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December 12, 2007


Per Kurowski

Martin Wolf is daring and right taking on the issue “Why the credit squeeze is a turning point for the world” but perhaps it is not really the credit squeeze that makes for the inflection point, but more so the general crumbling of some financial credos that were rightly inspired by the knowledge economy but that have turned out to be so lacking in wisdom. The regulators should have known that.

The appointment of the credit rating agencies to lead the way and yet believing that the free market would thereafter operate freely would be laughable if not for the consequences.

I pray Wolf’s article opens up an urgent debate since our bank regulators are currently, among others with Basel II, just digging deeper and deeper in the hole where we find ourselves.

All is not bad news though. One good thing that could come out of this awakening is to allow banks to be banks again. In many developing countries where the banks because of the risk adverseness introduced by the bank regulators from Basel through their minimum capital requirement formulas, are more and more financing the “risk-free” public sector and the securitized-consumers, and less and less the more risky but yet vital entrepreneurs, and so the comeback of more traditional banking is urgently needed.


Martin Wolf, June 18

"Powerful arguments can be made in its favour: active financial investors swiftly identify and attack pockets of inefficiency; in doing so, they improve the efficiency of capital everywhere; they impose the disciplines of the market on incumbent management; they finance new activities and put inefficient old activities into the hands of those who can exploit them better; they create a better global ability to cope with risk; they put their capital where it will work best anywhere in the world; and, in the process, they give quite ordinary people the ability to manage their finances more successfully."

Martin Wolf, Nov 16

"Second, these events have called into question the workability of securitised lending, at least in its current form. The argument for this change – one, I admit, I accepted – was that it would shift the risk of term-transformation (borrowing short to lend long) out of the fragile banking system on to the shoulders of those best able to bear it. What happened, instead, was the shifting of the risk on to the shoulders of those least able to understand it. What also occurred was a multiplication of leverage and term-transformation, not least through the banks’ “special investment vehicles”, which proved to be only notionally off balance sheet. What we see today, as a result, is a rapid shrinkage of markets in asset-backed paper."


Professor Rodrik,what is the event? Any case somebody can attend?

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