Ideas to help Wall Street Stand Tall

I tapoed this from the Article that appeared this Monday. Provides a very comical view of the financial tsunami that is so much in news these days. Rajshri Singhal takes a very opinionated approach to present the lighter side of things. Elucidated for a layman the technical jargons do not seem to irk as there aint ne. Dunno if I can copy this or not here in my web blog. I suppose whose to see. I haven’t taken the credit for this thing so I come clean i suppose. Read for yourself.

Phew! What a fortnight it’s been. The international financial architecture has been turned upside down in the past two weeks. It’s almost reminisc

ent of October 1917 when just 10 days of the Russian revolution divided the world into right and left.

In the past 14 days, Wall Street giants have been humbled into oblivion and the US is revising its definition of capitalism to include government hand-outs for only the rich and the privileged.

In the midst of all these breathless developments, experts on both sides of the divide are busy churning out advice and recommendations on what should be done now.

Also, US treasury secretary Hank Paulson’s $700-b lifeline thrown to his former Wall Street colleagues has sparked off a debate on not only what conditions should be attached to the bailout package, but also on the kind of reforms required in the financial system. In the interests of sustaining the spirit of democracy, this column is also adding its two-bit worth to the general avalanche of unsolicited opinion.

An interesting place to start could be Yale professor Robert Shiller’s latest book ‘The Subprime Solution’. Shiller shot to fame with his 2005 book ‘Irrational Exuberance’ in which he had presaged a meltdown in the housing market.

But, in his latest book, Shiller has advocated setting up of a financial products safety commission, somewhat on the lines of a consumer protection agency, which keeps an eye on the safety characteristics of financial products. Here are some more ideas, inspired mainly by Shiller.

Housing Comfort: This is the best place to start, given that the foundation stone for the current credit crisis and subprime scam was laid in the housing loan market. Loans were sold to borrowers who clearly did not have the capacity to repay.

These loans were then sliced, diced and decorated with a fancy ribbon trim to be further sold on to bankers sitting on a sea of idle cash. To avoid a similar recurrence, housing loans should henceforth only be given to the US government.

Instead of going through the tortuous and farcical route of housing loans going bad, affecting mortgage-backed securities and other fancy derivatives, bankrupting several banks on the way and forcing the government to print trillions of dollars (thus further adding to the liquidity), and then bailing out the bust banks by buying the home loans, it’s better that the government be the buyer in the first place.

Playing Tag: Financial products should now come labelled with appropriate warning signs. For instance, mortgage-backed securities should carry a tag saying, “Beware, this instrument may have a NINJA holding the underlying asset and purchase of this security absolves the seller of any liability or responsibility towards ensuring continuing interest pay-outs. In case of malfunction, please return to 1600 Pennsylvania Avenue, Washington DC, and collect refund.”

Likewise, collateralised debt obligations should carry a warning saying: “Keep out of reach of greedy traders, rapacious bankers, all financial sector players whose salary (including bonus and stock options) exceed Kiribati’s GDP, or interns freshly graduated from B-schools.” The Food and Drug Administration of US should issue this warning. It doesn’t matter if the end product is an antacid or a credit default swap — anything that’s dangerous to the health of people should be in the FDA’s bailiwick.

Berate the Raters: Arguably, one of the reasons behind the current blow-out is the devious role played by credit rating agencies. Mountains of dodgy paper were stamped creditworthy by rating agencies and sold to smart but unsuspecting investment bankers. If only these rating agencies had blown the whistle earlier. A solution could be to eliminate the rating agencies altogether. In their stead, the huge armies of retired Indian bureaucrats and central bankers could be appointed.

And, their only job would be to say, “No”! The beauty of this job is that they don’t even have to stir from their homes — all the work can be sent to their homes via the internet. In response, they need to only utter a single word of negation.

In case this is not feasible, or the Indian group goes on strike demanding better working conditions, an alternative could be immigration officers from any of the developing countries. There’s another option: denizens of the Indian capital market who are still stupidly denying loudly on TV that there’s anything wrong with the global financial systems.

Regulatory Survivor: Hank Paulson has publicly expressed dismay over the sprawling, yet hole-ridden, regulatory system for US banking and financial services. The solution could probably be to merge all of them into one, super-powerful regulator. But, the argument there is that UK’s Financial Services Authority failed to spot the Northern Rock crisis.

The regulatory maze in the US financial system presents an ideal opportunity to launch a TV reality show. The game requires them to come to India and China and visit the regulators of banking, securities markets, insurance, pension fund, telecom, petroleum, civil aviation and pharma industry. Whoever understands the rules and the conditions first, gets to move to the next stage of the game. The loser gets to spend a night with Alan Greenspan.


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