April 14th, 2008
07:38 AM GMT
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LONDON, England – More reminders of the sub-prime crisis debacle will come this week with further massive writedowns from Citigroup and Merrill Lynch.

 

By doing a mea culpa, banks are clearly hoping that they can keep further regulation at arm's length.
By doing a mea culpa, banks are clearly hoping that they can keep further regulation at arm's length.

And while the fallout from the crisis continues to weigh on the real economy, a group representing more than 375 of the largest  financial companies has admitted "major points of weaknesses in business practices," including management of risk and the bankers' pay.

 

But at the same time, it warned against imposing more regulation on the industry. "We think it would be completely wrong to jump to some premature regulatory measures," said Josef Ackermann, head of Deutsche Bank and chairman of the Institute of International Finance. "We want to demonstrate we can do a better job within the industry," he added.

 

Give me a break. You bankers take heavy leveraged bets that go terribly wrong, resulting in probably the worst financial crisis in the last 50 years, and you say you can regulate yourself. I say, who do you think you are kidding Mr. Ackermann?

 

I think it's clear that greater oversight and regulation is needed. Not the type of regulation that impairs banks' ability to loan money, but regulation that make it far less likely that another crisis like this one could ever happen again.

 

Paul Volcker, the former Fed chairman, recently said: "The bright new financial system for all its talented participants, for all its rich rewards, has failed the test of the marketplace."

 

The Institute of International Finance admitted banks had failed in many ways including inadequate protection against shortages of liquidity and too much reliance on financial models. It also cited the conflict of interests over bankers' pay.

 

That would be a good place to begin. Defer huge payouts for several years to see whether or not the big bets taken actually work out.

 

By doing a mea culpa, banks are clearly hoping that they can keep further regulation at arm's length. I say given all that's happened, make them pay the price and impose stricter regulation. They deserve it and we need it.



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