Friday, May 6, 2011

It's All About Leverage

FLG has been saying for a good while now that if we are concerned about reducing the risk of another financial crisis, as opposed to justifying whatever political hobbyhorse we have, then the focus should pretty much begin and end with regulating leverage.

This probably means, to point out but two examples, on the household side, greater downpayment requirements on mortgages and, on the banking side, a clearinghouse/exchange for derivatives. FLG listened to a podcast the other day (here is the mp3) in which the interviewer suggested that $3-5 trillion in collateral would be required to get the derivatives market somewhere near safe.

Those are the kinds of discussions we should be having.

1 comment:

The Ancient said...

the focus should pretty much begin and end with regulating leverage

Exactly.

 
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