kdo

An Autopsy of the Glass-Steagall Act

Glass Steagal is a straw man. I'd love to hear an explanation why the European banking system has never ever had such a regulation enforcing the separation of IBs and banks and does not have a history plagued by crisis.

The reality is that the problem is one of the "shadow" banking system or "bank like entities". Glass Steagal did not have anything to do with the fact that IBs could directly securitize mortgages from mortgage brokers and sell them to institutions, hedge funds and money market funds, effectively completely bypassing the banking system. How come there is no screaming about how we needed to regulate money market funds more closely as a bank like entity, or highly leveraged institutions like GE finance? Glass Steagal did not allow GE finance to happen. Most of the bank like entities or shadow banks existed because they morphed from investment vehicles towards using short term paper to leverage returns. The world changed faster than the regulatory framework and the regulatory framework must catch up. That is not the fault of Glass-Steagal.

Bill Poole: A Fed 'Put' Exists

btw - second point, wasn't the bailout for LTCM completely funded by the banks themseves? The Fed played the role of facilitator. Woe to the world to have a facilitator help devise settlements between a mass consortium of banks to ensure an orderly drawdown of an entity with massive worldwide exposures. In fact, I can't think of a better role for the Fed to play in such a situation.

Bill Poole: A Fed 'Put' Exists

I'm not sure I caught you quite right there... LTCM survived intact w/o any consequences to their actions!? Are you really arguing that? So it really was so horrible that a bailout was devised in order to handle an orderly drawdown of their assets so that the enormous amounts of counterparty risk could be handled in a contained way? I cordially suggest that history would show that major criticism of how LTCM was handled is extremely misguided. Let's look at the final results of the '98 crisis. Not a damn thing macroeconomically happened and LTCM is gone. The problem in the 30s was the Fed stood by with a smirk on their face as banks failed and people lost or took out all of their money from the system. Sounds like great fun, let's try it again!!

Is the Market Misreading the Fed?

And he'd (Bernanke) be right, thus you will be too.

On Normalized P/E Ratios, Interest Rates and Long-Term Returns

Thank you for one of the only interesting articles I've read on this whole subject. The fact is that Normalized ratios are important and interest rates are important. But you'll trap yourself in a box if you think that a PE ratio is the right way to look at an equity and that earnings yield should have a direct correlation to interest rates. They matter, but they should not define the valuation in a strict way. If anything, it can only give you a rough look to know if something extreme is happening. Anyone who doesn't know why doesn't actually understand how to value equity. Maybe instead of looking for easy rules of thumb, that's what they should start learning to do.