The Beginning of the Next Financial Crisis

[The Minsky Moment]

It began February 28, 2017

https://www.ft.com/content/441be482-fdcb-11e6-8d8e-a5e3738f9ae4

JPMorgan Chase's chief financial officer has appealed for relief from the slew of new regulations imposed on US banks, saying that "the time feels right" to start relaxing rules put in place after the global financial crisis. . .Now, she said, the financial system was stable enough to relax some defences, potentially returning more capital to shareholders through higher dividends and share buybacks

The financial system is never stable.  The moment credit conditions improve enough to give the impression of stability is the very moment when instability begins to mount.  Banks relax standards, push for growth, and take on more marginal business.  Regulators begin to relax, or are forced by their political master to relax, and the public loses interest in regulations.  The process feeds on itself until the Minsky Moment is reached and then collapse.

In 2009 we learned the lesson learned many times before - that capital regulation either has to be consistent across the cycle or even counter-cyclical.  I.e. it is when credit conditions seem good and stable that capital control should be strongest.  But every other time the lesson was forgotten.  This time is no different.  We didn't learn.  We never do.  The next crisis is going to come and the only question is when.

[derspiess]

If they at least kill the Durban amendment I'll be happy.

[The Minsky Moment]

She isn't really talking about Dodd-Frank generally.  She is talking specifically about capital requirements, and in particular the US implementation of the Basel capital standards, including meaningful stress testing by the Fed.  That's where the rubber hits the road.  Reduce that capital buffer and weaken incentives to mind the store, and increase the risks of moral hazard.  That was the one truly bipartisan conclusion to come out of the last crisis with both left and right-leaning economists pushing for stronger capital regulation.

[frunk]

We haven't had a major food borne illness problem in a while, I guess it's time to relax food safety regulations.
Bridges hardly ever collapse, it's a waste to inspect them.

[Admiral Yi]

What you are lacking Joan is any discussion of optimality.  Capital requirements could be increased infinitely to reduce the risk of insolvency, but that doesn't make it a desirable policy.

[CountDeMoney]

I hope you all lose your retirements, and your kids have to suck cock for college money.

[Razgovory]

honestly, we deserve it.

[The Minsky Moment]

What you are lacking Joan is any discussion of optimality.  Capital requirements could be increased infinitely to reduce the risk of insolvency, but that doesn't make it a desirable policy.

The literature suggests that even the "gold-plated" Basel requirements are still too low. 

I recognize that proposition can be debated, although I think the con side would have a tough time of it.

But the JPM CFO wasn't saying - capital requirements are too high as a matter of policy optimality.  She was saying they can and should be lowered because conditions had improved and become for "stable".  I.e. she is arguing for pro-cyclical capital regulation.  And that IMO is not a defensible policy position, other than from the POV of the JPM board room.

[garbon]

suck cock

That's no so bad.

[MadImmortalMan]

honestly, we deserve it.

Raz is right.



Raz can put this quote in his sig forever now.

[merithyn]

suck cock

That's no so bad.

inorite?

[Eddie Teach]

Raz can put this quote in his sig forever now.

I say go for it.

[dps]

In 2009 we learned the lesson learned many times before - that capital regulation either has to be consistent across the cycle or even counter-cyclical.  I.e. it is when credit conditions seem good and stable that capital control should be strongest.  But every other time the lesson was forgotten.  This time is no different.  We didn't learn.  We never do.  The next crisis is going to come and the only question is when.

I don't think we learned and forgot;  we never learned in the first place.  Right after the collapse, I quit my job, and during the 2 weeks I was out of work, I had no problem getting an car loan.  I thought that they were crazy to even consider me, but heck, they practically physically restrained me to keep me there and talk me into signing for it.

[Admiral Yi]

Car loans are soft because they can repo easily.

[DontSayBanana]

I hope you all lose your retirements, and your kids have to suck cock for college money.