THAT CARTER!

Doggone, he's right again! I overlooked the medium term consquences of Mrs. Merkel's defeat last week while struggling to find something current to write about and hence, said nothing about it at all. I promise to be more alert in the future. Time is running out and everytime Europe winds up at the mercy of German internal politics, something bad seems to happen. And of course Anonymous is correct as we have been saying that at this stage at least, the Irish have everybody over a barrel. The thing I can't fully understand is the absolute reluctance to even mention the possibility of a restructuring of the debt unless, UNLESS the exposure of the Eurobanks is greater than we have been made to believe. Look, a bank doesn't go under unless the governing authority wants it to go under. Liquidity support and generous accounting interpretations can run a banking system forever. Of course, they, like us have gone after this thing bass-akward with the nonsense about Basel III. Might be a bit of embarassment all-around and a few folks might lose their jobs but it seems to me that the alternative could be far worse with a disorderly approach to what seems to be a certainly. Then again, it's great blog fodder.

Meanwhile, over here, Poo Bair is at it again questioning whether a full requirement without exception for financial institutions to have "skin in the game" in future securitizations is really a good idea. A valid point but she then confuses the issue by proposing that no such requirement is necessary if the securitization is simply for a block of mortgages that all have a 20% down payment.

I have consistantly said that I fail to understand why not more effort has been spent on the "buy" side of this business. To begin, the good folks who were the buyers of CMO's thought the nineties and into the last decade were neither widows and orphans nor the Little Sisters of the Poor. They were supposed to be highly sophisticated financial types who knew or should have know the risks involved. As I sat and watched "Inside Job" last month I wasn't so much appalled by some of the players on the "sell" side as I was amused in thinking what in the hell was somebody in Iceland or Norway doing buying a security involving places they had never visited or for that matter never knew existed. The answer of course was that they were seeking yield and were being compensated for attaining above-average yield on their investments on a non-risk weighted basis. I raise this again not to argue who were the REALLY bad guys but merely to point out that the entire basis of the securitizations that were conducted was to provide higher yield to investors who were demanding the same. Were there bad actors involved? Most certainly and they should suffer whatever fate awaits them, but the proposed skin in the game rule seems to me to indicate that the creators of the same never really understood what the "game" was all about. I believe the role of a financial intermediary in creating investment opportunities to fill needs across a broad spectrum of risk is a valid and important one but that there is a risk in creating the false impression that just because the seller has "skin in the game" the risk has been negated. Even in such a circumstance, some risk is not appropriate for certain investors. I don't pretend to have a perfect solution but I'm damn sure ignoring the stupidity of the past and creating even more opportunity for someone to be stupid in the future isn't the answer. Ignoring the "buy" side and it's montstrous errors is a serious mistake. Comments?