I noticed two links to Professor Roubini today. The first one was from February when he said that the S&P 500 will drift sideways for most of 2010 which is a marked change from his opinion fourteen months ago when he was saying that the nascent rally in March 2009 was a dead-cat bounce sucker rally. [1]
OK that was three months ago, he has no comment so far on the little hiccup, but I was pleased to see that’s he’s coming round to some (minority) opinions that were put about on or around April Fools Day 2009. [2]
I also saw the Nine Commandments contained in a chapter from his new book, Telegraph from his new book Crisis Economics: A Crash Course in the Future of Finance: [3]
The Nine Commandments:
Commandment ONE. Traders and bankers must be compensated in a way that brings their interests in alignment with those of shareholders.
Outside of the “command-and-control” element of that idea (which I object to), I also object to the idea that shareholders in a company should not have the exclusive power to decide compensation of their “employees” , which currently they don’t and that is not a good thing. What I think Roubini misses is the legal issue, which is the obligation of agents to act in the best interests of their employer.
But that is pretty impossible to achieve, and shareholders always have an option to vote with their feet. I have another suggestion, which is that “risk-takers” should be personally liable for the risks they take, either by making entities that specialise in “risk” (like gambling syndicates and insurance companies), partnerships with the partners having unlimited liability (like the model that Lloyds of London used to have, and still does to some extent). And ensuring that entities that are implicitly or explicitly guaranteed by the taxpayer, should be obliged to “re-insure” their risk, like for example primary insurance companies in Singapore are obliged to reinsure 90% (I think) of their risk.
Commandment TWO: Securitizations (bundles of loans) must be more heavily regulated, more transparent, and the securitization process more scrutinized…
Some people believe that securitisation should be abolished. That’s short-sighted: properly reformed, securitisation can be a valuable tool that reduces, rather than exacerbates, systemic risk. But in order for…
