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have we solved the banking crisis?

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January 18, 2012 – Comments (1)

There were 5 primary causes:

**funding long-term debt with short-term financing

**leverage

**securitization of home mortgages and ownership of same by FNM and FRE

**too big to fail

**unregulated derivatives trading

the so-called Dodd-Frank bill did nothing to solve any of the above. True, it put into force the 'Volcker Rule' to limit prop-trading.Problem: prop trading was not one of the causes of the banking crisis. 

#1 & 2 are slightly less of a problem, but only due to internal, voluntary efforts of some banks

#3 & 4 are still there, bigger and more powerful than before

#5 was supposedly the target of initiatives by the exchanges themselves, but is still out there. 

 It is difficult for me to see that today's financial industry is any safer than before 2009.

1 Comments – Post Your Own

#1) On January 19, 2012 at 2:23 PM, amassafortune (29.59) wrote:

Don't forget mark-to-market. Imagine a private citizen still using the value of their house in early 2008 in a net worth calculation as documentation for a loan. 

I doubt the off-balance sheet reporting issues have been completely eliminated, either. 

Quarterly large bank earnings keep showing reduced loan loss provisions that most likely do not adequately cover the downside risk of remaining mortgage issues.

Derivatives continue to grow. Being unregulated, derivatives sidestep capital reserve requirements. 

Absolutely, there is more risk in the banking system today.  

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