A few random things I’ve been meaning to get to:
GMAC – Back in January I thought it was a good idea to leave GMAC to its own fate. The thinking was that it was better, faster, and cheaper to follow a managed bankruptcy than to bail out a loser of a company whose implosion would have little impact on a financial system functioning about as well as the New Jersey Nets. It appears the Congressional Oversight Panel for the Troubled Asset Relief Program agrees. The five member panel’s report states that GMAC was “a company that apparently posed no systemic risk to the financial system, that did not seem to be too big to fail, too interconnected to fail, or indeed, of any systemic significance.” Do you think we’ll ever see the $17.2 billion repaid?
Another wise decision – The Senate Finance Bill intended to overhaul current regulation of financial markets will include the creation of an agency to track financial risk. According to the New York Times the proposed agency “is intended to give federal regulators daily updates on the stability of individual firms as well as that of their trading partners, including hedge funds.” The Times report goes on to say “the agency would give regulators a broader view of the health of participants in the financial markets and the potential for problems to spread.”
The new agency, tentatively labeled The National Institute of Finance, would assist regulators but “would have no policy responsibilities but would instead collect and analyze data, building models to assess relative risks and predict how one firm’s problems might affect others.” The agency would be a division of the Treasury Department with congressional oversight.
If you’ve read the Black Swan or ever filled out an NCAA basketball tournament bracket you understand the accuracy and value of risk based predictions. Now imagine the federal government equivalent to the pre-game shows put on by ESPN or the NFL Network. Long, over analyzed, and over talked decisions where .500 is a winning record. Here’s a radical idea: Instead of creating yet another government entity open to influence, corruption, and mismanagement, why not require ‘structured investment vehicles’ and derivatives to be traded on exchanges like common equities? Participants would have to play by the same rules as equities investors and traders, complete with the regulation and transparency required. Oh, what’s that? You say people like Barney Frank and Chris Dodd are much better suited to manage risk in financial markets by providing the keen oversight like that provided for FannieMae and FreddieMac.
You’re right, silly me.
Fat Boy Slim – The richest man in the world is a Mexican investor best known for buying Mexico’s state run phone monopoly 20 years ago and bailing out the New York Times last year. Carlos Slim (haven’t I seen that name before in a Neal Stephenson or William Gibson book?) is worth an estimated $53.5 billion, that’s equivalent to about 72 mega-zillion Pesos. He just beat out Bill Gates ($53 billion). Oh well Bill, that’s what you get for showering all that money on African kids and schools.