Sunday, March 30, 2008

The Next Disastrous Financial Crisis:

This is NOT a political piece. Trust me, you'll see. What led me to write this was a recent news story, alleging that a prestigious accounting firm had helped a large financial company to hide losses in the subprime mess by letting them report actual losses as profits. Why not add a sneaky accounting firm to the long list of those responsible for our current financial morass. I took a deep breath and jumped to an obvious conclusion, one you're likely to agree with: among the many big financial players in today's markets, there are a lot of greedy, unethical, immoral bastards who will seize any loophole or opportunity to make more money than they can possibly need.

Our governments are trying to decide how to revise our financial regulations to make sure that the latest debacle never happens again. Sensible people differ greatly here, some even arguing that we need less regulation, not more. I'm not taking a position among them, I just want to point out that whatever regulations we decide to adopt, matters are increasingly hopeless. You'll see what I mean when I bring anti-ballistic missiles and ant-immigration walls into the discussion.

Missile defenses, border walls, and financial regulations have one striking thing in common: they are defenses that are cumbersome to erect and expensive to put in place. Those who wish to attack any of these need merely find some hole, some loophole, some unexpected omission, and they can attack right through it, especially if they have no sense of ethics or morality, or fair play, to hold them back. For every set of financial regulations ever adopted in the USA, there has been a shattering way to get around them and create disaster. What is new today is just how fast these plans of attack can be put into action, using computers and sophisticated software. Perhaps it used to take five years to make new regulations and ten years to defeat them. Now it's more likely to take a few months to break any new laws and regulations. Yes! I'm blaming computers, for speeding up the potential to invent new fraud.
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