In a paper The "Surprising" Origin and Nature of Financial Crisis: A Macro Economic Policy Proposal (obnoxious PDF big brother - be wary of this link, these bastards have this paper loaded with copy protections as well as image beacons, pretty stupid if it's supposedly a public document!)
The paper first identifies one of the main causes of the financial crisis as aggregate risk in systemically important financial institutions. Bloggerspeak translation: Derivatives, all of those asset backed securities, CDOs, and so on, which were put together like a house of cards, designed on faulty models and slapped with AAA credit ratings when they should not have been.
So, what's the proposal? To create a new type of systemic risk insurance, called a TIC! Tradable Insurance Credits. Yet another market creation with a tradable insurance policy against systemic risk. Guess what, if someone decides we have once again systemic risk...these babies turn into glorified CDSes!
Under our proposal, the central bank (CB) would issue tradable insurance credits (TIC). Each TIC would entitle its holder to attach a Central Bank asset guarantee to assets on its balance sheet during a systemic risk crisis. The amount of TICs to insure each underlying security would be determined by the CB for differing fundamental riskiness. All regulated financial institutions would be entitled to use TICs and possibly hedge funds, private equity funds as well as corporations.
The paper goes on to say these TICs are not convertible until a systemic panic arises and then act like, in a blogger nutshell, credit default swaps.
Ok. Now, notice who cannot buy one of these insurance policies against systemic risk, brought about by absurd actions of large financial institutions? The American people, the U.S. middle class, the American worker.
So, we can have even further irresponsible behavior and just add yet another level of derivatives, this one being a systemic risk version to insure nothing really bad will happen to those too big to fail institutions?
Come on, we already know the government will bail out these large banks, regardless of what they do and even give them executive bonuses to boot! Who needs insurance when it's already guaranteed?
What is more fun, (have I been living in a layman's vacuum?), is the Chicago Fed blog acts like these financial crisis causes are surprising...CDOs, CDSes, asset backed securities and mortgage backed securities which were not rated correctly and thus summed up into massive aggregate systemic risk is a surprising revelation?
Wow! Rip Van Winkle economics I guess.
The only good news is the authors' note this won't work out too well with a shadow banking system like the U.S. and U.K. have currently.
Firstly I am extremely irritated that these people would claim to be interested in public discourse and input, yet load up these pdfs with such security, DRM and image beacons I'm afraid to even view the documents....
much less discuss it on our lowly Populist blog (sic)...
but doesn't that sound like yet another beyond belief trading floor, a CDS against systemic risk? How about simply remove systemic risk from the system?
Oh yeah, that's right, the U.S. government, Treasury, Federal Reserve, Congress.....just increased the power and strength of the financial oligarchy. Therefore we have more systemic risk than ever with a few powerful elites controlling more and more of the financial sector (with our money I might add).