Tuesday, February 10, 2009

Nouriel Roubini: Anglo-Saxon Model Has Failed

Roubini: The Anglo-Saxon model of supervision and regulation of the financial system has failed. The supervisory system relied on self-regulation that, in effect, meant no regulation; on market discipline that doesn’t exist when there is euphoria and irrational exuberance; on internal risk management models that fail because - as a former chief executive of Citigroup put it - when the music is playing you gotta stand up and dance. All the pillars of Basel II have already failed even before being implemented

In many countries the banks may be too big to fail but also too big to save, as the fiscal/financial resources of the sovereign may not be large enough to rescue such large insolvencies in the financial system. The current U.S. and UK approach may end up looking like the zombie banks of Japan that were never properly restructured and ended up perpetuating the credit crunch and credit freeze

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