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January 22, 2010



For what it's worth, I think your theory is spot on. I'm not sure it's that controversial even among financial markets participants - as you rightly say, their view is in the price. Excellent post.


Excellent post - I am dazzled by your brilliance!


Did you read Simon Johnson's Atlantic essay from last year ?

"The finance industry has effectively captured our government"


Daniel Lindholm

I think you are crediting the stock market with too much.

The shares of banks that are going to be negatively affected by the rules have gone down in price, because the future performance of those firms has suddenly become both less certain and less profitable. That is what the stock market does. What the stock market can never measure, is whether this is on balance going to be negative for the US/UK/Euro financial industry and wider economy.

The benefits, if there are any, will take a while to be clear might go to other customers, whose share prices would therefore be boosted slightly. And it is likely that new business models will emerge which may one day be extremely succesful in the stock markets of their day, but won't be measurable now because those company structures don't exist yet.

Philosophically, I am not opposed to the regulation, provided it is about clarifying the risks of investing in various types of banks and preventing financial contagion, and not about handicapping western banks at the expense of international rivals, in which case we've only moved risk to another part of the world.

Tim Bassett

Hi Chris,

The thing that puzzles me is that other shares were not marked up by the same amount as bank shares fell. If you believe, as I do (and I was a prop trader and still manage money) that most of what banks do represents rent seeking and creates no real wealth the reduced bank profits must mean higher profits/incomes for everyone else. If it also leads to more process innovation v product innovation the rate of growth should also speed up.


People who believe that the government is going to damage the banks do not necessarily believe that it is going to do anyone else any good.


A British blogger has been intimidated by the police. The Reverend Stephen Sizer didn’t like comments and criticism made on the Seismic Shock blog, so got the police to physically intimidate the blogger, to take down that mild criticism.

This is a clear freedom of speech issue, the police should not be used to intimidate bloggers.

I urge you to publicise this issue and support Seismic Shock, as “I too am Seismic Shock”

For more information see http://modernityblog.wordpress.com/2010/01/23/reverend-stephen-sizer-uses-british-police-against-a-blogger/

And http://engageonline.wordpress.com/2010/01/23/anglican-vicar-uses-police-to-intimidate-blogger/

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