Lunchtime Links 12-18

Dec 18, 2009 16:25 UTC

(Reader note: still working on

MUST READStrict framework leaves room for maneuver (Masters/Jenkins, FT) While this subject may seem a little dry, it’s the Basel Committee in Switzerland that will lead the way when it comes to how banks measure capital and how much they need to have. I’ll offer more detailed thoughts on this later today.

Saab to be shuttered (Reuters wire) More creative destruction in the auto industry. In the end, the best Saab could do was sell the intellectual property for the 9-5 and 9-3 sedans…

China central banker says harder to buy Treasuries (Xin/Subler, Reuters) How ironic. The current account deficit is shrinking as the import/export imbalance with China is shrinking. So we’re not stuffing as many dollars down China’s throat which it is forced to recycle into Treasuries. Watch out for calls to buy Chinese so that the Treasury can finance its deficits! ;)

China asset bubbles will burst on inflation (Chen, Bloomberg)

Greenspan backs deficit reduction commission (Ferraro/Sullivan, Reuters)

Harvard swaps are so toxic, even Summers won’t explain (McDonald/Lauerman/Wee, Bloomberg)

Has dark matter finally been detected? (Sample, Guardian)

Another VERY cool zoom out/in CG animation of the known universe (YouTube)

Probably not good on the eyes (imgur)

You’re on the naughty list Jack…

Is Fed’s choice tough enough?

Oct 23, 2009 19:44 UTC

An insider’s insider. That’s how Patrick Parkinson, the Federal Reserve’s newly appointed head of bank supervision and regulation, has been described.

A 30-year Fed staffer, Parkinson is a long-time defender of derivatives and an architect of Treasury’s proposal to give more regulatory authority to the Fed. His appointment is the latest indication that policy makers aren’t prepared to take bold steps to corral the banking sector.

Earlier this week, Bank of England Governor Mervyn King called it a “delusion” to believe regulation can prevent speculative activities from resulting in failures.

Like Paul Volcker, King says banks need to be split in half. The essential services they provide shouldn’t be polluted by risky investment banking activities.

American regulators, however, appear willing to settle for incremental reforms likely to perpetuate the status quo. Sheila Bair is intent on ending too-big-to-fail, but when I asked her at The Economist’s Buttonwood conference whether she would support policies to proactively shrink big banks she said: “No, I don’t know how we would do that.”

At the same conference, Larry Summers bemoaned the structural problems of banking, yet on policy he hedged: “Too-big-to-fail is too-big-not-to-be-regulated.”

Others, including Alan Greenspan, say too big to fail is too big to exist. (Greenspan, incidentally, calls Parkinson a “superb choice” for the job)

Daniel Tarullo, who heads the Fed’s committee in charge of bank supervision and with whom Parkinson will be working closely, also says regulation is the way to go.

If regulation is the path we’ve chosen, it would make sense to hire a strong regulator.

Yet “the credentials Parkinson brings are more political connections than supervisory savvy,” contends Fordham law professor Richard Carnell. “He’s the perfect senior staff insider to help cement the Treasury’s commitment to the Fed as systemic risk regulator. But does he have the savvy to supervise banks?”

A good question since bank regulation is an insiders’ game. “There’s no political constituency for bank soundness regulation until it’s too late,” Carnell says.

Good regulators lean against the wind, forcing banks to raise capital when times are good or restricting risky activities that put the system at risk.

Parkinson’s record suggests he’s unlikely to get tough on Wall Street. As Zero Hedge noted, Parkinson dutifully supported the Commodity Futures Modernization Act, which deregulated the derivatives market and sowed the seeds for last year’s systemic crisis. (A spokeswoman for the Fed declined to comment.)

This augurs badly. While Wall Street gets back to business as usual, Washington dithers with watered-down reforms that won’t interrupt the party. Those in charge have demonstrated a remarkable lack of courage in taking on the big banks. My hope is that Parkinson proves the exception to the rule.

COMMENT

Much worse than a 30 year old, the candidate is a 30 year “staffer” of the Fed.This is somewhat like handing command of the Navy, post Pearl Harbor, to a battleship admiral at the very moment your aircraft carriers have found the enemy fleet off Midway.

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