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Wednesday, 26 January 2011

Stupid is as stupid does

Gary Cohn is a President of Goldman Sachs or maybe he is the the President of Goldman Sachs.  I couldn't care less.. He says we shouldn't regulate banks more because that will drive "risky" business into unregulated hedge funds. Now Mr Cohn was paid $53.2 million not so long ago, but his proposal is so stupid on so many levels that it is hard to understand why he gets paid that much.

Let's run that one again. Mr Cohn has warned the assembled masses at Davos that the imposition of more regulation on banks could cause the next crisis by pushing risky activities towards hedge funds and other lightly supervised entities.

Well yes, Mr Cohn, that is one of the purposes of regulations. There is an infinite variety of risky activities and all unregulated entities are free to participate in them, measuring the risk against the rewards. Banks on the other hand carry an implicit or explicit level of support from governments (like the support Goldman's got from the US government), in return for which governments impose regulations on the banks to reduce the risks taken on by the banks.

Now it seems that Mr Cohn thinks banking is like drug dealing, and by bringing the drug dealing into the regulated sector all the nasty people will be cut out of the business.

No Mr Cohn, it doesn't work like that. These nasty trades are still risky, but quite frankly if they are going to happen, I would rather that they were undertaken by somebody playing with their own or their own client's money and not by some bank under written by the tax payer.

I have heard some stupid ideas in my time, but that really is $53.2 million stupid.

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