In that order:
1. U.S. and UK regulators are trying to find a workable way to shut down big international banks. If they find a solution it would remove one of the the big barriers to ending Too Big To Fail. FT’s Lex
reported in early December ($):
US and UK regulators will unveil the first cross-border plans to deal with failing global banks on Monday, outlining proposals to force shareholders and creditors on both sides of the Atlantic to take losses…
Later Lex quotes the joint U.S.-UK working paper while adding appropriate commentary:
[U]nsecured bondholders “can expect that their claims would be written down to reflect any losses that shareholders cannot cover”, which did not happen when the US and UK had to prop up their international banks in the 2008 crisis.
Even if we had hard-nosed regulators in power (I don’t know the key players so I can’t judge) it would be difficult to push the button on massive debt writedowns in the middle of a financial crisis. Many dress rehearsals will be necessary before we can be sure the show will actually go on. But it’s looking like financial regulatory elites are moving in the direction of speed bankruptcy
. Maybe someday we’ll actually get there.
2. This year Americans lost the freedom to legally invest in Intrade
. At some point this year (maybe next) the same SEC that removed that freedom is supposed to release regulations on another web-based financial innovation: Crowdfunding, a way for people with big ideas but little cash to ask people to chip in to a new project.
I hope SEC permits this innovation to continue but the Intrade decision is worrisome. This NYT article
by Robb Mandelbaum highlights two rules that if strictly imposed could cripple crowdfunding: Requiring that organizations “raising more than $500,000 provide investors with audited financial statements,” and requiring crowdsourcing websites to ensure that investors aren’t using various gimmicks to put more cash into crowdfunded startups than permitted by law. How much effort should a firm have to make to ensure that it isn’t selling too much of its own product?
have also covered the regulatory issues around crowdfunding in recent months. Being trendy didn’t save Intrade but maybe it will save crowdfunding.
Let’s hope that the relentless quest for safety doesn’t get in the way of genuinely risky financial innovation. Let’s create an alternative method to fund new ideas beyond banks, home equity, and bugging your relatives.