simoncz – because the government is aligned with the bankers, and they want anything but a free market. A free market would never have allowed things to get so out-of-hand, as interest rates would have skyrocketed (because of all the debt out there). No, the current pilfer and snatch system requires a lot of hands-on work in order to ensure the money keeps filtering on back to the banks. The people? Who are they? Just chess pieces to be used in the game of money-making.

Well as Junior said on hearing of the impending collapse of the entire US financial system in 2008:

‘If money ain’t loosed up soon, this sucker’s going down!’

It just went to the wrong people as David says – mainly to prop up phoney over-inflated asset prices for the financial elites, which it will continue to do.

The fact that nobody seems to be bothered by this suggests we still have a long way to go toward successfully reconstructing the economic system in a more equitable way that works for all.

But it also tells us that money is not so much a store of value as a mere lubricant to help the flow of business in the economic circuit. we just need to wrestle back public control over it, somehow.

Interesting. Any chance you could email me at the address inm y profile? I would be interested to email or even to skype for a more extended chat about all things risk. And things AIG if you were willing.

Agree with all your points, particularly complex, computationally intensive ideas. Deus Ex Macchiato is right; you’ve a great turn of phrase! With AIG I was onboard in ’07, ’08 as the captain of the ship told us – and markets – the situation was under control As with your nuclear analogy, once the chain reaction is started, its hard to stop. I also recall the Costa Concordia captain saying something similar and faces imprisonment.
The issue of risk retention and cash-funding rio/uncertainty is one, with my background I feel strongly about. Banks raped prudence. They talked of “excess cash” – rather than setting side cash for loss provisioning and contingent liabilities, for example. They told us they could transfer and mitigate risk. This enables them to sell their “deep, liquid and transparently priced” “insurance” services.
Greater responsibility needs to taken for risk; it cannot all be transferred as banks made out. Unfortunately, if people have become conditioned to having a £20 deductible on their £250,000 home, it’s a bad time to tell them they will need to take a more reasonable level of retention (to reduce risk premia) and the free course in financial commonsense.

Happy to discuss further:-)

Hello Creditplumber,

I’m sorry if i came across as being against the whole notion of weighing risk. As you say that would be silly. We all do it very time we decide to cross the street. It is the basis of pensions and insurance. What else are life tables but risk assessments?

My generalized worries about the way risk weighting is going was more to do with a mass of stuff that didn’t make it in to the article because it was a whole other world of complication.

I have been looking at the attempts to dynamically model Counterpary risk and to use numerical models of fantastic comlexity to underpin claims of far better (and lower, of course) estimates of real counter-party risk.

I remain deeply skeptical of all such computationally intensive ideas on purely mathematical grounds. Basically I see their efforts as doomed because they are trying to use computational brute force and wheels within wheels to estimate and forecast what are very non-linear relations.

It cannot be done. It is a fools errand but a lucrative one so long as you can fool the regulators and your clients. Both easily done.

Anyway, I take your points to heart and would be interested to talk to you more about your experiences in doing risk assesment work.

As for the just in time mentality I agree that is a key point. The entire notion that short duratoin risk – because it is cheaper and leaves you able to ‘respond’ to market changes is somehow better is very dangerous. What provides flexibility in good time turns to acute danger of funding failure in bad times. It is a system with a built in hair-trigger disaster mechanism. IN 2009 the name on the trigger was AIG.

But no one wants to talk about it ever.

But it is wrong to put banks in the same box as insurers. The rules are completely different. For example, regulated insurers balance sheets are effectively owned by policyholders. However, ISDA – with the help of a legal industry that included the famous Robin Potts QC legal opinion in the 1990’s – enabled CDS – like so much of the so-called “insurance” mkt – to bypass statutory and effective regulation.
Whilst I therefore agree with many of your points it’s worth reviewing the NAIC – who regulate insurers in the US -regulatory recommendations on behalf of the ‘buy-side’. They’ve said securities their members purchase that rely on daily observable event information should receive lower Risk Weighting (and therefore capital charge) than other securities with less transparent monthly observations.
There is nothing “complex” about this. It is clear and unambiguous. I’m no cheer leader for the insurance industry which has many similar challenges regarding market participants as banks have. But the idea of cash provisioning for uncertainty/ risk – as most of us do – is no bad thing. That is what regulated insurers – not banks – do. However, the last 20 years, without capital demands, banks could channel, warehouse and distribute risk more cheaply than insurers. That world has now gone.

“disadvantage” in the third paragraph should read “advantage” of course