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Martin Wolf wrote in yesterday’s FT about the difference between the US and emerging markets, specifically Russia.  He notes the importance of corruption, which is another key differentiator between the US and emerging markets and one which goes far to rebutting Johnson’s argument.  This is not to say that the US is free of corruption, but that the overall control of the the legislative process is not controlled by any one economic group. (Naturally, there are powerfullobby groups such as the NRA and AIPAC which very greatly influence certain elements of the domestic and foreign policy agendas.)  Wall Street appears to have enthralled public officials and has most certainly spent bundles on lobbying.  But this is a very far cry from Russia’s loan for shares program in the early 90s.  Paradoxically, Wolf makes a point now when it seems (I havent been involved in Russia in years) that the old powerful economic and industrial interests are waning.  Waxing in their stead are the KGB nomenklatura within Putin’s orbit, or so the story goes.

On to Roubini.  Let me just say that he is smarter and richer than I.  Nothing against the man, I don’t know him.  And I haven’t read his book.  But going into this post, from everything else I have read by him and about him suggests that his big contribution can be summed up as follows:  volatility (incarnated and worshipped as VaR) is the dispersion of observations around a trend line, which completely ignores the angle of the trend line and the horizontal axis (on a graph where the x axis = time and the y = value).  In other words, we spend too much time tying to see how wide the cloud of observations is around a trend line and ignore the fact that a rapidly rising trend line has further to fall.

But he and some friends did produce an interesting idea in today’s FT.  They (Roubini, Viryal Acharya and Matthew Robinson) propose, as part of a larger regulatory system, a systemic risk tax that would tax large, complex financial institutions through increased deposit insurance, fees and capital requirements.  The authors also call for an increase a market risk regulator to, naturally, levy the tax.  I hadn’t heard this one and though it was interesting.

But that’s just one credit analyst’s opinion.


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