concerned, because the prosperity was built on a false foundation. It has now collapsed, and you cannot rebuild it. So we have to be major changes in the United States and the global financial system. And I hope we will be able to reconstruct the financial system on sounder grounds than they were until now. So it’ll be a different situation.


It is not back to normal because what was considered normal was actually not sustainable. So I hope that we can reconstruct a better system.


CJ: So it’s not just a simple economic cycle.


Soros: Fundamental change.


CJ: China’s stimulus plan, do you think it’s good?


Soros: Probably you’ll need to do more, and it’ll be relatively easier to stimulate GDP than provide employment. Because exports are very labor intensive, and infrastructure projects are more material intensive, and so they provide less employment. A big problem is to generate employment and whether to find work for people in the countryside.


The biggest task of all is for China is to fit in to the global economic system and to play a constructive role in shaping the new financial system. China cannot live in isolation, just as the United States cannot.  I think China has to play a more important role in reconstructing the financial system than in the past.


CJ: What’s your view on regulation?


Soros: If you want to have a global financial system, you have to have global regulation, which we don’t have now. All the regulators are national. So you will need to strengthen them, the international financial institutions. That is a big task ahead.




Constructive solutions to the financial crisis

March 16, 2009

By Ricardo J. Caballero

Suppose it was possible to rewind the clock to the first time we had a strong urge to rewrite economic history. A favourite stopping date would be the days before theLehman-AIG debacle last year. Until then, we were dealing with localised inefficiencies and predatory behaviour among the main financial institutions. There was plenty to fix but it seemed manageable, mostly a matter of accelerating the medicine and aggressively dealing with problems on a case-by-case basis.

All of this changed for the worse after the Lehman-AIG event. The problem ceased to be firm-and market-localised, and turned into a severe systemic panic attack. This change in the nature of the problem has strong policy implications, since it requires a systemic, not a case-by-case, remedy.  Of course the systemic problem first appears in relatively weaker institutions, but one should not confuse causes and consequences. Surely some financial institutions will appear insolvent in the strict accounting sense; this is what mark-to-market accounting will do to almost any leveraged institution in the midst of a severe systemic crisis.

However, simply destroying the intangible capital of a financial institution, or forcing a significant dilution of a stakeholder as a means of dealing with a systemic symptom of fear, is a highly inefficient and counterproductive policy response. It is the economic equivalent of putting out a fire with gasoline.

Fortunately, both the US Treasury and the Federal Reserve have the right diagnosis. They understand that the need is to restore systemic confidence with a limited amount of financial and political capital. They are on the right track, although not at the speed we all feel is required.

To remedy the latter, we should help, rather than obstruct them. We all have our favourite plans, but at this point we are of little help to anyone when we keep changing the entire policy paradigm. We should take what we know of their current plan as given, and restrict our recommendations to operate within their framework. This is important not only to accelerate the process, but also to eliminate the enormous policy uncertainty that is destroying the stock market, private wealth, and balance sheets.

In this spirit, I would propose that any new recommendation should satisfy three constraints:

  • Only good (policy) news is allowed. Any amendment to their plan must do more, not less, for the financial institutions and their stakeholders. This principle should be advertised broadly right away
  • It must have a reasonable cost. The amendment cannot be significantly more expensive for the US government than the current plan, and
  • It must be wealth enhancing. It cannot go against, and it hopefully should reinforce, the fiscal stimulus package.

The following plan satisfies these constraints:

  • Raising private capital. Announce today that banks in need of more capital if aggregate conditions worsen (the stress test), will be given an option between the previously announced programme and one in which new private capital raised receives a government guarantee for a price five years from now set at the February 2009 price used for the preferred shares. Alternatively, the government may invest in common shares but give the right to new investors to repurchase the government shares within five years at that price plus an interest rate charge. This guarantee holds regardless of whether the financial institution survives the crisis. Any difference between the expected costs of these two options is paid as a premium by shareholders (and possibly debt-holders).
  • Insuring aggregate risk. The return on hard to value assets, whether they remain on the books of the financial institutions or are sold into the PPIF (public-private investment fund), should be guaranteed by the government at the insurance prices prevailing before the Lehman-AIG crisis. These assets can be subject to a “representations and warranties” clause where the financial institution pays a penalty if the performance of its insured assets is worse than the average of the corresponding category, five years hence.

The first item is clearly a positive development for shareholders since it adds an option which has no additional value over the current programme if the financial institution’s post-crisis future is poor, but is very valuable otherwise.

Interestingly, whenever the option has value, it also helps the government since now the private sector injects the capital in exchange for a guarantee that is not likely to be executed in such a scenario. Moreover, by bringing some sense of a floor, this policy also would trigger a stock market boom and hence reinforce the aggregate demand effects of the fiscal package. The second item has similar virtues, and it deals directly with one of the key adverse selection problems complicating asset valuations at this time (that banks will sell and insure their worst assets).

Will these policies be enough? Surely not, but if we are all rowing the same boat in the same direction, and keep a cool head, we will get out of this mess sooner rather than later...FT

Ricardo J. Caballero is head of the department of economics at Massachusetts Institute of Technology


Extract of Editorial

It’s the Regulations, Not the


  • NYT, Published: March 18, 2009

It has become a truism of the financial crisis that

the system was prone to collapse because there

was no single regulator who had the legal tools and

authority to prevent a systemwide meltdown. That

belief has led to calls from some lawmakers and

major banks, among others, for a new “systemic

risk regulator” — one regulator to monitor the

entire financial landscape for problems that could

lead to cascading failures...

There’s just one problem with all that. The premise
is false. The financial crisis, including what went
wrong at A.I.G., is not just the result of a missing
regulator, a gaping structural gap in the regulatory

Rather, it is rooted in the refusal of regulators,

lawmakers and executive-branch officials to heed

warnings about risks in the system and to use their

powers to head them off. It is the result of

antiregulatory bias and deregulatory zeal —

ascendant over the last three decades, but

especially prevalent in the last 10 years — that

eclipsed not only rules and regulations, but the very

will to regulate...

In the late 1990s, a drive to fully regulate swaps

was squashed by Congress, with the support of

then-President Bill Clinton’s Treasury Department.

Instead of regulation, which could have prevented

the A.I.G. fiasco, a law was passed in 2000 that

deregulated swaps. By then, the Treasury secretary

was Lawrence Summers, who is now Mr. Obama’s

chief economic adviser.

There are many other examples where rules were

blocked, eliminated or ignored. They all make

painfully clear that what is needed is a

comprehensive response — to restore rules,

develop new ones as needed and enforce them

day to day; to reassert the government’s

regulatory mission; and to reaffirm the centrality of

solvency, safety and soundness of financial firms,

and of investor and consumer protection.

A new systemic-risk regulator could play a role in

that, coordinating the efforts and identifying

emerging risks. A systemic-risk regulator could also

assume the important function, currently lacking, of

a sort of F.D.I.C. for nonbank financial firms, with

authority to seize and restructure critically impaired

firms before they threaten the broader system...


Three Processes to Restore Sustainable U.S. Economic Growth

There are actually three processes that need to complete to a sufficient, if not ideal, degree to restore an attractive basis for long term U.S. economic growth. They are: righting the financial system, systemic de-leveraging and re-balancing the global trade and currency systems.

1.  Righting the Financial System – This has clearly been the focus of Bernanke and Geithner, and evidence suggests that progress if not perfection has been made. However, a key element of correcting the banking industry that requires more effort on their part is getting the shadow banking system out into the light and neutralizing the derivative bomb. Because the amount of derivative exposure is so huge ($ hundreds of trillions notional and $ tens of trillions net) and because it is unclear who, besides AIG, is holding the old maids, extension of credit will remain restricted until the practical creditworthiness of institutions can be comfortably asssessed. It is not clear that Geithner's toxic asset plan includes derivatives. Part of this is a disclosure issue, which will be ongoing. Another part is a one time clean-up of the current situation.

There are other measures, besides dealing with toxic assets and liabilities that should be implemented as well. First, any institution too big to fail should be broken up or if it presents some other risk to the system, that risk should be regulated out of the firm. Second, leverage must be regulated in business lines that on a pooled basis present a systemic risk. Even if no one institution poses a problem, a large group of institutions that collectively over levers can also pose a problem. Three, incentive structures need to be changed to discourage looting behavior. It is perfectly rational for individual executives to originate or underwrite overly risky and poor investments when bonuses big enough to retire on are paid near the time of origination and long before the risks and hazards play out. 30 years ago, when most Wall Street firms were partnerships, a comfortable retirement depended on executives not putting their firms into jeopardy. Four, the captive relationship between Wall Street and Washington should be broken.

Politicians depend on well heeled bankers to fund increasingly expensive election campaigns and bureaucrats look to the street for well paying jobs when they have done their time working for peanuts at an agency. The inevitable quid pro quo from this dependency has resulted in de-regulatory favors, looking the other way (even at times for criminal behavior) and outright payments from taxpayers (call them bailouts or toxic asset purchases if you will). Government cannot serve the general interest of the populace when it is captive to the players of the securities industry. One tell-tale on this issue is a lack of indictments emerging from the present crisis. When the internet bubble broke a few years ago, several executives went to jail. The current mess, which has arguably been created by even more egregious behavior, has generated a rescue response rather than a draw-and-quarter response, complaints about bonuses notwithstanding.

2.  Systemic De-Leveraging – Not only does the financial system need to be righted from over-leverage and other ills, but also the consumer sector, which is the major driver of the economy, needs to de-lever. Hedge fund manager Ray Dalio's notion of a D-process seems right on the mark here. Years of easy credit for mortgages, auto loans, credit cards (under the guise of financial innovation) fueled purchases beyond what was possible with household cash flow (i.e. take-home pay). False perceptions that increases in wealth due to rising home and equity prices were permanent lured people to spend more than they had earned, reducing the national savings rate to 0%. To a lesser extent, the industrial sector needs to de-lever as well. A surge of cheap credit fueled a buyout boom, and there are several good businesses bought by private equity firms that are carrying too much debt...

Asset values and the debts monetizing those assets have to return to a sustainable balance that is supportable with cash flow (ideally also recognizing requirements for future off balance sheet liabilities such as retirement). As Dalio has noted, this is a process not an event. Over the years, through the money multiplier effect, increasing leverage has been a significant driver of economic growth and thus systemic cash flow. With the tide going out, we are now in the difficult part of the cycle where the money multiplier works in reverse. That is falling asset values require reduced debt which reduces cash flow which further reduces credit which hurts asset values more and so on.

An interesting aspect of this process is the role of government. In order to reduce the pain of this process and perhaps to slow it down to a pace that can be managed (as an alternative to a collapse), the U.S. government has embarked on a process of transferring debt from the private sector (the banking system and consumers) to the public sector. Thus through bailouts, which allow financial institutions to settle debts, and outright purchases of mortgage backed securities by the Fed, Government has been assuming a portion (a sizeable one actually) of the declining leverage elsewhere in the economy. Furthermore, through transfer payments such as welfare to the unemployed, the government is braking the cashflow effect of the deleveraging process. It is clear though, that this is ballooning government debt (by some estimates currently on the order of $750,000 for a family of four) and that limits may be reached. If the federal government needs to go through a D-Process of its own, the implications will be significant. Rising treasury rates, a falling dollar either to other currencies and/or precious metals and surging tax rates may all be fallout from this in the future.

3.  Rebalancing the global trade and currency systems – While the two processes above appear to be underway in varying degrees… and with varying competence… the process of reforming the trade and currency system appears yet to begin. While the globalization of trade over the last 20 years has clearly been beneficial to the parties involved (particularly those countries who have raised unprecedented numbers of citizens out of poverty), it has taken place in a less than perfect system. In the ideal of a free and fair trade system, markets and prices (including currency exchange rates) function so that economic forces (a la Adam Smith's invisible hand) allocate resources to their most productive uses in a fashion that leads to long run balances of trade between participating countries. While there are degrees of freedom in the current system, there are also a host of structural restrictions that inhibit free market processes in ways that provide certain significant favors to various parties. There is a reason World Trade Organization rules and other “free trade” agreements are tens of thousands of pages long. They are actually not “free trade” agreements but “negotiated trade” agreements. Consequently, economic laws that naturally regulate supply, demand, pricing and other variables to achieve balance are constrained and influenced by the arbitrary rules built into the system.

Underpinning the trade system is the world currency system, which also has some imperfections. In a more ideal world, currencies float in value relative to each other and in doing so, they help signal important adjustments to economic activity so as to maintain balance. The existing system, which reflects the Bretton Woods Agreement of over 60 years ago, inhibits this ideal. While currencies do float in value, the U.S. dollar is established as the world's reserve currency, which provides it some preferences that distort its value relative to other currencies. Furthermore, countries operating within the system, such as China , have been allowed to peg their currency values to the dollar, which has distorted those values not only against the already distorted value of the dollar but also against the various unpegged currencies.

The consequence of structural flaws in trade agreements and the currency system have led to extraordinary imbalances in trade, which has divided the world into surplus economies and deficit economies. The current state of affairs is unsustainable. The question is whether the requisite changes that must be made can be achieved cooperatively or if the systems will be allowed to break down in catastrophic fashion before a new order can emerge. If the rhetoric between China and the U.S. is any indication, tensions are rising to a point where the stage may be set to implement change.

Hopefully, talks and deals can be struck productively while avoiding trade wars or, worst of all, a military war. What is at stake here is difficult to underestimate, and the political will and craft required to achieve favorable outcomes will be extremely challenging. It is no wonder that this process is being saved for last. While the market's exuberance of the last two weeks should be enjoyed by all who have profited from it, eyes should be clear that more “interesting” times are in store.

By Thomas Auchincloss, Market Oracle UK



How Can We End America’s Losing

 Streak? by Bob Chernow


 Has America lost its confidence? Are we into a

 losing streak? If so, can we turn it around?

 I take my lead from Rosabeth Moss Kanter’s book,

 Confidence. Kanter is a Harvard professor who has

 studied long term winning and losing streaks in

business and sports.  She is to the point and

practical.  I have taken her observation to their

logical larger conclusion that America has a losing


Kanter says that “confidence is a sweet spot

between arrogance and despair. Overconfid

ence leads people to overshoot, to overbuild, to

 become unnaturally exuberant or delusionally

optimistic and to assume they are invulnerable.

 That is what induces people to become complacent

, leaders to neglect fundamental disciplines,

 investors  to turn into gamblers. But under-

confidence is just as bad, and perhaps worse. It

leads people to under-invest, to under innovate and

to assume that everything is stacked against them,

 so there is no point in trying.”

Certainly this is where America stands now.

Retail spending stopped late in September, not just

 for large purchases, but for modest ones.  I have a

friend who owns three dry cleaner stores.  He tells

me that October – usually his best month – is down

 dramatically.  My barber, Tom, said that his

business in mid-October was cut by 70%. Usually I

 need to wait 35 minutes for a haircut. When I saw

 him in mid-October at 11 a.m., I was his third

customer for the day.

My point is that Americans have pulled back. We

feel rudderless.   Recently the Obama appointments

– all experienced and competent – have triggered a

 Wall Street rally, in part because it fills a void of a

 leaderless country and economy.  But our

problems are deeper.

For example, we are into the “blame game”.  My

 friend Congressmen Jim Sensenbrenner believes

 that the sub-prime crisis was caused because the

poor were “given” mortgages.  Support for the auto

 industry is equated with helping the unions.  Others

 want to punish the “evil-doers” who were

responsible for the failure of our banking system.

The “blame game” turns winners into losers, in part

because the attitude is revenge, not problem

solving.  Indeed when we let our ideology shape

the facts, like Mr. Sensenbrenner, we cannot

 saveour problems. For my part, I want the

economy to recover. I seek financial health more

than punishment.

As Professor Kanter says, “if losses mount, pressure

 goes up – or the perception of pressure”.  “Stress

makes it easier to panic.  Panic makes it easier to

 lose.  Losing increases neglect”.

“Signs of failure cause people to dislike or avoid one

 another, hide information, and disclaim

 responsibility – key elements in denial”.

As to the reason behind the sudden stopping of

shopping, it is fear and anxiety.  “People can

become paralyzed by anxiety – the learned


Warren Buffett likes to say that “it’s only when the

 tide goes out that you know who has been

swimming naked”.  So we look at the Chrysler, GM

 & Ford executives who flew down to Washington to

 beg for money in their Lear jets and think silently

that “these guys are out of touch”.  We see

Secretary Paulson and the now irrelevant Bernanke

 fumble with their plans to shore up the system.

 They are merely throwing mud against the wall to

see what sticks!

These folks are easy targets. But attacking them

 does not help us solve our problems.

“Of all the pathologies that accumulate in a losing

streak, one of the most damaging to individuals,

and eventually to the places they work and live, is

 passivity and learned helplessness.  When people

 become resigned to their fate, nothing ever


So, have we lost faith in our financial system, our

 economy, our government and ourselves? 

  Perhaps! But we Americans are an optimistic

people. We see adversity as opportunity. We shine

 when adversity hits us. We get up when we


Kanter suggests that we get “people to engage in

 positive ways” and to “find reasons to identify with

 everyone’s fate”.  I’d second that suggestion.

Business and government needs to again “walk the

 factory floors”. They need to understand their

customers and get useful feedback from their

employees. Some “winners” do that now. I made a

 suggestion to Costco and received a call from their

CEO, who questioned me about one of their stores.

 He picked up on a problem about check out lines

 and corrected it. On the other hand, I wrote Fede

ral Reserve Chair Bernanke just after he was

 appointed in 2006. I was predicting the sub-prime

 crisis and made specific suggestions on reducing its

 impact. I was answered by a PR flack who had not

 read my comments. I responded to her, asking her

 to pass on my letter to Bernanke. This was not

done. He and others remain isolated from the

problems we are having. 

What can we as citizens do? First, be positive. Do

something positive, even if it is a small gesture. For

 example, I bring up the newspapers for the office

and make the coffee when I come in early. This

starts me off positively for the day. Volunteer to

help those less fortunate.

Try to look at the glass half full, not half empty. Will

 lowered gas prices stimulate the economy by

 putting more money in people’s pockets? Some

conservative estimates say that most American

 will“save” $1250 a year. Are there opportunities in

 the bond and stock markets? Is government

helping to stabilize financial institutions and will that

 lead to the freeing up of loans? Will layoffs mean

 that businesses will be more efficient? Are the

 Obama appointments men and women who are

 competent and experienced? You get the idea.

Emblazon as your motto “Don’t address blame

solve the problem”.

Do what you can do yourself to have people look at

the world in a less defensive manner and remind

others that we have the power to change direction

, through our own efforts, through elections, and

with a plan. What was it that Horace said” Many

 shall be restored that now are fallen and many shall

fall that are now in honor.”


Ten principles for a Black Swan-proof world

By Nassim Nicholas Taleb

Published: April 7 2009 FT

1. What is fragile should break early while it is still small. Nothing should ever become too big to fail. Evolution in economic life helps those with the maximum amount of hidden risks – and hence the most fragile – become the biggest.

2. No socialisation of losses and privatisation of gains. Whatever may need to be bailed out should be nationalised; whatever does not need a bail-out should be free, small and risk-bearing. We have managed to combine the worst of capitalism and socialism. In France in the 1980s, the socialists took over the banks. In the US in the 2000s, the banks took over the government. This is surreal.

3. People who were driving a school bus blindfolded (and crashed it) should never be given a new bus. The economics establishment (universities, regulators, central bankers, government officials, various organisations staffed with economists) lost its legitimacy with the failure of the system. It is irresponsible and foolish to put our trust in the ability of such experts to get us out of this mess. Instead, find the smart people whose hands are clean.

4. Do not let someone making an “incentive” bonus manage a nuclear plant – or your financial risks. Odds are he would cut every corner on safety to show “profits” while claiming to be “conservative”. Bonuses do not accommodate the hidden risks of blow-ups. It is the asymmetry of the bonus system that got us here. No incentives without disincentives: capitalism is about rewards and punishments, not just rewards.

5. Counter-balance complexity with simplicity. Complexity from globalisation and highly networked economic life needs to be countered by simplicity in financial products. The complex economy is already a form of leverage: the leverage of efficiency. Such systems survive thanks to slack and redundancy; adding debt produces wild and dangerous gyrations and leaves no room for error. Capitalism cannot avoid fads and bubbles: equity bubbles (as in 2000) have proved to be mild; debt bubbles are vicious.

6. Do not give children sticks of dynamite, even if they come with a warning . Complex derivatives need to be banned because nobody understands them and few are rational enough to know it. Citizens must be protected from themselves, from bankers selling them “hedging” products, and from gullible regulators who listen to economic theorists.

7. Only Ponzi schemes should depend on confidence. Governments should never need to “restore confidence”. Cascading rumours are a product of complex systems. Governments cannot stop the rumours. Simply, we need to be in a position to shrug off rumours, be robust in the face of them.

8. Do not give an addict more drugs if he has withdrawal pains. Using leverage to cure the problems of too much leverage is not homeopathy, it is denial. The debt crisis is not a temporary problem, it is a structural one. We need rehab.

9. Citizens should not depend on financial assets or fallible “expert” advice for their retirement. Economic life should be definancialised. We should learn not to use markets as storehouses of value: they do not harbour the certainties that normal citizens require. Citizens should experience anxiety about their own businesses (which they control), not their investments (which they do not control).

10. Make an omelette with the broken eggs. Finally, this crisis cannot be fixed with makeshift repairs, no more than a boat with a rotten hull can be fixed with ad-hoc patches. We need to rebuild the hull with new (stronger) materials; we will have to remake the system before it does so itself. Let us move voluntarily into Capitalism 2.0 by helping what needs to be broken break on its own, converting debt into equity, marginalising the economics and business school establishments, shutting down the “Nobel” in economics, banning leveraged buyouts, putting bankers where they belong, clawing back the bonuses of those who got us here, and teaching people to navigate a world with fewer certainties.

Then we will see an economic life closer to our biological environment: smaller companies, richer ecology, no leverage. A world in which entrepreneurs, not bankers, take the risks and companies are born and die every day without making the news.

In other words, a place more resistant to black swans.

The writer is a veteran trader, a distinguished professor at New York University’s Polytechnic Institute and the author of The Black Swan: The Impact of the Highly Improbable

How can the world economy pull out of this slump? Four experts respond.

Pamela Cox Answers: Beware of Losing Social Gains

There is no clear road map out of the global financial crisis. Indeed, the main solution seems to be increased reliance on the state in ways unthinkable only a few years ago. The global financial crisis risks becoming a human and social crisis, eroding recent social gains achieved in Latin America, an average of 5 percent per annum...

Francisco Gil Díaz Answers: Avoid Protectionism

The one fact public policies should take into account is that the local effects of the worldwide meltdown are unavoidable. They can be mitigated, but attempts to neutralize them through protectionism will be unsuccessful and will return to haunt countries that adopt them like a deadly boomerang...

Susan Segal Answers: Put Innovation and Entrepreneurship High on the Agenda

The depth and breadth of the global economic and financial crisis seems to be finally clear—at least partially. While this crisis does not have its origin in Latin America, Asia or any other emerging market, the effects are being felt around the world. Growth rates in most countries are in negative territory, unemployment is increasing and world trade is plummeting. And there is no easy solution to the dilemma in which we find ourselves today. It is becoming clearer, however, that just as the U.S. led the world into this crisis, it will have a huge role in leading the world out of it...

Mohamed A. El-Erian Answers: Time for a Policy “Big Bang”

Realization is finally sinking in that today’s crisis goes well beyond a cyclical slowdown. We are in the midst of a global, synchronized recession that is fundamentally re-defining economic, financial and institutional relationships. The resulting structural changes are consequential for the long-term growth of the global economy and the potential for poverty alleviation...Americas Quarterly

Reform the architecture of regulation By Henry Paulson, March 17 2009 FT In the midst of the market turmoil, the pressing priority for US and global policymakers is to repair the financial system and restore the economy. Just as important, however, will be addressing the serious flaws exposed by this crisis. This process of reflection and reform will be critical to restoring confidence and enabling market-based capitalism to rebuild our economies. We must recognise the real possibility that because the crisis is not behind us, there may be lessons to learn and problems to address that are not now obvious. Yet many lessons are obvious and I take confidence from the commitment of world leaders in the US, Europe, China and elsewhere to pursue comprehensive regulatory reform and co-ordinate internationally. (Click to read entire article).

CEPAL pide elevar regulación financiera en América Latina
 La Comisión Económica para América Latina y el Caribe (CEPAL) planteó hoy la necesidad de que los gobiernos del subcontinente profundicen y amplíen la regulación de los mercados financieros.

  La intervención sería especialmente necesaria en países que tienen sistemas financieros más desarrollados, como México, Chile, Brasil y Colombia.

  Cepal, en un documento sobre la crisis financiera, sostuvo que el origen de la crisis estuvo, entre otros factores, en "una significativa concentración del crédito en ciertos segmentos del mercado, en particular el inmobiliario, originando una sobreinversión en esos sectores".

  La concentración del crédito además generó instituciones bancarias muy grandes, cuya quiebra terminó afectando todo el sistema, señaló el texto "La crisis subprime en Estados Unidos y la regulación y supervisión financiera: lecciones para América Latina".

  La crisis económica, que llevará al mundo a su primera recesión en 60 años, encuentra a América Latina con señales mixtas para 2009, con países creciendo, como Brasil, Perú y Panamá, mientras otros se estancan o retroceden, como Chile o México.

  Unos dos millones de latinoamericanos podrían engrosar las huestes del desempleo en 2009, elevando la cifra a 20 millones de personas, en una región donde ya una de cada tres personas es pobre.

Los activos tóxicos eran activos invisibles

No podemos permitirnos que las economías en las sombras se hagan tan grandes.

El gobierno de Obama finalmente ha ideado un plan para lidiar con la causa real de la contracción del crédito: los famosos "activos tóxicos" en los balances bancarios que han asustado a inversionistas y prestatarios, congelando los mercados de crédito en todo el mundo. Pero si el secretario del Tesoro, Timothy Geithner, espera impedir que se repita esta crisis económica global, su plan de rescate debe reconocer que el problema real no son los préstamos incobrables, sino la degradación del valor del papel sobre el que están impresos.

La crisis global actual —con una pérdida de US$50 billones (millones de millones) en acciones, bienes raíces, commodities y ganancias operativas en 15 meses— no puede achacarse sólo al impago de un ínfimo 7% de las hipotecas de alto riesgo (valoradas probablemente en más de US$1 billón) que la detonó. El verdadero villano es la falta de confianza en el papel en el que los activos están impresos. Si no restauramos la confianza en el papel, las nuevas moras —en tarjetas de crédito o créditos estudiantiles— detonarán otro colapso del papel que hundirá la economía mundial.

Considere que todo lo que tenemos de valor pasa de mano en mano en papel o títulos de propiedad. A principios de la década había unos US$100 billones en títulos de propiedad representando bienes tangibles como tierras, edificios y patentes en todo el mundo, y unos US$170 billones representando la propiedad de activos semilíquidos como hipotecas, acciones y bonos. Desde entonces, sin embargo, financistas agresivos han fabricado lo que el Banco Internacional de Pagos estima son US$1.000 billones en nuevos derivados (valores respaldados por hipotecas, obligaciones de deuda colateralizada, y seguros contra las cesaciones de pagos) que han inundado el mercado.

Estos derivados están en la base de la restricción del crédito. ¿Por qué?

A diferencia del resto de los papeles de propiedad, los derivados no deben, por ley, ser registrados, monitoreados continuamente y ligados a los activos que representan. Nadie sabe con precisión cuántos existen, dónde están y quién es responsable por ellos en última instancia. Por ende, existe el temor generalizado de que los potenciales prestatarios y receptores de capital con demasiados derivados en mora no podrán repagar sus préstamos. A medida que la confianza en el papel de propiedad se evapora, se dispara una reacción en cadena, paralizando el crédito y la inversión, reduciendo a su vez las transacciones y causando una caída catastrófica del empleo y del valor de la propiedad en todo el mundo.

Desde que los humanos empezaron a comerciar, prestar e invertir más allá de los confines de sus familias y tribus, hemos dependido de declaraciones escritas autenticadas legalmente para obtener información sobre bienes de valor. En los últimos 200 años, esa autoridad legal ha evolucionado para convertirse en un consenso global sobre los procedimientos, estándares y principios requeridos para documentar hechos de un modo que genere confianza y sea fácilmente entendible por todos.

El resultado es un imponente sistema de propiedad con reglas y mecanismos de documentación que fijan en papel los hechos que permiten tener, transferir, transformar y usar todo lo que poseemos, desde acciones a guiones de cine. El único papel representando un activo que no está centralmente registrado, estandarizado y fácilmente rastreado son los derivados.

La propiedad es mucho más que un compendio de normativas. Es también un gigantesco sistema informativo que procesa datos hasta transformarlos en hechos que pueden ser sometidos a una prueba de veracidad, destruyendo los principales catalizadores de recesiones y pánicos: la ambigüedad y la opacidad. Para aplicar la ley a los derivados, los gobiernos deberían asegurar que cumplen seis procedimientos establecidos que garantizan el valor y legitimidad de cualquier tipo de título que pretende representar un activo:

  • Todos los documentos, y los activos y las transacciones que representan o de los que se derivan, deben estar anotados en registros accesibles al público. Sólo al registrar y poner al día constantemente los hechos podemos detectar el tipo de instrumentos financieros y contractuales excesivamente creativos que nos condujeron a esta recesión.
  • La ley tiene que tener en cuenta las "externalidades" o efectos secundarios de todas las transacciones financieras según el principio legal de erga omnes ("hacia todos"), que se desarrolló originalmente para proteger a terceras partes de las consecuencias negativas de transacciones secretas llevadas a cabo por aristocracias que no debían responder por sus actos ante nadie.
  • Cada transacción financiera debe estar firmemente ligada al desempeño real del activo del que se originó. Al alinear deuda y activos, podemos crear mediciones simples y comprensibles para detectar rápidamente si una transacción financiera ha sido creada para fomentar la producción o para apostar sobre el desempeño de "activos subyacentes" distantes.
  • Los gobiernos no deberían olvidar nunca que la producción siempre prima sobre las finanzas. Como reconocieron Adam Smith y Karl Marx, las finanzas apoyan la creación de riqueza, pero en sí mismas no crean valor.
  • Los gobiernos pueden fomentar que los activos sean apalancados, transformados, combinados, recombinados o reensamblados en tramos de distintas clases, con la condición de que el proceso tenga por intención mejorar el valor del activo original. Esta ha sido la regla para adjudicar propiedades desde tiempos inmemoriales.
  • Los gobiernos ya no pueden permitir el uso de lenguaje opaco y confuso en la creación de instrumentos financieros. La claridad y la precisión son indispensables para la creación de crédito y capital a través de papel. Los políticos occidentales no pueden olvidar lo que sus más grandes pensadores han estado diciendo por siglos: todas las obligaciones y compromisos que se conservan derivan de palabras anotadas en papel con gran precisión.

Por encima de todo, los gobiernos deberían dejar de aferrarse a la esperanza de que el mercado existente eventualmente resolverá la situación. "Dejemos que el mercado haga su trabajo" ha acabado significando "Dejemos que la economía en las sombras haga su trabajo". Pero los mercados modernos funcionan sólo si el papel es confiable.

El deber principal del gobierno ahora es extender el peso de la ley a todo el contexto tóxico, para que se puedan hacer cumplir las normas. Ninguna actividad económica basada en la confianza pública debería poder operar fuera de los principios generales de la ley de propiedad.

Las instituciones financieras deberán servir a la sociedad y reportar de modo transparente lo que tienen en propiedad y lo que deben —como el resto de personas— para que obtengamos el conocimiento de los hechos necesario para poder salir del laberinto actual. Ellos deben aprender a anotar en el papel afirmaciones sobre hechos en vez de afirmaciones sobre afirmaciones.

De Soto, autor de El Misterio del Capital (2000) y El Otro Sendero (1986), es copresidente de la Comisión para el Apoderamiento Legal de los Pobres.



Veinte principios para reconstruir el sistema financiero desarrollados por los participantes de la conferencia 'El Futuro de las Finanzas', de The Wall Street Journal.

1. Fortalecer los estándares de financiación:

Los equipos de gestión de los bancos y los supervisores del sector financiero son los encargados de que los bancos cumplan los estándares mínimos de financiación, basados en la capacidad de los deudores de utilizar sus ingresos para pagar deuda. Hay que extender la autoridad de los supervisores más allá de los bancos para también abarcar a los corredores hipotecarios y otros agentes bancarios.

2. Apuntalar a la FDIC:

El gobierno debe fortalecer las facultades de la Corporación Federal de Seguros de Depósitos (FDIC) y proveerle fondos adicionales y flexibilidad para que pueda manejar el creciente número de quiebras de bancos.

3. Reforma regulatoria:

Hay que racionalizar la arquitectura regulatoria de modo que haya una vigilancia más efectiva y consistente de los servicios financieros y que ponga fin al arbitraje regulatorio. Mejorar la efectividad de las autoridades financieras. Ofrecerles una mejor capacitación, salario, estatus y más recursos. Experiencia específica en la industria es deseable. Se necesita que pasen por pruebas constantes, licenciamiento y perfeccionamiento frecuente.

4. Nueva entidad de compensación:

Es necesario crear una entidad de compensación que mejore la transparencia de los contratos estandarizados de seguros contra cesaciones de pagos, incluyendo los de empresas específicas e índices. La entidad también se extendería al financiamiento a un día y canjes de tasas de interés.

5. Aumentar los requisitos de capital:

Los emisores de seguros contra cesaciones de pago deben hacer frente a requisitos más altos de capital. Los bancos muy involucrados en los seguros contra cesaciones de pagos deberían pagar una comisión adicional por concentración de riesgo.

6. Fortalecer el colateral:

Hay que fortalecer las garantías que se exigen a los derivados que no se negocian en bolsas para proteger el sistema.

7. Titularización más inteligente:

Hay que mejorar la transparencia en la titularización, reforzar los estándares de suscripción, exigir que todas las partes en una transacción arriesguen algo. Hay que crear estándares significativos de transparencia de los flujos financieros en todos los instrumentos y hacer que la información esté disponible y se pueda acceder a ella fácilmente.

8. Reformar las agencias de calificación de riesgo:

Hay que eliminar el estatus especial de las agencias de calificación de riesgo. Reformar la estructura de pagos para alinear mejor los incentivos de modo que sean remuneradas conforme a la precisión de sus calificaciones.

9. Un sistema regulatorio consistente:

Hay que incluir a las entidades no bancarias en la regulación y exigirles que provean información al regulador del sistema. La supervisión debe basarse en el riesgo. La información relacionada a las firmas debe ría ser privada y sólo la información general debería ser pública.

10. Limitar el apalancamiento:

Hay que limitar el endeudamiento de las instituciones financieras grandes e importantes para el sistema y aumentar los requisitos de capital para ciertos productos.

11. Hay que dejar que el capital del TARP sea pagado:

Hay que hacer que los reguladores declaren en forma explícita las condiciones para pagar los fondos provenientes del Programa de Alivio de Activos en Problemas (TARP, por su sigla en inglés).

12. Compensación de los ejecutivos:

Hay que restringir las remuneraciones de los ejecutivos en las empresas donde el gobierno tiene una participación.

13. Transparencia antes de la regulación:

El regulador del riesgo sistémico debe exigir a todas las firmas que primero provean información. La regulación debería limitarse sólo a las empresas que presenten un riesgo sistémico. El regulador debería divulgar públicamente la liquidez y la concentración de riesgo en varias industrias.

14. Transparencia de precios y volúmenes:

La industria financiera debe publicar la información de precios y volúmenes en los derivados que no se transan en bolsa.

15. La Fed debe ser el regulador del riesgo sistémico:

La Reserva Federal de EE.UU. debería ser el regulador del riesgo sistémico de las entidades no bancarias. Es importante que la agencia de vigilancia sea independiente y apolítica.

16. Velar por el éxito |de las sociedades público-privadas:

Para elevar las probabilidades de que el programa de inversión público-privada funcione, el gobierno de EE.UU. debe reconocer que muchos son renuentes a vender estos activos debido al impacto en sus resultados. Los reguladores deben tener discreción sobre los requisitos de capital y la flexibilidad contable.

17. Normas contables:

Hay que tener un conjunto sensato de reglas que reflejen el valor de la divulgación de datos financieros y los propósitos de capital.

18. Nueva autoridad que administre las entidades no bancarias en quiebra:

Hay que crear un modelo similar a la FDIC para deshacerse de instituciones no bancarias que presenten riesgos al sistema y adoptar estándares globales que determine cómo se debe tratar distintas clases de acreedores.

19. Auditores que exijan parámetros consistentes de valoración de activos:

Hay que estimular la revelación de discrepancias en la valoración de activos. Los auditores podrían supervisar la disparidad de precios entre distintos clientes.

20. Límite a los embargos:

Hay que adoptar medidas más eficientes para limitar las ejecuciones hipotecarias a través de la reducción del principal e intereses. Exigir que los bancos identifiquen potenciales deudores en problemas.

Whenever you find you are on the side of the majority, it is time to pause and reflect

                     --- Mark Twain

We have never observed a great civilization with a population as old as the United States will have in the twenty-first century; we have never observed a great civilization that is as secular as we are apparently going to become; and we have had only half a century of experience with advanced welfare states...Charles Murray

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