Too complex to exist – The Boston Globe

http://www.boston.com/bostonglobe/ideas/articles/2009/06/14/too_complex_to_exist

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    An alternate approach is to deal with the problem before crises emerge. On a routine basis, regulators could review the largest and most connected firms in each industry, and ask themselves essentially the same question that crisis situations already force them to answer: “Would the sudden failure of this company generate intolerable knock-on effects for the wider economy?” If the answer is “yes,” the firm could be required to downsize, or shed business lines in an orderly manner until regulators are satisfied that it no longer poses a serious systemic risk. Correspondingly, proposed mergers and acquisitions could be reviewed for their potential to create an entity that could not then be permitted to fail.

    Oh Duncan, blaming “systemic failure” for this current muddle is a bit too convenient. Saying the global financial system has somehow grown too complex to manage is to ignore history; financial “meltdowns” have occurred throughout history. The only difference in this latest one is its cross border extensiveness. This is a tribute to the degree that a global economy has formed, but is not in itself an indication that it has grown “too complex to manage” or that regulating the larger economy is even possible. Suggesting that we regulate “systemic risk” sounds a bit too much like managing people’s investments for them. I doubt we should give any government that privilege; and if made to choose between accepting systemic risk and political risk, I choose the former, thanks.


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