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Sunday, April 18, 2010

Obama: "Rules needed to avoid further financial crisis" - he is aiming at the wrong target; he only wants to regulate financial institutions

Author Thomas Ramseyer

Obama on the wrong track 
He wants to regulate financial institutions as well as the financial markets to avoid another crisis of the same magnitude as the most recent one.
By DARLENE SUPERVILLE, Associated Press Writer Darlene Superville, Associated Press Writer 39 mins ago (April 17, 2010)
WASHINGTON – President Barack Obama on Saturday challenged opponents of tougher financial regulations, saying the U.S. is doomed to repeat the economic crisis without new rules and that taxpayers would again be stuck with the bill.
The overhaul is the next major piece of legislation that Obama wants to sign into law this year.
"Every day we don't act, the same system that led to bailouts remains in place, with the exact same loopholes and the exact same liabilities," Obama said in his weekly radio and Internet address. "And if we don't change what led to the crisis, we'll doom ourselves to repeat it.

Obama said that if what led to crisis is not being changed, US dooms itself to repeat it

Who really caused the debacle
What really caused the worldwide financial crisis were the highly indebted individuals throughout the United States. The true reason thereof was the Aministration's strategy to keep the financial markets liquid by boosting the monetary base applying very low interest rates for a too long period of time. The other main reason is the mentality of the american citizens to consume first and save only afterwards. The bitter truth is that the people apply deficit spending in the same manner as the Administration. Just alike the latter they got used to never pay back their debts; they roll them over and over again and only pay interest on it. 

Well known rules
The lower the interest rates the higher the debts. (credit institutes lure the people into financial adventures)
The longer the period of low interest rates the excessively higher the debts. (people feel secured) 

Real cause: twofold deficit spending
Government as well as people - badly managed by the administration - as a matter of fact countries abroad refinance the whole United States' economy

Remark: Maybe this has willingly been done led by the administration just to exchange worthless paper against durable goods such as finished products, semi-finished products and natural resource goods.

By the way during the Bush Administration (Jan 2001 to Jan 2009) the US$ weakend from US$ 0.8285 for EUR 1 to a low of US$1.5974 USD for 1 EUR. 

Severely radical

Train individuals to cut down debt, train the politicians to cut down government debt.
Train them to become almost as conservative as their forefathers; just save before spending.
Seize down advertisement facing all the consequences !
It will be as easy as that. As to the money there will be less offer when demand is lacking. 

Rule and regulate financial insitutions
1) Exposures have to be transparently shown. I.e. relative full consolidation thus lenghtening the balance sheet.
2) Forbid any derivatives which cannot be replicated by underlying transactions.
3) Have financial institutions change their reporting as follows: 

Do not allow Activ as well as Passiv Replacement Values on the balance sheets. They never show the truth. These values have to be broken down into all instruments they are composed of. Thus every product can be replicated. Force them to book every single instrument as active or passive position on the balance sheet. 

Group Investments
Any portion has to be fully consolidated 
Ask for relative fully consolidation
Ask for relative fully consolidation
Ask for relative fully consolidation
Liquidity and Equity capital
Equity capital as well as other ratios have to be related to the fully lengthened balance sheet. 

Because of the severeness of the measures' to be taken, worldwide economies will slow down. There will be no need to force banks into the actually suggested inefficient arrangements envisaged by political leaders all over the places.
Globalized application of the above-mentioned measures will automatically solve the problem of excessive bonus practice.

copyright Thomas Ramseyer