Comments on: Blargh! Capitalism Fails Us and So Does the Corporate Structure

By: The Recession and China’s New Deal « One (1) Thing @ a Time

The Recession and China’s New Deal « One (1) Thing @ a Time — Fri, 21 Nov 2008 18:05:04 +0000

[...] are finally coming to bear after they were not heeded. As I wrote in one of my previous pieces (linked here), the reason why they were not heeded is due to a structural condition which did not properly align [...]

By: jasonkrugman

jasonkrugman — Thu, 18 Sep 2008 15:37:06 +0000

I agree. The primary function of my job as a Documentation Specialist was to work towards the Fed’s mandate to decrease the number of unconfirmed trades. The volume of trading increased at such an incredible pace, that there was a huge lag in the human resources devoted towards verifying and supervising these trades. There were (and probably still are) thousands of trades worth billions of dollars that were not confirmed by both sides as being accurate. I am not sure because I no longer work there, but I would assume that there are many millions of dollars worth of contracts that have been triggered that the banks are disputing ownership on. An unconfirmed trade is only as good as the word of the trader who made it. While there may be legally valid emails or recorded phone conversations, those are hardly substantial enough to back up billions of dollars worth or risk.

By: Gian Pablo

Gian Pablo — Thu, 18 Sep 2008 04:18:33 +0000

Nice post. I didn’t realize you had worked at Merrill Lynch.

I guess the real failure here is that unknown markets do need to be regulated – at the very least to slow down the tendency to incur excessive risks. Like you, I agree that it is a bad idea to regulate in a way that distorts the mechanism of price formation. However, I believe it makes sense to regulate the amount of risk incurred, via regulation of mandatory capital balances, etc.

Unlike commercial banks, the investment banks were relatively unsupervised as they took on enormous risks.

I worked in Spain during the reform of the financial markets there, and was involved in setting up the monitoring and enforcement systems for regulations around investment funds (mutual funds). Since this was a new type of financial institution, much of the emphasis was on systematic data gathering, in order to understand these new institutions and how they worked.

It seems like something like this was entirely absent in the US.