Risk Mitigation Fail

Format for printing
Submitted by b psycho on Sat, 2010-03-20 22:56.
Today, the reason behind the financial sector meltdown is clear to virtually anybody with a pulse: investing institutions, some of which overlapped with traditional banking, used math equations that their leadership couldn't possibly have understood in a vain attempt to "solve" (read: ignore without having it come back to bite them) the concept of risk.They did this in the context of implied promise of government backstop to their betting, & a ridiculously overheated housing market.  In a way, a crisis of capitalism was caused by deliberate lack of capital.
 
So, what does the head of the key "regulator" among all this think about said lack of capital?  If you said "no big deal", you're actually being too optimistic:
 
In the footnotes of a speech U.S. Federal Reserve Bank Chairman Ben Bernanke would have given to the House Financial Services Committee on Feb. 10, lies a unique and startling disclosure.

Hosted on the Federal Reserve's own servers, the written testimony of the bank's chairman explains in plain text what expanding the Fed's powers will do.

"The Federal Reserve believes it is possible that, ultimately, its operating framework will allow the elimination of minimum reserve requirements, which impose costs and distortions on the banking system," footnote number nine, at the bottom of the page, explains without additional qualification.

The current system expects banks to have some money.  Recent events suggest they didn't have enough to justify their actions.  Bernanke uses this as an opportunity to argue they eventually should be lending & investing on the basis of jack squat...

Looking on the bright side, at least there's one efficiency that could be gained from such a shift: this list can be done away with, to be replaced with a single line saying "all of 'em, screw it...".

(cross-posted to Psychopolitik)

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