The weekend of 1314 September 2008 the U

My dear daughter,

At the Sainte-Eugénie, you have asked me one of the funny question which you have the secret: "How will that banks are less silly" I discovered in this Sainte-Bernadette is finally less complicated that I thought. A condition of course adhere to the guidelines and to eliminate the false good ideas blooming like daffodils in the spring.

First, the financiers are like children: it should be monitored, otherwise they sometimes do anything. In the US, large banks such as Goldman Sachs or Merrill Lynch escaped largely on supervisors, because they are not deposits of individuals. It's over, because they have needed lots of money and they had to change the status for the right to ask at the counter of the Central Bank. For other players as "hedge funds", it is less easy. In General, many countries are considering to develop monitoring, to cooperate supervisors with each other, find funds to recruit excellent inspectors. It is a good idea. Europeans are also creating a superpion that will verify that the risks taken by some actors are unlikely to collapse any (macro-prudential control) system. Of course, bankers will try to go out of the shit, where it is less monitored. That's why the need to fight against tax and regulatory havens like the Bahamas.

Then, some would force these poor bankers to ensure against their delusions. On paper, it's a good idea. But it does not stand up. A banking panic is far too expensive. If ever there were able to accumulate enough money, should protect this treasure of the voracity of the States. And it would be impossible to put all this money to a place where could the out of a sudden crisis. Of course, this finding does not increase certain guarantee premiums paid by banks, or even create new ones. And it is legitimate to make pay for banking rescue Bill, as wants to do Barack Obama, because the bankers who survived take advantage of the bankruptcy of the other. But none of this will be at the next crisis. I savings you Baroque ideas, such as the requirement that every banker writes his will every night before bedtime to know would carve how on the up if adventure he trépassait in the night.

After that, there are the time cream pie: cut the banks. If you knew as they miss it! There are two schools. Firstly, the King, the Bank of England boss school: should ratibloiser banks as soon as they exceed a certain height, as the Cedar to the bottom of the garden hedge. Otherwise, they become too large, "too big to fail". When they threaten to fall, it must come to their rescue to avoid that they break in their fall. The problem here is that it would not solve anything. The weekend of 13-14 September 2008, the U.S. Government had to save three trees. He was able to maintain two - Merrill Lynch and AIG. He did not enough time to take care of the third, Lehman Brothers, which collapsed with the forest with him. Yet, Lehman was not high - enough to be deemed "too big too fail." And if the Government had ten or twenty trees to save at the same time instead of three, it would have been even worse, as his rescuers could never be everywhere at the same time.

Secondly, school Volcker, a former President of the Federal Reserve of the United States. He wants to cut the banks in the other direction, to sort between conventional banking and speculation, that serious people call "management for own-account" and cynics "dirty account management. Here, the banks play with their money to win more. The problem is that it is very difficult to sort, as between the lenses and pebbles. When a banker sells coverage to a client, to protect such as foreign exchange risk, it is a conventional business. But when the same bank defends in his turn against this risk, it becomes the management for own account...

Finally, there is the real solution. Reassures you, people work there. It is to put some lead in the brains of bankers or rather in their balance sheets. A force them to be more reserve capital (increase in capital requirements). Prevent lend without limits (capped ratio between loans and deposits). In practice, this is not simple. Figure you that, in the heart of capitalism, is not very clear... define the capital! And then you will have to set these constraints activity by activity, as a real estate loan is in principle less risky than a round-trip to a derivative. It cannot be decided by machines. Will "regulators", who did not renounce their function by laziness or blind confidence in the market. And then these new constraints will inevitably curb credit and growth. But this problem is also a solution. Therefore, the bankers will be less silly. In life, my daughter, should know what you want.