This little nugget from Gillian Tett at the Financial Times last week brought a few thoughts into sharp focus. Is this the lull before the storm for US mortgages?  | ft.com For this spring, something of a paradox is hanging over the mortgage-backed securities world. At the end of this month, the US Federal Reserve is due to freeze its programme to purchase Fannie and Freddie agency MBS that it implemented in the wake of the financial crisis. However, before anyone is tempted to crack open the champagne, they should think – once again – about that “displacement” effect. During … Continue reading The need for genuine transparency in security risk assessment | peer-to-peer lending as an alternative

I could not agree more with this quote from Niall Ferguson.  The problem is leverage, and securitization is nothing more than leverage that is not appropriately recorded on the balance sheet.  There is no amount of regulation, bank taxes or bonus taxes that will decrease the propensity for the next crisis until that simple recognition is agreed. Niall Ferguson: This Crisis Didn’t Happen Because Banks Were Too Big | Clusterstock "I don’t think it was really the banks’ involvement in hedge funds that were nearly as much of a problem as banks involvement in securitized MBS collateralized debt obligations." Technorati … Continue reading Securitization is nothing more than unrecorded leverage

On Vox, the authors noted have a new ebook (pdf) that paints a quite complete picture of the elements for consideration in financial services regulatory reform. Real Time Solutions for US Financial Reform Viral Acharya Thomas F. Cooley Matthew Richardson Ingo Walter 15 December 2009 The NYU Stern group – authors of the influential book Restoring Financial Stability: How to Repair a Failed System – have completed a new ebook that assesses the strengths and weaknesses of the US financial reform legislation. This column introduces the new ebook. FYI, here is the ToC.  Click through for the book in pdf. … Continue reading Real Time Solutions for US Financial Reform | NYU Stern Working Group on Financial Reform

Here is the Turner Review commissioned by the Chancellor of the Exchequer.  Martin Wolf reviews here at the Financial Times.  Wolf argues it is a watershed for finance making this excellent point – “The most important analytical points are that individual rationality does not ensure collective rationality, that individual behaviour is frequently less than rational and that, in consequence, markets can overshoot, in both directions. Above all, such failings create systemic risks: if everybody believes in the same (faulty) risk models, the system will become far more dangerous than any individual player appreciates; and if everybody relies on their ability … Continue reading The Turner Review: a regulatory response to the global banking crisis