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Credit Crisis Lives On

Credit Crisis Lives On

The housing and banking crisis was all that mattered at the annual financial risk round table. To deal with these issues, the idea of new rules was proposed by the Fed. However, to many at the round table, enforcing new rules will not solve the housing and banking crisis.

Finance professor Edward J. Kane was present at the meeting. Kane thinks that writing new rules will only solve the problem temporarily. Investors are “like termites,” in that they find a way to get away from the poison, but back to the wood. In other words, investors will find a way around the new imposed laws.

The Feds later on proposed another plan as to which they would increase liquidity for the major banks in hopes of stabilizing their balance sheets. This idea did not go well with many of the members at the roundtable. According to chief monetary economist of Cumberland Advisors, Robert A. Eisenbais, the problem was never liquidity; the problem was that these institutions had assets of questionable quality and allowed them to remain on the books without looking too closely.

Kane also injected that regulators are too slow to identify problems and too quick to bail out foolish investors. This leaves investors in the position to ignore the risks because they know the government will bail them out if the markets go bad.

Credit crisis is something than many of us may have to deal with, rules or no rules. Although the is making attempts to help the people, investors are the ones who are disarming the people.

Tell us, do you think rules and regulations will help prevent credit crisis?


Posted: 7/22/08