crisis explained

james armstrong james36armstrong at
Sat Aug 20 09:08:32 BST 2011

If you are mildly interested in the  fiancial crisis , read the 24 page paper by Willem Buiter, Professor of Euro economics at L.S.E. 
who is a sort of Robin Hood figure now i/c Nottingham Castle and also   Dick Turpin now Chief Justice.
Here is a one paragraph summary .

Willem Buiter 

Who1 and when2  what3 and why important4?

1?Buiter is professor of
European Political Economy at LSE.

He was  with Goldman Sachs (fined $550 million…)

He was with Citigroup.(repeatedly
fined,  $1billionplus…..) 

He is (now) with Bank of
England (still Prof at LSE) 

2? On 11 Dec 2007 3? he wrote a paper 
“Lessons from the 2007 financial
crisis” –note the date – (the  run on
Northern Rock was on 7th September
 2007).  4?The paper explains the crisis in detail,
fingers banks , the Fed, BoE,  FSA and
Gordon Brown. 

What happened then

 After slagging off Ms. ‘All and Sundry’, Buiter
was recruited toThe Bank of England , then the government financial regulators , the FSA was scrapped- just as Buiter said it should be.

The main findings of  ‘Lessons’ - 

 a)There was wanton 
securitization (bundling up iffy inscrutable  mortgages, selling them on as assets.) 

b) flaws in the  rating agencies (who grade companies for

c)’leverage’ exaggerates
market  peaks 

d) rational private goals
have inefficient social outcomes

e) de-regulation became
internationally competitive to attract clients

f) incentives to collect and
disseminate risk assessment by  off-
balance sheet vehicles,(OBSV's)  lack of
transparency and  regulatory failure

Some might say appointing
Buiter is like installing a Reggie Kray

(MA Econ.  Hons) to run Scotland Yard , and Dick Turpin to guard the Bank of
England , and sentence and jail the mafia , comora and other firms.

Buiter quotes Mervyn King-

 “the moral hazard in the provision of ex post
ante  insurance   to institutions that have engaged in risky
or reckless lending is no abstract concept”  King spoke on 12 September 2007- 

                     Northern Rock were bailed
out next day.


Buiter’s paper is a must read. Google “Buiter , Financial Crisis”

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