Thursday, October 13, 2011
Expensive failures trying to restore investor confidence
Since the beginning of the financial crisis, governments and central banks have spent significant amounts of money attempting to restore investor confidence. Your humble blogger has predicted before these expensive solutions are implemented that they will not restore investor confidence and then has documented their failure to restore investor confidence.
For example, BlackRock was engaged to stress test the loan books of the Irish banks. This blog predicted that this stress test would not restore confidence and has documented how the results of this stress test did not restore investor confidence as it did not stop the run on the Irish banking system deposit. [To date, the only thing that has slowed this run is the fear that the EU banks will collapse which effectively leaves depositors with no perceived safe place to put their money.]
It is one thing when a blog documents the loss of confidence by following the decline in deposits.
It is quite another when the European Central Bank confirms that the failure to restore confidence by hiring a consultant for 4mm euros several months after BlackRock's stress test to figure out how to restore confidence in the Irish banks.
The Financial Times called for eradicating investor fears over banks. There is only one way to do that: disclosure of each bank's current asset and liability-level data. Ironically, disclosure is inexpensive, particularly when compared with what governments and central banks have already spent.
Your humble blogger looks forward to helping to implement disclosure.