On Jul 5, 2006, at 6:32 PM, RE wrote:
> What got my attention in Cockburn's column was this:
>
> "The Bank for International Settlements is no circus-tent Cassandra
> shrieking about the onrush of Doom. Bankers don't shriek. But
> here's the
> BIS, trembling before its crystal ball and talking, in its most recent
> annual report, about "planning for the worst. Consider first a
> discrete
> event which, if it occurred, would disrupt financial markets. What
> might be
> done in advance to prepare for such an eventuality? One important
> step would
> be to ensure the integrity of domestic lines of communication among
> core
> financial firms, their supervisors, the central bank and the
> operators of
> systemically critical parts of the financial infrastructure.
> Another would
> be to ensure similar openness at the international level. Stress
> testing is
> now almost universal in financial firms, which is highly desirable.
> Yet
> stress tests are based on simplifying assumptions that necessarily
> fail to
> match the complexity of real world events." That's a banker's way
> of saying,
> "The show could blow up tomorrow, and there may not be any way to
> stop it."
>
> Does this indicate an unusual level of concern on the part of the
> BIS, or is
> Cockburn cherry picking their report?
They and the IMF have been writing stuff like this for years. And the paraphrase is a little tendentious: things could blow up and we'd better be prepared for extraordinary interventions. Which is exactly what they did with the stock market crash in 1987, Mexican crisis in 1994, the Asian crisis in 1997, the Russian crisis in 1998, etc.
Doug