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If banks can do risk analysis, so can non-banks.

The difference isn't between analysis and no analysis, it's between being on the hook for the risk directly, which is likely to concentrate the mind somewhat, and attempting to palm it off on to some third party - either by direct insurance, or by spreading out that the risk so thinly that it stops appearing risky.

The irony is that to some extent this is what's been happening already. Wall St has almost been acting in a peer to peer kind of a way, but with the - valid - assumption that risk can always be shared with the government, making it almost risk free.

But there's no certain reason why peer to peer has to be this irresponsible - any more than there's a certain reason why banking can only be done in a boring and safe way.

Obviously it can be done in other ways too, as everyone has discovered.

by ThatBritGuy (thatbritguy (at) googlemail.com) on Mon Mar 23rd, 2009 at 06:56:39 PM EST
[ Parent ]
The banks' primary role is first to create the asset, and then only to seel it or keep it.

Of course, if the model is that they don't keep it (and note that unitisation falls into that category), then they may be incentivised to structure worse assets.

And contrary to what you think, doing proper risk analysis is actually pretty damn expensive and difficult. Bankers' pay (as highly qualified professionals) is justified, to that extent.


In the long run, we're all dead. John Maynard Keynes

by Jerome a Paris (etg@eurotrib.com) on Tue Mar 24th, 2009 at 01:00:48 PM EST
[ Parent ]
Jerome a Paris:
Of course, if the model is that they don't keep it (and note that unitisation falls into that category), then they may be incentivised to structure worse assets.

In the model I advocate, there is in fact no transaction or "sale" of an asset. The asset is created in custody, and stays in custody.

Stakeholders will participate only on the basis that any agreed profit margin is invested. It's then up to them what they do with their entitlement to Units once the development is complete.

But I suggest that they will see that their interests lie in doing a good job - whether or not they are capable of doing a good job is another issue.

Jerome a Paris:

Bankers' pay (as highly qualified professionals) is justified, to that extent.

I have no difficulty with that, albeit relative valuations are not easy.

"The future is already here -- it's just not very evenly distributed" William Gibson

by ChrisCook (cojockathotmaildotcom) on Tue Mar 24th, 2009 at 01:58:32 PM EST
[ Parent ]

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