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https://digitalcorpora.s3.amazonaws.com/corpora/files/CC-MAIN-2021-31-PDF-UNTRUNCATED/zipfiles/0000-0999/0000.zip | 0000563.pdf | 421 | 7B. FINANCIAL CRISES - ANALYSIS
- 422 - the employees could have seen that the annual reports did not give a reliable picture.253 Just like the
appendices they could have seen the misleading complacency and the gross underestimation or
burking of risks. And the experts should have.254 If they had al ready been wo... |
https://digitalcorpora.s3.amazonaws.com/corpora/files/CC-MAIN-2021-31-PDF-UNTRUNCATED/zipfiles/0000-0999/0000.zip | 0000563.pdf | 422 | 7B. FINANCIAL CRISES - ANALYSIS
- 423 - 6. In fact, they seem to have done nothing at all with the aforementioned reports, even though they
grew in relevance and importance as time progressed.
7. The supervisors nevertheless do as if they are excellent. They show no doubt about their ability to
guarantee a saf... |
https://digitalcorpora.s3.amazonaws.com/corpora/files/CC-MAIN-2021-31-PDF-UNTRUNCATED/zipfiles/0000-0999/0000.zip | 0000563.pdf | 423 | 7B. FINANCIAL CRISES - ANALYSIS
- 424 - report LTCM: Regulators Need to Focus Greater Attention on Systemic Risk259 is very valuab le:
«Financial Regulatory Structure.
Hedge funds are generally not subject to direct federal regulation, instead they are indirectly
“regulated” by the banks and securities and fu... |
https://digitalcorpora.s3.amazonaws.com/corpora/files/CC-MAIN-2021-31-PDF-UNTRUNCATED/zipfiles/0000-0999/0000.zip | 0000563.pdf | 424 | 7B. FINANCIAL CRISES - ANALYSIS
- 425 - supervisor.
To a certain extent, financial institutions were free to choose their superviso r. As a consequence,
some supervisors had to compete with other supervisors:
«Richard Spillenkothen, the Fed’s director of Banking Supervision and Regulation from 1991 to
2006,... |
https://digitalcorpora.s3.amazonaws.com/corpora/files/CC-MAIN-2021-31-PDF-UNTRUNCATED/zipfiles/0000-0999/0000.zip | 0000563.pdf | 425 | 7B. FINANCIAL CRISES - ANALYSIS
- 426 - «In February 20 08, AIG reported billions of dollars in losses and material weaknesses in the way it
valued credit default swap [CDS] positions. Yet the OTS did not initiate an in -depth review of the
credit default swaps until September 2008.»
By way of an explanation... |
https://digitalcorpora.s3.amazonaws.com/corpora/files/CC-MAIN-2021-31-PDF-UNTRUNCATED/zipfiles/0000-0999/0000.zip | 0000563.pdf | 426 | 7B. FINANCIAL CRISES - ANALYSIS
- 427 - as a symptom of even more serious problems. Apparently Geithner didn’t notice, or didn’t see a need
for action. He has no reason to be surprised when the risks he took materialized.
The most important conclusion of the OTS experience is probably that history repeats itsel... |
https://digitalcorpora.s3.amazonaws.com/corpora/files/CC-MAIN-2021-31-PDF-UNTRUNCATED/zipfiles/0000-0999/0000.zip | 0000563.pdf | 427 | 7B. FINANCIAL CRISES - ANALYSIS
- 428 - problems with SNS, LIBOR and Euribor, which erupted a little bit later, in 2013.275 These later
problems not only show the failure of the supervision by DNB. They also show that DNB, government
and parliament have not learnt the lessons of the crises, and t ook insufficient... |
https://digitalcorpora.s3.amazonaws.com/corpora/files/CC-MAIN-2021-31-PDF-UNTRUNCATED/zipfiles/0000-0999/0000.zip | 0000563.pdf | 428 | 7B. FINANCIAL CRISES - ANALYSIS
- 429 - suggested that AFM could be an exception in the world of supervision. For these reasons a study of
the AFM seemed to have little or no added value, and has been omitted.
As a check some an nual reports have been scanned all the same. In the report about 2006 some
remarkab... |
https://digitalcorpora.s3.amazonaws.com/corpora/files/CC-MAIN-2021-31-PDF-UNTRUNCATED/zipfiles/0000-0999/0000.zip | 0000563.pdf | 429 | 7B. FINANCIAL CRISES - ANALYSIS
- 430 - and self regulation.285
7. The conclusions and recommendations of the inquiry commissions with respect
to supervision.
Conclusion 2 of the FCIC majority reads:
«We conclude widespr ead failures in financial regulation and supervision proved devastating to the
stabi... |
https://digitalcorpora.s3.amazonaws.com/corpora/files/CC-MAIN-2021-31-PDF-UNTRUNCATED/zipfiles/0000-0999/0000.zip | 0000563.pdf | 430 | 7B. FINANCIAL CRISES - ANALYSIS
- 431 - two representative offices, one in the Hong Kong Special Administrative Region of the People’s
Republic of China and one in Mexico City. The Bank currently employs 554 staff from 49
countries.»291
«BIS Mission Statement
Excellence in service to central banks and fina... |
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- 432 - governments are not addressed;
○ Housing finance (2006). Lacks involvement and shows irresponsible wishful thinking.
Makes very soft and non -binding recommendations;
○ BIS AR 2006 (2006). Inadequate as an annual report, because it ignores a large part of the
activities... |
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- 433 - 13. The reports show that the reality of BIS is incompatible with its mission, and that the mission
statement is misleading. Ex amples:
○ “Excellence”: because of very unprofessional and unexplained conduct in vital matters this is
plain nonsense;
○ “BIS aims at promoti... |
https://digitalcorpora.s3.amazonaws.com/corpora/files/CC-MAIN-2021-31-PDF-UNTRUNCATED/zipfiles/0000-0999/0000.zip | 0000563.pdf | 433 | 7B. FINANCIAL CRISES - ANALYSIS
- 434 - In pursuing our objectives, we attach utmost importance to credibility, trust, transparency and
accountability. We aim for effective communication with the citizens of Europe and the media. We are
committed to conducting our relations with European and national authorities... |
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- 435 - Conclusions.
1. The reports give no indication of the size and consequences of the different risks. Nothing is said
about scen ario’s following the realization of a risk. The reports assume that it is sufficient to note
that there is a risk, and/or that it has de - or i... |
https://digitalcorpora.s3.amazonaws.com/corpora/files/CC-MAIN-2021-31-PDF-UNTRUNCATED/zipfiles/0000-0999/0000.zip | 0000563.pdf | 435 | 7B. FINANCIAL CRISES - ANALYSIS
- 436 - foster international monetary c ooperation,
secure financial stability,
facilitate international trade,
promote high employment and sustainable economic growth, and reduce poverty around the
world.
Created in 1945, the IMF is governed by and accountable to th... |
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- 437 - don’t identify or describe these tools. Neither do they show which “vulnerabilities a nd weak -
nesses” they have helped identify. In fact the IMF shows no knowledge or insight better than that
of other organizations. IMF studied dangers only superficially, and overestimated... |
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- 438 - promote policies that will improve the economic and social well -being of people around the world.
The OECD provides a forum in which governments can work together to share exp eriences and
seek solutions to common problems. We work with governments to understand what driv... |
https://digitalcorpora.s3.amazonaws.com/corpora/files/CC-MAIN-2021-31-PDF-UNTRUNCATED/zipfiles/0000-0999/0000.zip | 0000563.pdf | 438 | 7B. FINANCIAL CRISES - ANALYSIS
- 439 - There is no essential difference with the supervisors.
The Dutch General Accounting Office (DG AO317).
Conclusions (partly based on evidence and analyses presented in earlier chapters) .
1. The members of the DGAO are selected by the political establishment.
2. Th... |
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- 440 - several inquiries of aid programs for banks, and about supervision.322
Something similar applies to the US GAO. See the description of its mission on pp. 7 -8/ 13 -14 of
the GAO Performance and Accountability Report 2004. It is summarize d on p. 2/2:
«GAO exists to suppor... |
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- 441 - their position by including overviews of earlier findings and recommendations and the reactions of
those con cerned in their annual reports. Especially by noting the absence of adequate reactions or
corrective measures. At present they don’t (or rarely). Instead they contri... |
https://digitalcorpora.s3.amazonaws.com/corpora/files/CC-MAIN-2021-31-PDF-UNTRUNCATED/zipfiles/0000-0999/0000.zip | 0000563.pdf | 441 | 7B. FINANCIAL CRISES - ANALYSIS
- 442 - intertwined . The Irish inquiries are more open, and will be treated separately. International
financial economic developments since the crisis are compatible with the assumption of
representative ness of the CDW and FCIC. Therefore no great efforts have been made to find
... |
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- 443 - 10. The Fed was obliged to take government policy into account. Perhaps other supervisors had a
similar obligation. This may have caused significant weakening of supervision.332 The
commissions pay no attention to this observation.
11. The commissions do not give a logica... |
https://digitalcorpora.s3.amazonaws.com/corpora/files/CC-MAIN-2021-31-PDF-UNTRUNCATED/zipfiles/0000-0999/0000.zip | 0000563.pdf | 443 | 7B. FINANCIAL CRISES - ANALYSIS
- 444 - system, a nd do not try to find the causes of the international financial crises. They are much more
open than the inquiries of the CDW and FCIC, and shed important light on the internal
functioning of all relevant organi zations. Their conclusions overlap and are compatibl... |
https://digitalcorpora.s3.amazonaws.com/corpora/files/CC-MAIN-2021-31-PDF-UNTRUNCATED/zipfiles/0000-0999/0000.zip | 0000563.pdf | 444 | 7B. FINANCIAL CRISES - ANALYSIS
- 445 - not supervising su pervision;
appointment of dishonorable and incompetent heads of vital organizations;
mortgage policy (AH en CRA).
6. We conclude there was a systemic breakdown in accountability and ethics.
Agreement. But more in supervision and government (... |
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- 446 - 6. The FCIC has a fundamentally different opinion about the relative importance of the various
contributing factors or causes, and of the relative weights of the responsibilities of the var ious
actors.341
7. The FCIC fails to conclude that all principal persons had insuff... |
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- 447 - staff.345 The composition of the commissions themselves gives reason to doubt the competence and
integrity of the commission staffs.346 Many of the staff members of the CDW are called “resea rch staff
member”. But a name says nothing about the competencies of the bearer. No... |
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- 448 - All this can be explained, and only be explained, by a combination o f incompetence and lack of
integrity.
4. Methodological deficiencies of the CDW and FCIC inquiries and their
consequences.
1. The FCIC assumes that telling the story will automatically uncover the ... |
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- 449 - be obtained from contemporary documents.356 The reliability of the interviewed is not even
discussed.357
4. Not all groups of actors investigated in some depth have been investigated similarly or propor -
tionally. A whole day was spent on Moody’s and ratings, but not a da... |
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- 450 - arguments for doing nothing?
And these are only the answerable questions. One cannot expect a meaningful answer for example
to the question: why were no scenario’s made for the sequences of events following the realization of
each of the identified risks? One cannot expe... |
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- 451 - crises impossible or very improbable. This approach f orces an inquiry commission to look much more
critical for and at causes.
To be useful for prevention, the inquiry commissions should anyway have looked for changeable
causes, and checked that it is credible that their... |
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- 452 - the financial system.363 They did not do their duty. This had extremely harmful consequences for th e
people whose interests they were bound to protect. The commissions establish this phenomenon only
implicitly. They don’t conclude it explicitly. They seem to leave it up to... |
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- 453 - wasn’t noticeable in practice. Anyway, the supervisors should have evaluated the reports on their
material merits, and henceforth taken them into account appropriately. Why didn’t they do so? Why
has the Fed done nothing about systemic risk in spite of these reports? Did ... |
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- 454 - One has to conclude that the appointments of the heads of the supervising organizations and the
other principal persons were simply wrong. Those who appointed them made terrible errors of
judgment.369 In this respect too their integrity and/or competence was a false preten... |
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- 455 - Not everyone concerned had the same “societal responsibility”. With respect to the public,
supervision and government had the greatest responsibility. Only they had a legal duty implying
societal responsibility, and only they had the cor responding means and authority.
Th... |
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- 456 - Since it has been shown implicitly that the political system, and therefore the Constitution, are
inadequate, the last paragraph can be read as a call for revolution.
Of course it is misleading to speak anthropomorphically about the nation. According to the
Constitution t... |
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- 457 - differently.
Instead of protecting those whom they find responsible, the commissions could and should have
concluded that the pretensio ns of the principal persons were false. That these persons are insufficiently
honorable and competent to occupy the kind of positions ... |
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- 458 - the time series of quantitative goals (from 30 to 57%, see the relevant tables);
the pressure systematically exerted by HUD to reduce the conditions for mortgages;
common sense: is the FCIC saying that the policy wasn’t needed?
How did the FCIC estimate what the “... |
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- 459 - goals and subgoals, which could further increase our credit losses. »385
Similar remarks were made in the annual reports of 2004 and 2005. They seem to have been
ignore d by HUD and OFHEO. There is at least no evidence of a reaction.
The AH policy can also explain the dys... |
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- 460 - The FCIC says nothing about the decade -long arrogant and complete lac k of attention for the
system as a system, and for the interactions between its parts and processes. This in spite of the
warnings and recommendations of the GAO of 1999. The FCIC says nothing about the ... |
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- 461 - analyses like the one qu oted below. Analyses which exculpate the principal culprits. The same fear
can moreover explain why some matters are, and others are not investigated, or only superficially.392
Such as the annual reports of the supervisors and the GAO reports.
In ... |
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- 462 - The assumption formulated in the last sentence of the first paragraph of the quote, that the
system is healthy if the institutions are, is incompatible with the (untrue) assertion that DNB
warned for systemic risks.
Analysis of its annual reports shows that DNB did n... |
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- 463 - discussions.402 Such a (management) culture precludes correction, and is incompatible with effective,
let alone optimal performance of the organization.
Repression by the mana gement, combined with a slavish and unthinking attitude of subordinates,
makes the observed (see... |
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- 464 - conse quen ces of the fall of Lehman seem to have been necessary to show the principal persons in
super vision and government that the financial system was a coherent whole, and that the system was
unstable, and out of control. Only then did they come with thou sand and one... |
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- 465 - words: the consistency or credibility of the above goals is debatable, and the practical conduct of the
interviews, and the use of the answers, require more explanation and reflection. Which are not given.
In some cases the p roblem of the reliability of interviews can be ... |
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- 466 - governmen t and the accountants, and unprofessional conduct of parliament. There is no indication of
any of this having improved.
■
In 2002, Dutch parliament instituted an inquiry commission to investigate large scale fraud in the
construction sector. The fraud had bee... |
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- 467 -
The following is quoted from the list of recommendations on pp. 305 -8:
21. «The government sho uld take the initiative with respect to evaluation of the regulation of the
functioning of accountants, and improve the regulation where necessary. Certainly where the
Direc... |
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- 468 - monitored, and parliament has not taken action when nothing was done with them. There is no
indication that it will be otherwise this time.
19. Two Irish inquiry reports.
The two reports are:
The Irish banking crisis regulatory and financial stability policy 200... |
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- 469 - Apart from what has been included in the above summary, the report of May 2010 does not give
important additional information.
It will be clear that the Irish inquiries are fundamentally di fferent from, and better than, those of the
CDW and FCIC. They strongly support th... |
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- 470 - 6. The persons heard by the inquiry commissions are treated, and behave themselves, as if they were
experts. Only rarely do they let shine through that they are or were head of an organization with
hundreds or even thousands of employees.
7. None of those questioned by th... |
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- 471 -
It would seem that the most important conclusions about the top of public administration can be
summarized as follows.
The facts of the period 1994 -2010 and their analysis show that:
Almost all principal persons from supervision and government with responsibilities ... |
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- 472 - persons failed substantially however. The question therefore arises whe ther there really exist people
with both abilities, and to the extent required by the top jobs in supervision and government.
There may have been banks whose leadership had sufficient integrity and com... |
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- 473 - acknowledge th at they should have reacted very differently on the recommendations of the GAO of
1999 and the proposal of CFTC’s Brooksley Born.
It is just as unreasonable to expect that the problem they created can be solved by replacing them
by similar people from the ... |
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- 474 - The historical documents have been organized and analyzed. They were compared with the
answers the principal persons gave to questions asked by the inquiry commissions. And as regards the
members of the inquiry commissions : with the questions they asked and did not ask, an... |
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- 475 - They showed no awareness of uncertainties and alter natives. They saw their own opinion as the only
relevant or possible one. None of them acknowledged any form of failure or incompetence.444
None of the principal persons admitted that he should have acted differently and h... |
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- 476 - It is of course highly significant that none of the people who are designated “principal persons” in
this study was willing to be interviewed for Inside Job . This fact supports the above observation of
selective questioning by the FCIC, and the hypothesis that they do not... |
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- 477 - more re prehensible is the way some financial institutions treated well founded warnings, and the
employees who dared submit them. Even if the employee had the duty to assess the quality and risks
of products, and to report his findings. The FCIC gives several exa mples.455... |
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- 478 - either take the high road or you don’t —we’re not going to hurt accounts or damage our reputation for
fees.” Simon said the rating agencies’ methodologies were not sufficiently stringent, particularly
because they were being applied to new types of subprime and Alt -A loan... |
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- 479 - risks should be prevented or reduced even at high cost. This could and should have been known to all
principa l persons. Both from experience, reports, and reasoning about the financial -economic system.
But this knowledge was not acted upon. The present inquiry found no e... |
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- 480 - reporting that they could be trusted to stand guard over the safety and s oundness of the financial
system. They said that the system was safe and sound while it was not. They ignored vital parts of
their duties. Without publicly accounting for that. They behaved as if they... |
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- 481 - very many times. Still, the (new) instruments were not intrinsically inadequate. But their value
depended on markets and subjective valuation. Subjective valuation s can change without good reason;
rapidly and without hindrance. Combined with instabilities in the system, ch... |
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- 482 - b. Did not understand that they and only they could (and should) prev ent that system failure
would harm innocent people;
c. Sometimes were not even seriously interested in the financial system for which they were
responsible;465
d. Pretended that they did understand the... |
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- 483 - 30. Possibly because prosecution can only be started with the support of the politi cal establishment,
and because this establishment understands that it could and should have prevented the crisis if it
had done its duty. It could not accuse anyone without running the risk ... |
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- 484 - b. Retaining risk promoting laws, e specially those regarding liability, criminal behavior and
hierarchical organization;
c. Deregulation and weakening supervision, in spite of warnings, the growth of the financial
sector, and the introduction and growing use of new risky... |
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- 485 - does not tell students how they can live in accordance with generally accepted norms and values
without hurting themselves.
10. In science (as an activity) not the advancement of explanatory knowledge gets priority, but the
personal interests of the scientific establishme... |
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- 486 - Starting in 2004, Fannie and Freddi e yearly drew attention to the risks of reduced mortgage
requirements in their annual reports.472 In the annual reports of Freddie the development is easy to
follow. Realization of the ever higher HUD goals requires easing mortgage requir... |
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- 487 - whole (relevant) truth, and nothing but the truth, to the best of one ’s knowledge.478 It quickly became
clear that Wellink never told the whole relevant truth, and lied whenever the truth would unmask him
as being incompetent or having malfunctioned. It was not difficult t... |
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- 488 - everyone is treated equally. Especially the civil servant should stick to the rules. Public administration
operates by the grace of the confidence of citizens in the objectivity of civil se rvants. Corruption
undermines this confidence, and corrodes the foundation of the co... |
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- 489 - basis of the findings of the present report, a negative reply had seemed likely from the start.
Prosecution, and a positive reply to my letter, would h ave justified serious doubts about the main
conclusions of the report. If I wanted Wellink prosecuted, appeal would be nec... |
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- 490 - Chapter 7.
The financial crises of 2007 -2013.
Part C. Appendices.
Principal persons and organizations in the (pre)history
of the subprime crisis.
A litany of dysfunctioning and deceit.
With exceptions to prove the rule.
Table of appendices.
The table... |
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- 491 - 1. The Basel agreements.
Table of contents of this appendix.
Evaluative concluding remarks.
The Basel Capital Accords . By Joe Larson, April 2011.
The book From Basel 1 to Basel 3 by Laurent Balthazar.
The presenta tion sheets of Tamer Bakiciol, Nicolas Cojocaru -Durand,... |
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- 492 - The Basel Capital Accords . By Joe Larson, April 2011.
This seems to be a sensible description and modestly critical evaluation of the Basel agreements. The
article is re adable and understandable. An agreement is first described, then discussed.
An asset is the opposite and pendant ... |
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- 493 - accurately connected to the actual risks confronting the bank.»5
Basel II. (Pp. 15 -24).
«Basel II still requires that a bank’s total capital equal at least 8% of the bank’s risk -weighted
assets. It also still as sesses banks’ capital adequacy using the same capital adequacy ratio, whi... |
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- 494 - Lack of uniformity, even in the standardized approach. There are different rating agencies,
which rate differently;
Too much uniformity: unrated borrowers are considered of equal quality and given equal
weight (100%);
In the IRB approaches there obviously is no uniformity either; ... |
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- 495 -
The tier 1 requirement is raised from 4 to 6%. Moreover:
«Under Basel III, banks will have to hold an amount of core capital equal to at least 4.5% of risk -
weighted assets, whereas in the previous Basel Accords, core capital had to represent only 2% of risk -
weighted assets.»14
In a... |
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- 496 - Maybe the biggest criticism of Basel III is what it fails to do. Many of the criticisms of Basel II go
unaddres sed in Basel III. For example, Basel III does not address the problems associated with Basel
II’s methods of assigning risk to a bank’s assets - it does nothing to change the calcu... |
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- 497 - The US International Lending and Supervisory Act (ILSA) unified capital requirements for the various
bank types at 5.5 percent of total assets and also unified the definition of capital.»
P. 27 gives a useful definition of market risk:
«In the Basel Committe e document, market risk was ... |
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- 498 - o Final Version(2006)
“Basel II: International Con vergence of Capital Measurement and Capital Standards:
A Revised Framework -Comprehensive Version”
Proposed revisions to the Basel II market risk framework (2008)»22
Basel II was motivated by the following problems with Basel I:
... |
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- 499 -
Sheet 31 show s how banks try to minimize capital requirements:
«Just like you can buy life insurance, banks can protect themselves against defaults by buying
Credit Default Swaps (CDS);25
This exposes them to counterparty risk however;
They can also get rid of bad loan s/ri... |
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- 500 - Not What They Had in Mind. A History of Policies that Produced the Financial
Crisis of 2008 . By Arnold Kling, September 2009.
Available on the internet as a pdf file.
On p. 40 Pinto refers to this book for an excell ent discussion of the impact of the Basel Accords on
the financial... |
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- 501 - implementation as law at the national level.» |
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- 502 - 2. Ben Shalom Bernanke.
Table of contents of this appendix.
Summary and conclusions.
Biographical information.
Bernank e in the film Inside job.
The Morehouse speech of 14 April 2009.
The hearing of Bernanke by the FCIC on 2 September 2010.
Bernanke in the FCIC ... |
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- 503 - 1996 -2002: tenured professor at Princeton University and chairman of the department of economics.
In September 2002 he went on public service leave.
2002 -2005: member of the Board of Governors of the Federal Reserve System.
21/5/05 -31/1/06 chairman of Bush's Council of Economic ... |
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- 504 - academic, and I studied for many years the Great Depression, financial crises, and this is my
bread and butter. And I believed deeply that if Lehman was allowed to fail, or did fail, that the
consequences for the U.S. financial system and the U.S. economy would be catastrophic. And I ne... |
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- 505 - industry designed securities that combined many individual loans in complex, hard -to-understand
ways. These new securities later proved to involve substantial risks - risks that neither the investors nor
the firms that designed the securities adequately u nderstood at the outset.
Th... |
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- 506 - In the booklet The Federal Reserve System - Purposes & functions of 2005, the duties of the Fed
are described as follows:
«Today, the Federal Reserve’s duties fall into four general areas:
conducting the nation’s monetary policy by influencing the monetary and credit condition... |
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- 507 - used the word "myopic look". "We looked at safety and soundness." But shouldn't have systemic risk
been part of a safety a nd soundness regime, even in the 2000 period? Was this a substantial miss?
How fundamental was the failure of proper supervision to the metastasizing of this problem... |
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- 508 - The following quotes from the beginning of the hearing, where Bernanke is questioned by
chairman Ange lides, supplement and specify the above remarks:
«While potential subprime losses were large in absolute terms, judged in relation to global financial
markets they were not large eno... |
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- 509 - and we have a project at the Fed right now trying to write this rule that will govern our recommen -
dations.»
Of course, the first half of the “reply” is no more than empty tattle. T o fill time, and to tire the
Commission and the public. The second half is only slightly better. What... |
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- 510 - «Although government officials knew about the deterioration in the subprime markets, they
misjudged the risks posed to the financial system. In January 2007, SEC officials noted that
investment banks had credit exposure to struggling subprime lenders but argued that “none of these
expos... |
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- 511 - Philadelphia, reported a “huge surge in foreclosures,” not ing that up to half of the borrowers he was
seeing with troubled loans had been overcharged and given high interest rate mortgages when their
credit had qualified them for lower -cost loans. Hattie B. Dorsey, the president and ch... |
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- 512 - 3. BIS -reports 2003 -2009.
Table of contents of this appendix.
Abbreviations.
Conclusions.
BIS according to BIS.
January 2003: Report on Credit risk transfer. (BI S-CGFS -20).
March 2005: Joint Forum on Credit Risk Transfer.
January 2006: Housing finance in the glo... |
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- 513 - 3. None of the BIS reports mentions the GAO reports of 1994 -1999, acknowledges the correctness
of its analyses, and supports its recommendations. Even though there is much overlap in subject
matter;
4. The Housing finance report (CGFS 26) mentions neither OFHEO nor “systemic risk”;51
5. I... |
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- 514 - 14. Instead of working in accordance with its mission statement, BIS seems to have worked under the
inviolable boundary co ndition, that nothing is to be said or done that is incompatible with the
policy of any of the major supervisors (especially the US Fed). In other words: BIS operated as ... |
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- 515 - Board is assisted by the Audit Committee and the Consultative Committee, composed of
select ed Directors; and
the Executive Committee, chaired by the General Manager and comprising the Deputy General
Manager, the Heads of Department and other officers of similar rank appointed by the Boar... |
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- 516 - Basel Comm ittee on Banking Supervision
Committee on the Global Financial System.
The members of the CGFS include senior officials from G10 central banks and the ECB, and
representatives of a number of central banks from major economies and financial centers.
Commit tee on Payment ... |
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- 517 - 2. The terms of reference as k for a “preliminary assessment of the financial stability implications [of
CRT developments] ”. The report fails to provide it;
3. The report lists issues. But it says nothing about the significance of the issues for the stability of
the financial system;
4. ... |
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- 518 - assess in qualitative and, as far as available, quantitative terms the extent and direction of risk
transfer and the impact on risk distribution in the financial sector effected through use of
these instruments;
identify areas in which currently available information is inadequate to g... |
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- 519 - Central banks and others are currently exploring how to improve their databa se related
to CRT instruments without imposing an undue reporting burden on market
practitioners.
Rating agencies - the Report notes the critical role of rating agencies in various CRT
markets and the implicit ... |
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- 520 - The quote concludes the executive summary. In other words: there is no final conclusion, and no
unambiguous recommendation. The final conclusion could or even should have been: “Present market
circumstances may ve ry well precipitate a market crash. The information necessary to estimate this ... |
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- 521 - of contracts is effective in diversifying such risk. Ma rket risks can also be difficult to hedge in this
area given patchy market liquidity. If intermediation remains highly concentrated, operational failings
in dominant firms could disrupt markets. Any deterioration in the creditworthy ness... |
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