The Next Very Thin Firewall

Bank rules are being changed again. The development of a new dike to prevent an infamous financial flood such as the meltdown of 2008.

You are probably hearing of the so-called Basel Rules, whereby banks are setting up more capital to offset write-offs of potentially bad loans in the future.

This all sounds good. But it is a façade. Political gestures, more than financial acumen, to build confidence and kick the proverbial can of problems down the road.

The truth is, during the most recent financial debacle, when bank assets were “marked-to-market,” and true asset values were difficult to determine, and thus short selling decimated asset pricing overnight, capital cushions were wiped out in a fell swoop. Basic banking capital disappeared almost in a few days.

So all the media headlines about the Basel Rules are meaningless. in practical terms