No sleep for the rich

[pozorvlak]

Here's a thought. How much of this worldwide banking crisis thing is due, not to deregulation or over-regulation¹ or regulations inadequately applied, but simply to the fact that all the movers and shakers in banking work insane hours, are either massively sleep-deprived or addicted to stimulants or both, and consequently make really stupid

Comments

[thesz]

I took a liberty to copy your post almost entirely and translated it to Russian.

Very bright indeed!

[dreamstothesky]

Not so much, I think. From an individual instutition's point of view most of them acted pretty rationally - it's an absolute classical prisoner's dilemma.. If everyone else is making money on a bubble then you'll loose clients if you aren't too - the trick for them was to get of first as soon as the ship started to sink.

I think the real source of the error was encouraging excessive consumption by artificially keeping interest rates down for so long in the US. Cheap credit and a 'buy now, pay later' attitude have all but taken over any semblence of saving up for a rainy day, and that is why so many people are defaulting, which is why no one knows how much the banks are on the line for (CDOs and other exotic derivitives have played their part in making this harder to work out), which is why banks won't lend to each other, which is why the economy has ground to a halt over the past couple of weeks.

At least, that is how I see it :)

[elvum]

I'm happy to accept that additional sleep and a more sane work-life balance etc would improve the decision-making and problem-solving skills of banking professionals, but I suspect that giving them insane rewards for prioritising short-term profit over safety would still significantly distort their judgements. Which is probably a call for smarter regulation, which probably implies attracting more and/or smarter people to work in financial regulation, which probably implies paying much larger salaries at the FSA...

I too would like to hear the reasons why over-regulation contributed to the current crisis. :-)

[ext_5743]

Well, if the accounting and reporting regulations were even laxer, the banks might have been able to hide their exposure to sub-prime for longer...

[dreamstothesky]

Some would argue that it was government invervention which layed the ground for this whole debacle - fannie mae and freddy mac had a federal mandate to make house ownership a possibility for any American. The government supplied cheap credit is what pushed house prices to the insane levels we saw a few months ago.

If the credit used to purchase houses had to be brought on the open markets, morgage interest rates would have been significantly higher, with lower demand for houses and more realistic prices.

[elvum]

One could get into a semantic argument quite quickly, but that sounds more like deregulation (and beyond) than over-regulation to me.

[half_of_monty]

I like your thought very much. Dunno how true it is, but it pleases me.