MS&E 147 Chapter Notes - Chapter 1: Volcker Rule, Retained Earnings, Global Financial System
7 Mar 2017
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Chapter 1: the emperors of banking have no clothes. Even after the public lost a lot of confidence in the financial institutions that were supposed to help them, the banks started lobbying again even after massive bailouts cost people their money and jobs. Bank lobbying is very successful - no scrutiny of their statements, language is very mysterious. Bankers" claims: the financial crisis was fluke, some mistakes were made, but accident is still highly unlikely to occur in the future, and costly and wasteful to tighten regulation to prevent such rare event. Tighter regulation interferes with economy, serious unintended consequences" . No reforms in politics - volcker rule watered down many times as a result of banks" political power and lobbying. One reform direction: insist banks to rely much less on borrowing to fund investments (less debt more equity) Excessive borrowing by banks identified as major factor in crisis.
