"...the process by which federal officials decided that Citigroup had to be saved in late 2008 "was strikingly ad hoc. While there was consensus that Citigroup was too systemically significant to be allowed to fail, that consensus appeared to be based as much on gut instinct and fear of the unknown as on objective criteria.""
"Mr. Barofsky quotes FDIC Chairman Sheila Bair: "We were told by the [Federal Reserve Bank of New York] that problems would occur in the global markets if Citi were to fail. We didn't have our own information to verify this statement, so I didn't want to dispute that with them.""
there was "..."some selective creativity exercised in the determination of what is systemic and what's not.""
Why Citigroup got an extra $20 billion in bailout funds? "...[Paulson] did not perform any analysis specific to Citigroup in arriving at the $20 billion figure."
"...according to current Treasury Secretary Tim Geithner, who told Mr. Barofsky that, "In the future we may have to do exceptional things again if we face a shock that large. You just don't know what's systemic and what's not until you know the nature of the shock."
"The new Financial Stability Oversight Council chaired by Mr. Geithner once again refused to define exactly what it means to be a systemically significant firm."
"...the Council would consider any other risk-related factors that the Council deems appropriate, either by regulation or on a case-by-case basis . . .""
Saturday, January 22, 2011
Systemic Risk In The Financial Sector Is Hard To Define
See The Ruling Ad-Hocracy: So much for Dodd-Frank's promise of no more bailouts from the WSJ, page A12, 1-21-11.
Subscribe to:
Post Comments (Atom)
The financial sector, which includes banks like JPMorgan and insurance companies like AIG, had the fastest earnings growth in the Standard & Poor’s 500 in 2012.[1] As of mid-2013, the sector comprised 16.8% of the S&P 500, almost double the percentage back in 2009. With the technology sector weighing in at 17.6 percent in 2013, the financial sector was poised to become the largest sector in the S&P 500. The traditional critique of the financial sector having a larger share of the economy is that the sector doesn’t “make” anything. As this argument is well-known, I want to ask, what about systemic risk? How is it being impacted as Wall Street takes up more and more of the U.S. economy? Furthermore, what is the impact on income inequality? Recommended: http://thewordenreport.blogspot.com/2013/07/wall-street-swallowing-up-more-of.html
ReplyDelete