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HomeWhat is Greatest Global Risk Lurking in Shadows? Look East
Posted by Larry Doyle on January 17th, 2014 6:37 AM |
What is the greatest risk within the global financial system currently?
That is a question that could likely be answered with as many opinions as there are global financial sectors. Yet that was a question posed at a recent lunch I attended.
An individual who is highly respected within the industry and who has his pulse on much of what transpires within global finance opined that he believed the risks within the shadow banking sector in China would be the linchpin for our next market meltdown. I found that to be a fascinating insight as I thought about how much or perhaps how little people truly know about this space.
Well, I open the Financial Times this morning to see this lead headline: Chinese Shadow Banks Face Major Test >>>>>>>>> (more…)
Will Uncle Sam Expand “Too Big to Fail?”
Posted by Larry Doyle on February 20th, 2013 9:45 AM |
There is not even one credible individual in the world today who would believe that we do not still operate under a “too big to fail” model for our banking industry.
We now know that “too big to fail”also means “too big to regulate” and “too big to prosecute.” Free market capitalism is dying a slow and steady death in the process.
Might we ever get out from under the heavy burden of this model? We can only hope. Yet I awaken this morning and vomited my coffee as I read in the WSJ,
Should the government backstop even more of the financial system than it already does?
Sure, if you love a mix of crony capitalism and socialism, wave it in, right? (more…)
The Wall Street Model is Officially Dead
Posted by Larry Doyle on June 16th, 2009 11:49 AM |
Dear friends, family, countrymen,
We are gathered here today to lay to rest a business model which revolutionized our financial industry. I have fond memories and knew the legendary “originate to distribute” well. In fact, I welcomed the opportunity to share the background and development of this model last November 12th, in writing “The Wall Street Model Is Broken….and Won’t Soon be Fixed.”
Regrettably, those charged with nurturing and protecting this model, in turn, cannibalized it. As such, today we officially gather to bury it. Tomorrow, President Obama will announce new guidelines and oversight for a new securitization model on Wall Street. The Financial Times provides a uniquely balanced perspective on this new model, Treasury Plans Strict Rules for Securitization:
The US Treasury is planning a sweeping overhaul of securitisation markets with tough new rules designed to restore confidence by reducing the incentive for lenders to originate bad loans and flip them on to investors.
The authorities plan to force lenders to retain part of the credit risk of the loans that are bundled into securities and to end the gain-on-sale accounting rules that helped spur the boom of the markets at the heart of the financial crisis.
Sounds like a very good idea. Clearly the model needed to be ‘reborn’ given the massive abuses and fraud which were promulgated under the prior model. Recall that the prior model, also designated as the “shadow banking system,” embodied 40-45% of the total credit injected into our economy. Can we raise a strong, disciplined, and well behaved “model” to replace that void? I have serious questions.
As we assess the potential for the “new securitization model,” we need to understand how the “prior model” grew so large. Well, not unlike the abusive practices employed by professional athletes with steroids, our “old model” also cut a number of corners. In so doing, the “old model” mispriced the true risks of a wide array of loans originated over a period of years.
The “new model” will look to address the proper pricing of risks in loans. How will it accomplish this proper pricing? (more…)
