Roubini: Anglo-Saxon model of bank self-regulation has failed

[RedEarth]

The Anglo-Saxon model of supervision and regulation of the financial system has failed, Nouriel Roubini, chairman of RGE Monitor and professor of economics at New York University, told the Financial Times on Monday.

Answering questions from FT.com readers, Prof Roubini, who is widely credited with having predicted the current financial crisis, said the supervisory system “relied on self-regulation that, in effect, meant no regulation; on market discipline that does not exist when there is euphoria and irrational exuberance; on internal risk management models that fail because – as a former chief executive of Citi put it – when the music is playing you gotta stand up and dance.”

“All the pillars of Basel II have already failed even before being implemented,” he added, referring to the internationally agreed set of banking regulations that are forcing banks to set aside more capital to maintain their existing lending.

Prof Roubini also predicted that it was possible another large bank could fail, saying: “In many countries the banks may be too big to fail but also too big to save, as the fiscal/financial resources of the sovereign may not be large enough to rescue such large insolvencies in the financial system”.

He also criticised the US and UK approach to bank bail-outs, comparing it with attempts by Japan in the 1990s to solve its banking crisis. “The current US and UK approach may end up looking like the zombie banks of Japan that were never properly restructured and ended up perpetuating the credit crunch and credit freeze,” he said.

Economists and politicians hope to identify tentative signs of recovery in leading economies during the second half of 2009, as stimulus measures from governments and action on interest rates by central banks begin to kick in.

But recent data suggest it may take a little longer. Meanwhile, the World Economic Forum’s latest report warns of the risks of a fiscal crisis, created by the very government spending intended to rescue economies from the turmoil in the global financial system.

much more.........

http://www.rgemonitor.com/roubini-monitor/255482/roubini_anglo-saxon_model_has_failed

[aquart]

1. This is another argument against allowing any company to grow so large.

NOTHING should be "too big to fail" because, when it does, it takes us all down.

But I still see NO legislation that will substantially alter the situation. NONE. Derivatives are still legal. Credit default swaps, AOK? These people still getting their bonuses?

[denverbill]

3. We need to bust these mega-banks into a thousand pieces.

I'm sick of the tired arguments by the banks that they need to merge to compete and offer consumers savings through reduced overhead. Of course, consumers never benefit, nor the employees who are cut during the mergers.

[benld74]

2. Look how SMALL Bush was AND he FAILED BIG TIME!

[JohnWxy]

4. Ango-Saxon model? This is the Republican "the market will police itself" model.

Read Foreclosure Phil from MOher Jones.


What we need is for the government to provide credit to people and businesses through a public bank. Providing credit is like a utility (like electricity or sewerage) but it's too important to entrust to con-men and incompetents. Let Wall Street go with the bailout they got so far. From here on we should have a public bank to provide credit to those who need it (for cars or homes or inventory or to meet a payroll). What the country needs is credit - the banks won't provide it until the economy looks much better. It will take a year or more before the banks will really start lending again. Just set up a public bank and let Wall street screw around with whoever wants to take a chance on them.