03 November, 2011

This is Pretty Damn Cool: The E tests the Dodd-Frank (better late than never)

This surprises me that this hasn't been done before. But now the Economist has tested the Dodd-Frank with its usual aplomb and stylish reporting at the recent Buttonwood conference.

The Dodd-Frank has been around for more than a year, but ostensibly many hoped that the world economy would be in a better place than it is now. It was made to protect tax payers from having to bail out another big bank. But it's never been tested, because no one knows what would happen if another big bank failed, like Lehman Bros did in 2008.

The Economist created a scenario with a fictitious bank called the New Jefferson Bank: a big player in the global derivatives market, and an international commercial player in the US, UK and Brazil. A trillion-plus in assets, big investment player, big management turnover, big loan losses in past recessions, has capital ratios of adequate levels but lots of outside exposure to bad debt. Management has crapped out on everyone, and its strategy is questionable.

It's Friday, April 23rd 2013. Markets are again stressed as they were during the Lehman Bros. failure.

What's would happen under the Dodd-Frank, according to some of the biggest brains in US finance? Click on the link and watch.

Absolutely fascinating.