Zachary Scheidt

Banking Reform: Value for Value

I agree with you that it is nieve to think that we have "learned our lesson" and the economy will avoid such a scenario in the future if bailed out today.

There is precious little that changes in regards to human nature. And the forces of fear and greed will undoubtedly create bubbles and recessions far into the future. It seems futile to try to legislate or regulate our way out of what is truly hardwired into society.

At the same time, I do think DISCLOSURE is the most important issue for regulators to tackle. This would allow investors to understand better what they are buying. It would ensure that consumers and businesses who buy insurance products actually have a picture into the insurer's ability to make good on his commitments.

It can be argued that balance sheets have become so complex that disclosure does little to help business partners make rational decisions, but if this is true, then I prefer to place my investment capital with firms who have a simple model. And I can buy my life insurance from a smaller firm who can show me their balance sheet in terms I can understand.

My view is that we let AIG, Lehman, Bear Stearns and others conduct the business that they will, but simply enforce the fact that they MUST disclose their capital base and balance sheet details. From that point, it is up to me as the consumer, or the pension fund, or the hedge fund, to decide if this is the company I want to do business with.

Going forward (at least for the next decade while our memory is still fresh) I think this would benefit simpler firms, and act as an incentive to cause companies with deep esoteric financial contracts to simplify their business in order to attract the wiser clients.

I appreciate your article and the chance to think through the big picture...

Zach
zachstocks.com