Sunday, March 08, 2009

Quiz: Do private interests outdo government at assessing and pricing risk?

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It seems like there's two possible responses to this question: yes and no. If yes, then you'd have to believe having the government buy structured derivatives products to 'make a market' is foolhardy on its face. If no, then we really don't need investment banks at all, and we should take this opportunity to let them fade away (for what it's worth, this is my side.)

I don't know if I've said this in the blog, but I think desecuritization is a goal we should take on. Maybe assess a tax on tranches, to incite financiers to put the mortgages, credit card balances and student loans back together, and then a regulation that the owner of a loan had responsibility for seeing it serviced.

These credit backed securities were fundamentally misguided, I think everyone accepts now. But, I don't hear about any initiatives about unwinding them. I don't know why this is not generally accepted as a goal.

3 comments:

nephos said...

Maybe government trolls have greater room for honesty and openness? If no one in government is going to personally benefit from phony risk assessment, why bother telling anything but the truth?

JOH said...

The lesson we learned from the Great Depression is that government must set the price of debt.

The lesson we will learn from this Great Recession is that government must set the price of risk.

It is not because government is somehow better .. only that it is possible for government to be better motivated, so long as it is operating in the interests of the vast majority.

Unfortunately, that only happens if enough Citizens are paying attention.

mark said...

yes!......no, no! i mean, yes.....aw, give me a moment.

actually, theoretically, yes... it all depends on the private interest.