You seem to have a good handle on credit default swaps and derivatives. I’ve seen estimates of the derivatives market varying from 450 to 650 trillion dollars per year which is many times more than the value of all the assets on the planet.

Do you think it’s possible to safely manage and/or regulate that market?

Does anybody else have any ideas on this?

I wonder at the chance of induging the commentary and complain of African business men and women. The ex-officio of Central Bank of Nigeria by Charles Soludo, once indicated that Basel II was not useful and very old. There is no where of explaining why it took Basel this long to acknowledge that.

No matter what basic capital requirements is established, a wishy-washy 8 percent in Basel II, or a more real 7 percent in Basel III, when it comes to applying these, you still have to consider the arbitrary risk weights assigned to value the risk exposure created by an asset; like only 20% when lending to anything related to a triple-A rating. And this has not been touched by Basel III.

Since it was the extreme low risk-weights that induced the banks to stampede after lousily rated triple-A rated securities, Basel III is, for all practical purposes, quite close to being a regulatory scam.

Now, with Basel III, as the risk-weight for operations with triple-A rated securities remains 20%, the “more real and solid” equity required is 1.4 percent; and so the new authorized leverage for banks when investing in exactly the same type of securities that set of the current crisis, is 71.4 to 1. Are you really ok with this?

Most of us can’t even get *this* right.

You expect the 27 Stooges to do better?

Basel II was a bad joke. No disclosure, no market discipline. Thus two of the three pillars we explicitly abandoned during the process. Then the regulatory schema of “risk based capital” standards were nothing but a series of linear VaR models stapled together. This entire process was ridiculous from a scientific perspective, yet it is OK for public policy? How can we even have a serious discussion about Basel II/III w/o first admitting that many of the stated goals are simply not possible to measure. If you took this type of methodology to the works of science or technology, they’d laugh you out of the building. And they do. That is why to understand Basel II/III, it must be seen as a political construct first and foremost.

Chris