Utuna
02-22-2010, 12:12 PM
Dear all,
Here is an interview (http://www.pauljorion.com/blog/) of Paul Jorion.
Banks, surgical measures are needed.
Did the banks learn the lesson ?
No. But why should they learn anything since they're allowed to behave according to the same framework than before ? Since the very start of the crisis, they didn't receive any real guidelines, and now we're surprised that they relapse into the same vice ! None of the banks will take the initiative to reform the system. They are business companies, no one can blame them for desiring to make money.
Does it mean that the States have been too gentle with the financial institutions ?
The States contented themselves to frown, to take symbolic measures, just so that their public opinion be satisfied. But, in reality, these measures didn't have a real impact. The setting hasn't changed.
Weren't measures of supervision and regulation voted anyway...
First of all, the majority of them, like the separation, in the USA, of banking activities, haven't come into force yet. Secondly, said measures are just superficial and tackle the problem from the wrong side.
What is your advice ?
I was lucky enough to work in finance. That's why I advocate surgical measures. Since 2007, I've been making a proposition that scares the bankers : the ban of bets over price fluctuations.
Which means ?
Today, many financial products are misused. At the inception, they allowed those who used them to receive protection, for a fee, against the fluctuations, for instance, of a market or of raw materials. Those tools have protective functions which must be kept and even fostered. But their use should be restricted against certain people who come just to speculate and make money. When you allow everyone to make bets, you contribute in destabilizing the system.
According to you, the economy seems to have become a casino...
Yes, it is really a casino ! The size changed because of the crisis but the rules keep being the same.
Weren't the European banks wiser than their US peers ?
Far from it ! Dominique Strauss-Kahn himself admitted, just a few weeks ago, that huge losses were still hidden in the assessments and that the proportion was higher in Europe than in the USA.
The economic growth seems to pick up again. Is the crisis behind us ?
This recovery is jobless, just a statistical upturn : the firms build up again their stocks. Only the Stock Exchange and the banks seem to be better off, but it won't last.
Why are you so pessimistic ?
Two time bombs are looming. First, the debt of the States. In 2010, the USA alone will need to borrow $1 700 Mds from the markets. They'll have to compete with all the other countries and big firms. As there's not enough money for all, the weakest States will have to offer higher interest rates, which will weaken them more. The other bomb is more predictable : that's the US business real estate - offices, hotels and other touristic resorts. They were built thanks to loans. However, in 2012, many loans will arrive to due date. Other funds will be needed, but who will provide them whereas the value of those constructions never ceased to depreciate because of the crisis ? Firms will collapse and with them thousands of small and medium-sized banks that financed them. It'll be a slaughter.
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As the words used in the text are really specific and as my knowledge of the English financial and banking jargon is ridiculous, sorry for any prospective mistakes or mistranslations.
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"Le sectarisme des jugements pauvres lui tenait quelquefois lieu de volonté" - Hervé Bazin
"J'ai pétri de la boue et j'en ai fait de l'or" - Charles Baudelaire
"S'il m'a été donné de voir un peu plus loin que les autres, c'est que je me tenais sur les épaules de géants" - Isaac Newton
Here is an interview (http://www.pauljorion.com/blog/) of Paul Jorion.
Banks, surgical measures are needed.
Did the banks learn the lesson ?
No. But why should they learn anything since they're allowed to behave according to the same framework than before ? Since the very start of the crisis, they didn't receive any real guidelines, and now we're surprised that they relapse into the same vice ! None of the banks will take the initiative to reform the system. They are business companies, no one can blame them for desiring to make money.
Does it mean that the States have been too gentle with the financial institutions ?
The States contented themselves to frown, to take symbolic measures, just so that their public opinion be satisfied. But, in reality, these measures didn't have a real impact. The setting hasn't changed.
Weren't measures of supervision and regulation voted anyway...
First of all, the majority of them, like the separation, in the USA, of banking activities, haven't come into force yet. Secondly, said measures are just superficial and tackle the problem from the wrong side.
What is your advice ?
I was lucky enough to work in finance. That's why I advocate surgical measures. Since 2007, I've been making a proposition that scares the bankers : the ban of bets over price fluctuations.
Which means ?
Today, many financial products are misused. At the inception, they allowed those who used them to receive protection, for a fee, against the fluctuations, for instance, of a market or of raw materials. Those tools have protective functions which must be kept and even fostered. But their use should be restricted against certain people who come just to speculate and make money. When you allow everyone to make bets, you contribute in destabilizing the system.
According to you, the economy seems to have become a casino...
Yes, it is really a casino ! The size changed because of the crisis but the rules keep being the same.
Weren't the European banks wiser than their US peers ?
Far from it ! Dominique Strauss-Kahn himself admitted, just a few weeks ago, that huge losses were still hidden in the assessments and that the proportion was higher in Europe than in the USA.
The economic growth seems to pick up again. Is the crisis behind us ?
This recovery is jobless, just a statistical upturn : the firms build up again their stocks. Only the Stock Exchange and the banks seem to be better off, but it won't last.
Why are you so pessimistic ?
Two time bombs are looming. First, the debt of the States. In 2010, the USA alone will need to borrow $1 700 Mds from the markets. They'll have to compete with all the other countries and big firms. As there's not enough money for all, the weakest States will have to offer higher interest rates, which will weaken them more. The other bomb is more predictable : that's the US business real estate - offices, hotels and other touristic resorts. They were built thanks to loans. However, in 2012, many loans will arrive to due date. Other funds will be needed, but who will provide them whereas the value of those constructions never ceased to depreciate because of the crisis ? Firms will collapse and with them thousands of small and medium-sized banks that financed them. It'll be a slaughter.
----------------------------------------
As the words used in the text are really specific and as my knowledge of the English financial and banking jargon is ridiculous, sorry for any prospective mistakes or mistranslations.
-----------------------------------------------------------------------------
"Le sectarisme des jugements pauvres lui tenait quelquefois lieu de volonté" - Hervé Bazin
"J'ai pétri de la boue et j'en ai fait de l'or" - Charles Baudelaire
"S'il m'a été donné de voir un peu plus loin que les autres, c'est que je me tenais sur les épaules de géants" - Isaac Newton