Closing the regulatory gap on AIG

"If there is a single episode in this entire 18 months that has made me more angry, I can't think of one other than AIG. There was no oversight in the financial products division. This was a hedge fund basically that was attached to a large and stable insurance company"

--Ben Bernanke, 3 March 2009

"AIG is a huge, complex, global insurance company attached to a very complicated investment bank hedge fund that was allowed to build up without any adult supervision."

--Timothy Geithner, 3 March 2009

At GlobalRiskJobs we take every opportunity to consider data points and anecdotes that support the expectation of a coming explosion in risk and regulatory career opportunities in the midst of digging through the various aspects of this global financial crisis. It looks like Geithner and Bernanke are providing us with more evidence. AIG continues to be propped up by the Feds as its CDS exposure threatens the company's viability and it is quickly becoming one of the more obvious albatrosses dangling from the Obama administration's neck as it tries to plow through the crisis. Bernanke went on to say that AIG "exploited a huge gap in the regulatory system", and in a world where every remark is scrutinized for hidden meaning, Bernanke's open slap of AIG is viewed by most as evidence that regulators plan further curbs on risk and concentration in the financial services industry. So, what is the new framework going to look like? Glass Steagall redux? Or maybe a simpler plan putting a conservative Federal Reserve firmly in charge of the banks is the way this plays out. Regardless, leverage has become the boogeyman in all of this so its a solid bet that banks will get harsh new limitations on leverage and risk taking. In addition, Sheila Bair at FDIC has questioned the Basel II model on the basis that it assumes banks internal quantitative risk measures are reliable, so expect a whole new regulatory framework for the banks to be constructed.

The links:

• Who says there are no second acts in real life? Some former Countrywide managers are making money buying up residential mortgage market detritus.
• The Treasury has released guidelines for TALF and Relief for Responsible Homeowners.
• Holman Jenkins rethinks the nationalization of Fannie and Freddie in this WSJ opinion piece.
• The WSJ questions increased FDIC insurance levies against banks at a time when most are receiving Federal funds in through the other end.
• In the face of regulatory reform discussions for the credit rating agencies, S&P called for global regulatory changes to eliminate conflicts of interest and require more disclosure of rating methodologies.
• Heard on the Street says TALF turns the Fed into a generous prime brokerage.
• The FT's John Plender wrote a fine piece dissecting the carnage in the investment world.
• The bank Nationalization Debate rages on.