Corzine - BICs - Impressions - What is acceptable - Rent Seeking

 Everybody seems to be sporting about the latest travails of Mr. Corzine, but many if not most (or virtually all) of those who seem to be moralizing now surf or have surfed the same rent seeking privileges that have little to do with actual competence. Every now and then, the bubble pops, a few unlucky bad ones pay for all the systemic sins, but the system itself perdures, with incremental adjustment here and there.

True change, whether in politics, social values or rules for economic entitlement come only after a forceful clash in which absurd existing rules or laws may be trampled in the process for a fairer order to emerge.
The present crisis continues its slow bleed because that necessary purifying process did not occur. Even after the comparatively milder dot-com bubble popped, the clean up was more extensive and more were held accountable.

Despite all the gospel to the contrary, it can be uncommonly difficult for the uncompromising innovator that the system proclaims to value above all to be heard. This seems truer if such innovations precisely pertain to the core issues that have put the system to its knees.

We persist in looking for solutions where we are least likely to find them even though the historic record is unambiguous that lasting solutions to systemic problems more often than not come from outsiders. Up to now the system has failed to look/consider or even acknowledge solutions proposed by outsiders. One of the problems exarcerbating our socio-economic issues is that the existing power structure is poisoned by a system of "normative meritocracy" blinded by a codified system of merit that tend to undervalues when it does not simply obliterate all other forms of emerging and more relevant competencies.

 Democracy in politics, branded academic credentials, peer review and other idealistically sounding principles collude to create dystopian realities for true innovators whose ideas and works can actually benefit the greater good.


BICs in the many ignored ideas and works it leads and spread throughout this blog can only be seen as an ultimate example of a flawed system of incentives and punishments. See also:  US Patent No. 7,933,824 .


References:
 US Patent No. 7,933,824.
NYT Editorial Nov 2, 2011: Mr. Corzine's Big Bet
NY Times- Nocera: Corzine Crashes like It's 2008
WSJ: Corzine Agonistes 
Others Pay Price for Corzine’s Risky Revenge: William D. Cohan
Douthat: Our reckless meritocracy

Geithner: Business Hedging Isn't Target - WSJ.com

Geithner: Business Hedging Isn't Target - WSJ.com: "Mr. Geithner's testimony Friday didn't shed much new light on details that lawmakers and industry players are clamoring to hear. Specifically, it remains unclear how regulators will determine when a contract is considered standardized. Mr. Geithner conceded the administration isn't ready to carve out a definition, although he promised it would be broad and 'designed to be difficult to evade.'"


Comment:
The question of a definition is indeed KEY.
BICs provide the best framework for providing a robust working definition. See:http://tinyurl.com/cyxhpa
With BICs markets, BICs would be the "standardized derivatives" and everything else would be composed of such BICs. It helps solve hedging ability issues that are matters of concern in this article. In addition, it in effect ensures that economic efficiency forces, in the search for the cheapest production cost, will push derivatives trades where they are cheapest, i.e. in a centrally cleared exchange system.

Financial Reforms We Can All Agree On - WSJ.com

Financial Reforms We Can All Agree On - WSJ.com: "6) Avoid grade inflation in rating agencies' opinions. Lots of bad ideas are surfacing about how to accomplish that goal, one of which is to require that buyers, not sellers, pay for ratings. This would not improve the reliability of ratings. Regulated, buy-side investors (banks, pensions, mutual funds and insurance companies) pushed for ratings inflation of securitized debts to loosen restrictions on what they could buy. Giving these buyers more power would not discourage ratings inflation. Another bad idea gaining ground in Europe is to have regulators micromanage the ratings process, which would be destructive to the ratings' content.

There are better alternatives, one of which is to force ratings to be quantitative. Letter grades have no objective meaning that can be evaluated or penalized for inaccuracy. Numerical estimates of the probability of default (PD) and loss given default (LGD), in contrast, do have objective, measurable meanings.

The Nationally Recognized Statistical Rating Organizations (NRSROs) whose ratings are used by regulators should provide specific estimates of the PD and LGD for any rated instrument (they already calculate and publicly report the necessary statistics). Requiring these organizations to express ratings using numbers could alter the rating agencies' incentives dramatically. If they were penalized for systematically underestimating risk over a significant period of time -- say, with a six-month 'sit out' from having their ratings used for regulatory purposes -- they would have a strong self-interest in correctly estimating risk."

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Comment

The issue is not so much alphabetical versus numerical as it is an issue of further granularity in rankings
See my book chapter VIII:

 

My recent output on proposals for reform:

Unity of Purpose




http://www.youtube.com/watch?v=70ciLLjpS4U


http://www.authorstream.com/PresentLive/kongtcheu-179123-UnityofPurpose2-Business-Finance-ppt-powerpoint


http://www.authorstream.com/Presentation/kongtcheu-179123-UnityofPurpose2-Business-Finance-ppt-powerpoint/


Uploaded on authorSTREAM by kongtcheu


Too Big to Fail





http://www.youtube.com/watch?v=YzO6_CusfL8



http://www.authorstream.com/Presentation/kongtcheu-179114-TooBigtoFail-Business-Finance-ppt-powerpoint/

http://www.authorstream.com/PresentLive/kongtcheu-179114-TooBigtoFail-Business-Finance-ppt-powerpoint



Uploaded on authorSTREAM by kongtcheu