Fin Mkt Center

DANIEL.DAVIES at flemings.com DANIEL.DAVIES at flemings.com
Tue Sep 14 03:55:30 PDT 1999



>Some new stuff from the Financial Markets Center
>on regulation of margin requirements for stock
>purchases (http://www.fmcenter.org). Probably
>give a few of you guys orgasms.
>
>I follow their stuff so I'd be interested in
>reactions, though you can keep any secretions
>to yourself.
>
>mbs

hmmm ... not quite as "exciting" as the good old Tobin Tax, but same sort of vein. My feeling is that these guys don't get it -- sure, allowing retail to double gear up to invest in equities is insane, but changing margin regs won't stop that. People will just borrow $400,000 from Doug's consumer tip of the week and "invest" it.

the analysis at the FMC looks good though -- just one thing caught my eye:

"Nonetheless, says a 1997 staff paper by Fed economist Paul Kupiec, "the majority in the finance profession appear to have abandoned the beliefs that underlie the original margin authority mandate." "

I have a bit of previous with Kupiec -- he was responsible for an utterly *mad* paper on something called "The Pre-Commitment Approach" in 1995/6. His suggestion (taken seriously by the Fed) was that, instead of having capital regulations, we should make banks promise not to lose money, and then fine them if they did. The mathematics worked perfectly, as long as you were prepared to believe some blindingly untrue things about management. My assessment of Kupiec is that he is a classic example of the kind of guy that gets the rest of us a reputation for being other-worldly wankers.

dd

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