North Shore Advisors, Inc.

January 22

Financial Reform....some ideas
Yesterday's address by President Obama highlighted the need for reform in the financial sector but was short on details.   Below are some ideas that seem worth implementing:

• Revamp the rating system and associated conflicts of interest.
• Make the underlying securities, i.e. mortgages better and more robust.  For example, outlaw any mortgage that is negatively amortizing.  Also, require a higher % down payment.  It's clear that the mortgages with higher down payments are less risky than those with less.
• Force divestiture of unrelated businesses.  This is related to what Obama mentioned, why should a bank that is federally insured also engaged in hedge fund and private equity businesses?  Banks obviously can't even handle normal banking businesses properly.
• Do away with off-balance sheet assets.  This is just a way to skirt the system and existing regulations.
• Regulate CDS and similar derivatives.  Standardize terms so these are traded on an exchange, with qualifed counterparties.  Really, these should just be banned.  Any entity without an economic interest (like owning the underlying bonds) should NOT be allowed to buy/own these.
  

10:07 AM GMT  |  Read comments(2)