Wednesday, April 29, 2009
The Unbearable Lightness of Being Thick
The headlines are screaming "Banks Need More Capital". Reeaalllyyy?? Being leveraged by a gazillion percent isn't enough anymore? But wait. Isn't that what the Bank for International Settlements told them - oh, I don't know - 5 YEARS ago? The Basel II accord was originally designed in 2004 to provide the international banking system with a framework for capital adequacy. This was intended to help PREVENT the kind of meltdown we have recently experienced. But American banks said, 'Wait a minute! We have to have CASH MONEY? No way, tell the Swiss to adios.' But the pressure from their overseas conterparts was too strong, so the American banks said "OK. We can do this. As long as you LOWER the capital requirements.' Which BIS did. US banks were supposed to begin to adhere to their 'special' Basel II accord in January 2008. But by then the unimaginable had happened. They GOT CAUGHT WITH TOO LITTLE CAPITAL. BIS 1, US banks nil.