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Why is it that it seems that it is always non-US banks that buy into the New Yorker hedge fund hype and get stung for billions? If I recall, Deutsche Bank got caught out last time. It seems that staid European banks working off narrow margins in their home markets want to sex up their results with some "profitable" foreign trades and always get stung. Something to do with massive banker bonuses for short term trading gains which incentivise individual risk taking at the expense of the company and home economy as a whole. The Irish banks are currently chaffing at government restrictions on banker bonuses and salaries as they want to be able to attract and reward "talent".

With talented people like these, who needs bumbling bureaucrats?

Index of Frank's Diaries

by Frank Schnittger (mail Frankschnittger at hot male dotty communists) on Mon Mar 29th, 2021 at 07:12:00 PM EST
DB and CS both have a reputation to maintain, so that's why it's usually them.

The more time I spend exploring the financial world, the more obvious it becomes that the rewards are heavily slanted towards outrageous gambling stunts. So inevitably it's almost exclusively populated by chancers, crooks, and opportunists, decorated by the thinnest possible veneer of economic seriousness.

With the possible exception of sociopathic zombie cannibals, they are literally the worst people in the world to be handed control over the planetary economy.

by ThatBritGuy (thatbritguy (at) googlemail.com) on Mon Mar 29th, 2021 at 11:38:02 PM EST
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I had actually started a post on regulation last night, but I lost it when I shut down the computer. It does not seem to actually be a Labor of Hercules to design a regulatory system with better incentives. Lots of low hanging fruit.

For starters the Fed has plenary regulatory powers over banks. It can pull the banking license of any bank at any time for reason. But even more insidious, as the Fed is the creator of all fiat money it can and does set the terms for which that money is made available. At present those terms are VERY favorable. To guard against insolvency the Fed has stuffed banks with excess reserves. Better yet it pays a tenth of a percent interest on those reserves the banks keep on deposit with the Fed. Free interest bearing money!

For starters the Fed could stop paying interest on that money to any who have questionable lending and escalate from there. The riskier an institution's financial activities are the higher the interest rate the Fed could charge for new money. This is ultimately a matter  of political will, so the Fed would need to be under pressure from Congress and the Administration.

But there is more! The Fed could demand that certain incentives and disincentives be put in place for corporate officers. The risk officer's bonuses could be based on the accuracy of their forecasts. Loan officers could have their compensation based on a salary plus a calculation of both the profitable and unprofitable loans they approved with claw-backs from previous years in case of really large losses, including from their retirement funds. Then they would become concerned with  the life of the loan.

It would be instructive to see what compensation practices actually are for financial institutions at present.

"It is not necessary to have hope in order to persevere."

by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Tue Mar 30th, 2021 at 03:22:52 PM EST
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A problem might be that the fed and other regulators have little to no control over the consumer confidence factor.
by asdf on Tue Mar 30th, 2021 at 06:33:26 PM EST
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Risk Officers are responsible to forecast that within limits and to ensure appropriate hedging. Supposedly.


"It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Tue Mar 30th, 2021 at 09:52:42 PM EST
[ Parent ]
And that is what reserves are for.

"It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Tue Mar 30th, 2021 at 09:53:59 PM EST
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