Monday, April 14, 2008

Spanking the Banks

Swiss banking giant USB has all sorts of problems right now; the largest problem being that they’ve just posted $37 billion in losses due to a mistaken risk they made on, you guessed it, mortgage securities in the United States. Ultimately, they’ll probably have to pay down something like $60 billion. It’s especially painful for the bank and its shareholders because the Swiss pride themselves on being prudent and thrifty and USB views itself as a very safe bank. There are also quite a few people wondering right now just how the famed USB risk management system broke down.

It brings up a few issues here. The first is that all the talk of “regulation” makes sense, but regulation won’t help if the rules are applied by states: they have to be international because a bank in Canada can follow the rules and a bank in Japan can screw up and hurt the entire system. Secondly, there’s the especially painful fact that USB is being blamed for having “Americanized” itself. It’s painful because, while Americans aren’t necessarily known for being prudent, they are known for being good businessmen. And I think what’s so troubling about the ongoing financial meltdown, which itself will probably be hard but not catastrophic, is that it’s a reputation meltdown as well.

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