Thursday, March 26, 2009

Where’s the Plan, Wall Street? - DealBook Blog -

Where’s the Plan, Wall Street? - DealBook Blog -
"For the last several months, Americans have looked to Washington to lead them. But where’s the leadership on Wall Street

It’s worth noting that most Wall Street C.E.O.’s are being advised by their legal and public relations teams to keep their heads down or risk provoking more public outrage. But there is the flip side to that coin: reasoned leadership may generate a reasonable response, helping the industry pre-empt what it fears most — additional government regulation.

So in that spirit, here’s a five-point plan to refashion Wall Street"

It is an interesting article. All 5 points deserve consideration. Unfortunately I have a faculty meeting to go to, so I will only give one look-in:
"One of the most important markets that may have to be reformed is the market for credit default swaps — those insurance plans that investors can buy to protect themselves from an institution’s defaulting. There’s good reason for the insurance to exist: If you are a client of a firm or own its debt, swaps are a smart way to make sure you are left with something if the firm collapses. But investors are allowed to buy swap protection even if they have no exposure to the firm. That means they are not buying the insurance to protect themselves, but rather as a speculative bet. In this case, it’s the equivalent of buying insurance on someone else’s house.

And that’s a problem. It creates an incentive to burn that person’s house down, or even whisper that it is practically a tinderbox."

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