And yet I have the feeling that banks will still be wrongfooted by the next big crisis. Either it's complacency because they think they're covered, or it's that bankers learnt the ropes and do deals that go around the guidelines while appearing to be within, or more likely that systemic risk is really, really hard to quantify and thus is ignored to a large extent (the low probability "inch wide, mile deep" fault). In the long run, we're all dead. John Maynard Keynes
Furthermore, banking seems to me to be one of the most over-concentrated businesses where smaller deals that require expertise are no longer profitable on the scale that makes organizational sense and there is little competition except for the biggest deals.
I believe that the solution to this problem lies in a corporate body which shares the revenues or production between Capital providers and Capital users: the "Capital Partnership" as I call it, is enabled by simple new legal forms like the US LLC and UK LLP.
In this model there are no "employees", merely managing and operating "partners". "Any economic unit can emit money. The serious problem is to get it accepted" Hyman Minsky
It's the "chaordic" approach envisaged by Dee Hock when setting up Visa.
Except I envisage (as did he, but the Banks would have none of it) that individuals - as well as intermediaries - would be members of the "chaordic" "partnership of partnerships" or "cooperative of cooperatives" that constitutes the enterprise model that results.
If a managing partner has a pre-agreed share of production or revenues then agency does not come into it. "Any economic unit can emit money. The serious problem is to get it accepted" Hyman Minsky
And they handed out sub-prime and Alt-A mortgages to people with 0% down-payment, no documentation of income, teaser rates or negative amortization. Why could they do it? Because they got rid of the risk.
So they looked only for market share and their commissions. Employees, mortgage brokerages and banks. Worked fine for a time in a booming housing market. Now of course, several mortgage companies have declared bankruptcy. But for years, brokers got their bonuses and I suspect the owners of the bankrupt companies didn´t evolve into paupers either.
I suspect the theory didn´t include the possibility of transferring the risk to others. :)
