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In the end it's all about risk taking not avoiding - if you want to make a profit you have to take risks. If you hedge against all of it is a cero sum game, just think of playing always the same amount on red and black on a roulette table. Banks should be able to go bust as any other business, because the next time it's not the banks but the countries that go bust with them ; cfr. Iceland.
Risk taking is also luck. A "real" producing company has to take risks when deciding which products to sell/develop/market etc. If it goes wrong their risk assessment was wrong and the company goes bust and no one cares. Why should we care in the case of banks? Because of the savers who deposited their money there? I don't think so because then we should also care about the pension plan savers who invested in the shares of such banks, but nobody does.
I am really getting tired of hearing about VaR
, Sharpe, stress tests and regulators taking business decisions. We are on the way to serfdom and we are creating a central planning monster of new creation. Guys, the USSR
has not gone for such a long time- what happened to the collective memory?
Let people take risks again, if it goes wrong it goes wrong. Full stop. Let risk assessment and luck/chance/chaos decide who lives and who dies. We do not need a central authority to decide who is worthwhile living and who is better dead. What we are trying to do now is to force the models we have developed and that have been proved wrong to function. Now we will have a regulator who will act as a rational investor, i.e. what the crowd did not manage to produce we will now put in the hands of very few. Who guarantees that those people have the right criteria and are always rationale, do not act politically or will not manipulate markets? What about corruption?
We are now paying trillions of any currency for what? So that some banks survive because otherwise the “system” would break down. Who defines the system and why is it important to us. Systems evolve, are alive and develop. Why would we want to keep a certain status quo? Let the world its evolution
. It is well known in genetics that reducing the diversity and controlling the system will lead to more problems. Our trillions didn’t even help to let people who got into mortgages that they couldn’t pay in their houses. They had to go, but the trillions are still lost. Wouldn’t it have been better to pay in 2005 or so 500 million for social housing programs giving away flats for free so that those people had a roof above their heads? Bubbles wouldn’t have grown as much as they did and perhaps we wouldn’t have had a financial crisis? I would say that this would have solved only part of the problem. As long as there is a bunch of people saying how the economy has to go, how much surplus you create, how interest rates are fixed and decide what is the adequate price of money, how much one currency costs for exchange of another and who is too big to fail, we will not prevent future crisis.
If we let the economy, the financial system, etc. evolve as it was a living organism without too much intervention from the outside it will evolve to a better state in order to survive and to be better adapted as in biological evolution. If we mess around we will only provoke greater tail events, more black swans. Just think about all the experiments mankind did and where in order to solve one problem it created an even bigger one (to stay in Australia
, think about cane toads in Australia). In order to avoid further cane toad
syndromes, we should retreat not advance. We should focus on who really needs protection and just protect those helpless and not everyone. The often cited grandmother being sold Lehman structured notes is not worth protecting at the cost of suffocating any possibility of evolution in the system. If there are leaner ways to protect her then do it otherwise leave it. You don’t hand out machine guns to any granny just in case she is robbed, not even if she lives in a dangerous area or often frequents such areas. You might increase police presence in such areas but you will not create a 1984 state.
Let common sense take over again. The current hysteria is nothing else then the other side of the coin. First we had the irrational investor now we have the irrational regulator/legislator. And this makes it only worse. The next 1 in 100,000,000,000 years event is just around the corner and nobody will be able to explain how two such events could have occurred in such a short time if it is statistically impossible.
The more freedom we give the “system” the more we will benefit. It will grow stable and create new niches and from such niches new ones will evolve – just like zooming into a fractal. There will be crisis and big ones, but they will not be caused by us, but by bad luck and until the end of time no one will be able to control chance. Even if you trough a coin a million times, the distribution of its outcomes will not be normal, although close. It just depends on your scale for the graph.