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As Bob Rubin has stated, any bailout should include regulation of the unregulated shadow banking sector, with strict requirements on capital reserves to limit leveraging and gambling with other people's money.
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But the most important first step is to limit leverage.
Is it practical to limit leverage in a global capital market?
But in banking we limit leverage (debt relative to equity) through regulation while encouraging leverage through the tax code.
It had promised investors that it would maintain certain capital ratios, which required that it limit leverage.
"It takes an enormous amount of political courage to say we are going to limit size and limit leverage," he said.
But this isn't a very satisfying answer.Don't get me wrong, I'm inclined to agree that countercyclical policy designed to limit leverage in booms would be a very good thing.
REUTERS Former Proprietary Traders Limit Leverage | While the Volcker Rule has traders leaving banks to start hedge funds, these new firms are not financed with as much debt as the traders' alma maters, The Financial Times reports.
Regulators would then have a personal incentive to limit leverage at banks but they wouldn't want to impose such draconian rules as to run the banks into the ground.
The lessons from their bumdom are to understand your balance sheet, limit leverage to a prudent amount and to nominate directors with financial insights and the guts to confront senior management.
But Washington has limited leverage.
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CEO of Professional Science Editing for Scientists @ prosciediting.com