tag:blogger.com,1999:blog-8040007778377298809.post4059950376779544871..comments2011-03-28T20:38:18.137-04:00Rick Bookstaberhttp://www.blogger.com/profile/01753622527319607465noreply@blogger.comBlogger5125tag:blogger.com,1999:blog-8040007778377298809.post-41879088855864302872009-09-23T21:30:35.156-04:002009-09-23T21:30:35.156-04:00Fantastic.<br /><br />I think the big mistake of the current administration is to do too much while the reality is by making some sensible nudges that keep parties on the straight and narrow we can correct for the mistakes made in the latest excess and not mess up capitalism or democracy...Indianapolis Friendnoreply@blogger.comtag:blogger.com,1999:blog-8040007778377298809.post-3961421540993965592009-09-22T02:58:55.361-04:002009-09-22T02:58:55.361-04:00I agree with what you are saying, Rick, don&#39;t see how anybody can dispute the argument. However, in practice it&#39;s a bit harder. It boils down to how you measure the cost of cleaning the sludge. The key is to measure it as the potential for sludge is being generated in the good years, not years later when you are already bankrupt. You have to do so, otherwise you are lying to your shareholders and overstating profit. <br /><br />But here is the thing. In the past people thought they were reserving plenty of money for the potential cost of the sludge. For all the complex books of all the banks there where were model reserves being taken precisely for this. Banks had hired expensive qualified professionals, many of them with PhDs like yourself, to periodically evaluate whether the reserve amount was adequate, and the amounts were largely thought to be &quot;conservative&quot;. Better judgement at the time would have shown the contrary (wasn&#39;t that complicated if you understood the math, the product and the market and had some common sense). But, in my case I still find it difficult to make some of the PhD guys take their heads out of the math and think about the real world for a second.<br /><br />Everybody now knows that reserves weren&#39;t anywhere near enough, but, again, back to the original question, is there a correct way of measuring reserves before it&#39;s too late? What do you think? I incline to think that there is no correct answer and no practical solution. More common sense and better understanding of complex finance would help, but I don&#39;t think it&#39;s going to happen any time soon. Key decision makers in banks didn&#39;t udnerstand complex finance then and don&#39;t uderstand it now. Therefore, from a regulation perspective, I prefer more drastic approach to the issue of complex finance, such as reserving all PL and only slowly accrueing it over the life of the deal, no matter how good it may look at inception, or something along these lines.r2noreply@blogger.comtag:blogger.com,1999:blog-8040007778377298809.post-3824242186929751232009-09-21T12:56:11.226-04:002009-09-21T12:56:11.226-04:00Great framing, great piece.BCCnoreply@blogger.comtag:blogger.com,1999:blog-8040007778377298809.post-41949154968972832552009-09-20T11:56:59.827-04:002009-09-20T11:56:59.827-04:00Do we scold or praise the mother who restrict her son from eating like there is no tomorrow?<br /><br />Do we scold or praise the father who, when teaching his son/daughter how to drive, admonish them when they get reckless?<br /><br />Do we scold, or praise the teacher who sets clear rules of discipline in the classroom, so everyone has a chance to begin to learn?<br /><br />The answer is obvious, isn&#39;t it?<br /><br />Therefore, pray tell why this basic common sense logic, shouldn&#39;t apply to Wall Street?<br /><br />I rest my case.Francoishttp://www.blogger.com/profile/10003386989005291824noreply@blogger.comtag:blogger.com,1999:blog-8040007778377298809.post-80165686088307518972009-09-16T14:51:58.243-04:002009-09-16T14:51:58.243-04:00From Provo to Manhattan...now there is a cultural shift. Keep writing. Love your work.TimBhttp://www.blogger.com/profile/16736621371900413424noreply@blogger.com