Scary graph of the day

Financial crisis from an historic perspective

According to this guy; In order to avoid another great depression US set up  regulation to forbid investment banks from gambling with household savings then which was later deregulated to help American banks to compete with German banks, which then let to more competition; eventually banks were force to putting household saving into riskier investment that bubbled and blow up on all our faces.

And evolution history of the global financial system from this guy.

Good stories.

New form of government-business relation

After reading

What power looks like:
They ride on Gulfstreams, set the global agenda, and manage the credit crunch in their spare time. They have more in common with each other than their countrymen. Meet the Superclass.

A part of the story in this article is about the American Treasury Secretary and Fed bank’s chairperson convening with the worlds 14 most powerful financial institutions (representing 95% of worlds market activity) to discuss ways to collectively avoid the potential financial crisis, and what regimes and rules need to be in place to avoid free riders. The role the state (as represented by Treasury Secretary and Fed bank) is playing is pretty much unprecedented and the tools informal (nothing in writing).

Reading this article reminds me of the govt-buss relationship of the Japanese Developmental State, and the triangular relationship between govt-buss-academia in business clusters like the one in Ireland, silicon valley and many other states sponsor hi-tech industrial parks.

Here is a bit of it

Fed brought together the leaders of the world’s 14 major financial firms, from five countries, representing 95 percent of all the activity in global markets. The Swiss were there, the Germans were there, the British were there. Interestingly, no Asians were there, not even the Japanese. Goldman Sachs chairman and CEO Lloyd Blankfein “jokingly called them ‘the 14 families,’ like in ‘The Godfather’,” says Geithner. “And we said to them, “You guys have got to fix this problem. Tell us how you are going to fix it and we will work out some basic regime to make sure there are no free riders to give you comfort; you know that if you move individually everybody else will move with you.”

There was nothing in writing, no rules, no formal process, and while no one asked the Fed to act, the Fed let everyone in the markets know it was acting. The beauty of the process was its absolute efficiency, seeing what a tight circle of large firms with “some global reach” could get done, fast—with an executive committee of only four running the weekly conference call until the crisis was past. “There is no formal mechanism we could have used to force this on anybody, so we had to invent it. I think the premise going forward is that you have to have a borderless, collaborative process. It does not mean it has to be universal, every jurisdiction or every institution,” said Geithner. “You just need a critical mass of the right players. It is a much more concentrated world.”

Read the rest.