Haven’t we been here before?

Somewhere in 1998-1999, I was having a conversation with a financial whiz kid. Congress was preparing to repeal Glass-Steagall. I thought it was a terrible idea then and I still do. So I am referring to two articles today. One is in Bloomberg here. It’s a review of the Basel agreements that set the rules for banks internationally.  The second is in The Atlantic and discusses bank accounting here.

As I understand it, the Bloomberg article describes how regulations for banks have become considerably more complex and banks with accountants and attorneys have developed more and better ways to cheat. Since the rules are complicated, fewer individuals understand them fully. So the rules are trickier to understand and harder to enforce. In addition, the banks have more money on their balance sheets. The considered opinion of experts is that banks are more highly leveraged than ever, and it is impossible, even for sophisticated people to understand their exposure to risk.

The Atlantic article mentions that reporting requirements for banks do not help to understand how the banks make or lose money. Annual statements are not helpful. There is little transparency in the system, even though four major government agencies oversee the financial sector.

So, it looks as though we are setting ourselves up for meltdown redux. Can’t wait.

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