This is the most important post of the year. Nobody is listening. Part of the reason I supported Obama was to have someone who might be willing to take on this complex. Unfortunately he is realizing the path to maintain power is to ally with Wall Street and the Military Industrial Complex.
"it’s complicated when a divorced father of two with a very important job gets very publicly engaged to a 31-year-old financial correspondent for ABC News, Bianna Golodryga, just weeks after his ex-girlfriend gave birth to his daughter."
Seems to be slipping onto the backburner. The confidence of the banks and renewed lobbying efforts and the fact that 2010 is an election year will make much of this difficult. Whether Dodd will try to leave a legacy or not might determine the course of reform.
There should be greatly increased capital and margin requirements for derivatives and other instruments of financial engineering to create a greater cushion when trouble develops and to reduce risk exposure. I developed this view during my many years of working with derivatives before entering government, as described in my 2003 book, In an Uncertain World.
Standard derivative contracts should trade on an exchange to increase transparency. Transactions that are custom designed would not be exchange traded but would be subject to the same capital and margin requirements as listed transactions. Disclosure requirements could be considered for customized transactions, to provide private counterparties and regulators with the transparency to understand the risks.
There should be two sets of more stringent leverage limitations for systemically significant institutions, one defined by risk-based models and the second by much simpler measures, since mathematical models can't capture the full range of real-world possibilities.
There should be significant constraints on off-balance-sheet financing; for example, institutions must retain ownership of a portion of off-balance-sheet assets.
We need a change in accounting systems to avoid the artificial effects of mark-to-market accounting for illiquid assets on balance sheets and on markets. There are other accounting approaches that would better reflect long-run values for these assets.
We should also provide effective mechanisms for dealing with systemically important nonbank financial institutions—including bank holding companies—that get into trouble, to mitigate "too big to fail" concerns, but practical ways to do this need to be developed.
There should be greatly increased protections, both to safeguard consumers and to reduce systemic risk. The elements should include readily understandable disclosure, suitability requirements, prohibition of practices or instruments inherently susceptible to abuse, and, if some practical way can be found, personalized advice for the most vulnerable consumers.
“According to research results released yesterday by DTZ, the average sale price in the city’s most luxurious residential properties has soared above 50,000 yuan (US$7,324) per square meter in Shanghai this year from about 7,000 yuan per square meter seven years ago.
Sales by value of high-end properties within the city’s Inner Ring Road more than doubled in the first nine months of this year, with the average price surging to 37,000 yuan per square meter from 24,000 yuan at the beginning of this year.”
While the population of China is large, it is finite. And as A. Gary Schilling pointed out at the beginning of 2009, the number of Chinese with any disposable income is shockingly small. At some point the pool of greater fools will run out, or some will need to cash out to meet expenses. Then, the rush for te exits will start. The problem, as always, is when this happens.
Ten percent annual GDP growth can hide the bubble for a long time. Or China could grow into the real estate. Most of the current stock of residential is still inferior.