How Smart Are The Financial Experts?

The Dodd-Frank Act a couple of years ago doubled down on regulations that affect the American economy, particularly the banks. With the latter, the regulators hope that banks do not fail and cause a domino effect, dragging down the entire financial structure as well.

The regulators’ idea of the soundness of a bank vary often from that of the individual banks themselves. Banks add to their basic capital in various ways but when the official tests are made by government the results generally fall short of bureaucratic recommendations.

Yet, the whole exercise is useless. Banks got into lots of trouble in 2008-2009 for reasons other than basic capital to back-up loans. I have written in the past about the silly notion of imposing mark-to-market accounting, for example, in illiquid markets. (See the Earl J Weinreb NewsHole® comments.)