Atakan

Nothing About This Economy Is Surprising

Well written piece Paco but I can't say I agree with some of your statements. For one, I think the case for China leading the world economy in the near to mid-term is a hasty one. We are seeing the immense challenges the Chinese government is facing with drying exports and trade. They do have lots of dollars but those dollars have no place to go except back to U.S. Treasury. So the "hostage" situation continues. In addition you are contradicting yourself by singing China's praises whilst dissing central government meddling with the private economy.
I buy the argument that incentive structures when distorted can cause big headaches and system wide tremors but we can have a hybrid system with effective check and balances that are actually guess what "ENFORCED". The revolving door of Wall Street to DC has caused lax regulation by the likes of SEC that to me has been the weakest link in this monstrous mess. If you haven't yet read the book "The Demons of our Own Making". It does a nice job explaining the system wide dependencies and how most effective regulations can be those that are based on rough but simple and enforceable rules. Bring back the rules of
- 1:12 leverage and no more
- requirements to report holdings after a certain size is reached
- put in place a CDS clearing house where counter party risk can be manages
and you'll have much more perhaps even "black swan" proof system. What will be the missing? $50M dollar bonuses to the likes of Mr. Cassano of AIG. I think the society would be able cope with that much!

I'm sorry but I refuse to shed any tears for the Wall Street high flyers. Not in this life...