Wednesday, September 30, 2009

Have We Learned Nothing?

Michael Pomerleano writes that nothing has changed in terms of regulating our global financial system, he is afraid of another crash, I encourage you to read this article, what follows are a few excerpts:

Considering the number of luminaries attending — Christina Romer, head of the Council of Economic Advisers, and Kevin Warsh, a member of the board of governors of the Federal Reserve System, among others — I expected to find a strong shared sense of direction and a determination to take the correct steps following the financial carnage. I did not.

Foreign participants free of official shackles or self-imposed loyalties to past institutional affiliations were forthright. Andrew Sheng of the China Banking Regulatory Commission reproached us for thinking that throwing debt at a global problem of insolvency will succeed. He presented striking data. The subprime losses of $150 billion in 2007 required US government aid of $13.2 trillion as of 19 June 2009. In 2008, salaries of the top 10 banks reached $75 billion (up from $31 billion in 1999), while cash dividends to shareholders were only $17.5 billion. Management took 4.3 times more than shareholders at a time when shareholders were injecting capital and government was guaranteeing deposits. He pointed to the critical principal-agent fiduciary problem. Essentially, financial sector losses will be paid for by future taxation (large fiscal debt) or inflation. To this I add that the US Treasury “stress tests” led to an injection of roughly $67 billion in 2009. This year alone, the committed bonuses are more than $75 billion.

Francesco Papadia of the European Central Bank observed at the conference that in Europe there is no debate about the ECB. I can only conclude that both the EU and the US are tolerant, naïve societies prepared to accept the loss of our future to regulators and financiers. Sadly, the indifferent attitude in Europe and the debate in the US are leading to a path of no reform, and the financial system will game the taxpayer again.


Scott Dauenhauer CFP, MSFP, AIF