The Basel Bi-Polar Roller Coaster
This is the second part of a crytpojournalism breakdown of the Bank For International Settlements Annual Report. You can read part one here.
The General Manager’s speech was vaguely amusing, vaguely informative. Just what I’d expect. Onto our second speech related to the annual report. Titled “What financial system for the 21st century,” it’s definitely a worthwhile read for anyone who wants to read tea leaves or peer into the crystal ball’s abyss.
If you experience motion sickness, take medicine now. Reading through so much contradiction brings about the feelings one would expect from a bi-polar roller coaster.
Once again, I’m compelled to remind you this is cryptojournalism. If you want a fuller understanding of the Bank for International Settlements or any of the white papers we’re discussing, you have to do your own studying and investigation. Don’t trust a hack, and cryptojournalism is built on hackery.
One of the major calls to action from this speech, by Andrew Crockett, can be summed up below:
High-quality information is the raw material for directing resources to their most efficient use, facilitating intertemporal contracts, and thus strengthening growth potential. Financial sector reform, to be of greatest service to users of financial services, should protect and enhance the capacity of the system to generate such information.
In a perfect world…….
I’ll wait to comment. That, my friends, was the setup. Punchline time:
…market mechanisms failed because of perverse incentives, asymmetric information and conflicts of interest. This perspective can be instructive in designing a structural framework for a post-crisis world.
Deep breath. And exhale. Yeah, that’s good. High-quality information versus asymmetrical information. Gee, I’m relieved. Trusting the financial system that has run semantic games at every corner will now provide high-quality information. Someone call Captain Save A Hoe!
In layman’s terms, it is a wild leap of faith to believe global banks and international firms will turn over a new leaf on the request from the Bank for International Settlements. The BIS is looking for someone to step in as Captain Save A Hoe. News flash: people lie. Even bankers.
File this one under ‘Damned if you do, damned if you don’t’:
Robust reforms will be those that deal with the sources of market failure, while unintended consequences are likely to flow from solutions that simply aim to thwart market outcomes perceived to be problematic.
Unintended consequences? Never heard of ’em. I mean, one time with my girlfriend, the condom broke. She got her period, only after a few days of serious trepidation. It’s also bordering on preposterous how much a banker will hedge, even within a single sentence. We’ll deal with these market failures, until a new hole is found in the system. But that’s not the intent.
Banking and regulation, like crime and law, are games of cat and mouse. Regulators are always a step behind. Couple that with the axiom ‘nature abhors a void’ and you can bet money will find a way to be spent, unregulated, maybe even fostering that next bubble. Which ushers in another crash. Feeding on its own shit. That’s the underlying metaphor of The Human Centipede. Or was that I Am Sam? So tough to distinguish between the two.
I’m serious about Sean Penn, too. His acting as Sam Dawson may be the most reprehensible, ignorant gesture of egotism of the 21st century. Who’s self deluded enough to believe acting like a handicapped person by repeating phrases and fidgety fingers is anything more than condescending in the lowest sense of the word. That, or he has attained the platinum echelon of humor. With joke he kept to himself.
The premise of high-quality information sounds great. Most people would agree with regulatory bodies having better information. That’s not how players within the economy work. “Garbage in, garbage out,” a former boss used to say. True words. Statements of hopeful aspiration towards are great. Facts on the ground?
Your honor, I’d like to enter this into the record as evidence:
It seems to be the case that, in good times, users of financial information become inclined to employ “short-cuts”, using easily available data such as credit ratings, or recent historical experience, as a substitute for the more in-depth credit analysis that is needed for the careful management of a portfolio.
Not to rain all over a wet blanket, but come on boys! You’re making my point for me. ALL PEOPLE prefer short cuts. Ever heard someone say, “I took a long cut on my way to work today, and gee willikers, did it change my life for the better!” I’ll let Balki speak on my behalf.
Don’t. Be. Ridiculous. People are constantly looking for short cuts. Look at LeBron James.
And gee willickers? Who says that? Mere hyperbole. Point is, everyone is on the lookout for short cuts. To expect anything less is daft.
Speaking out of both sides of ones’ mouth is not an inherent skill. It takes time and patience. Like they say, practice makes permanent. Practice speaking out of both sides of your mouth and you come to be quite adept at it. For central bankers, it’s second nature:
Enlightened financial firms realise that measures to protect users of financial services and to enhance transparency are ultimately helpful in strengthening confidence in financial intermediation and promoting greater use of financial services.
Enlightened financial firms. Sure. I’m going to file that right next to virgin prostitutes. How about functioning crack heads? I could go on with the contradictions for a while.
You do have to admire such succinctly vague language. A phrase like ‘enhance transparency’ make me laugh. Today’s transparency is tomorrow’s old file clerk. Transparency entails thoroughly vetted, clean and trustworthy information.
Until a new financial innovation takes hold and fast cash runs towards this new hinter land. I’ve got a half clue what ‘strengthening confidence in financial intermediation,’ means. It’s either getting people on board for special drawing rights and standardization of rules across borders, or I’m way off. Probably way off. Cryptojournalism is not infallible. Quite fallible, actually.
The speech was not simply one long, winding flow of contradictory phrase after contradictory phrase, It did endeavor to begin to chart a path towards the next step in global finance. That’s a sentence to make any technocrat proud. Endeavor to begin? Can I be any more full of shit? Rhetorically and literally, yes:
A 21st century financial system will need to seek ways in which regulatory oversight complements (and does not simply substitute for) the interest of the private sector in generating high-quality information.
Talk about full of shit. Bankers and regulators, working hand in hand to make the world a better place! I can see the PR push now. If possible, the rhetoric actually veers into Sam Dawson territory:
In this endeavour, transparency is generally likely to be more effective than rules that provide for how particular services can be provided and charged for.
Rules? Tsk, those are, like, part of a 20th century financial system. Today, transparency should do the trick. Although this is the same class of people earlier described as short cut takers seeking out perverse incentives? When did I enter Bizarro World?
I wish I was making this shit up. Those last two bits are the same paragraph. Read it yourself. Maybe I missed something, but it sounds like, “Now boys, we need your full assistance on this. But we’re going to do nothing to ensure your help. Honor system, gentleman. Have fun at the lake house, and try not to empty grandpa’s liquor cabinet.”
In a stunning turn of events, grandpa’s liquor cabinet was empty by Sunday afternoon.
There’s an old saying in Moncton. A shit leopard can’t change its spots.
The speaker, Mr. Crockett, does not spin rhetorical gold the whole time. His observation on procyclicality (I admire how some economic language is so convoluted):
The tendency toward herd behaviour can provoke cycles of “greed and fear”. More objectively, in periods of economic expansion, net worth and collateral values increase, creating both the room and the incentive to leverage new wealth with additional credit creation. The process goes into reverse during downturns, often with disastrous consequences. There is increasing recognition that financial policy should try to limit, or at least avoid intensifying, procyclicality.
Sounds great. The premise is solid. Now for the other shoe.
To be effective and non-distorting, however, care would have to be taken that such charges were general enough not to simply shift intermediation to other channels or overseas.
Overseas. The scourge of tax bases worldwide. Wherever it is. Damn you to hell, exotic tax havens!
One more rhetorical handspring, promise. This bit of mental gymnastics made me laugh out loud. Yup. BIS white papers are comic fodder:
It is not clear from the historical experience, however, that universal banks are in fact more likely to fail, or that investment banking activities are inherently more risky than lending to retail customers…..The perception of greater risk (and lower social value) is fostered by the use of pejorative terms such as “casino banking”.
Pejorative terms. Bankers, financiers, hedge fund managers, even private equity firm managers…..they too feel the sting of bigotry. Preach peace. Practice tolerance. And for heaven’s sake, mind your tongue. Internationalists in the top 1% economically have feelings too. And words hurt.