Roubini: Anglo-Saxon model has failed - By FT reporters

Posted by ProjectC 
<blockquote>"The extra income for savers (from normalization of interest rates) would have bolstered the domestic economy enough to provide new employment opportunities to labor and capital shed by many inefficient enterprises and retraining could have been offered to the hard-core unemployed.

That’s all hindsight of course...
– Andrew DeWit, Japan on the brink of the abyss? Feb 6, 2009</blockquote>

Roubini: Anglo-Saxon model has failed

By FT Reporters
February 9 2009

The Anglo-Saxon model of supervision and regulation of the financial system has failed, Nouriel Roubini, chairman of RGE Monitor and professor of economics at New York University, told the Financial Times on Monday.

Answering questions from FT.com readers, Prof Roubini, who is widely credited with having predicted the current financial crisis, said the supervisory system “relied on self-regulation that, in effect, meant no regulation; on market discipline that does not exist when there is euphoria and irrational exuberance; on internal risk management models that fail because – as a former chief executive of Citi put it – when the music is playing you gotta stand up and dance.”

“All the pillars of Basel II have already failed even before being implemented,” he added, referring to the internationally agreed set of banking regulations that are forcing banks to set aside more capital to maintain their existing lending.

Prof Roubini also predicted that it was possible another large bank could fail, saying: “In many countries the banks may be too big to fail but also too big to save, as the fiscal/financial resources of the sovereign may not be large enough to rescue such large insolvencies in the financial system”.

He also criticised the US and UK approach to bank bail-outs, comparing it with attempts by Japan in the 1990s to solve its banking crisis. “The current US and UK approach may end up looking like the zombie banks of Japan that were never properly restructured and ended up perpetuating the credit crunch and credit freeze,” he said.

Copyright The Financial Times Limited 2009