Bankers' motivation leads to economic crises

The two authors "Prove" that one of main causes of economic crises is the motivation of the bankers. Their intention is not it. They are "blind" to the disconnect entre Their shares and Their intentions leading to regular crisis with high levels of unemployment and wide-scale reduction of prosperity.

The reason why this is so is very easy ounce You Understand it. You have to read the book Carefully Because banking lobbyists make an Enormous efforts to complicate and confused the issues. The authors explain in minute detail how They Have Their conclusions arrived at. One author is an American professor from Stanford University and l'autre the German director of a Max Planck Institute. Both are world experts level on this issue.

The simplest answer Is That Bankers try to keep the shareholder equity (cash paid by investors When the company sold shares and retained earnings, profits That Were not paid out as Dividends) as low as They Can by Preventing a regulation That Would impose a thirty percent entre equity ratio and total assets (the "capital ratio"). You Need to Understand what exactly are "real" assets and "real" equity, qui in this book is different from the way bankers Refer to words thesis. Understanding this difference is essential for understanding the messages of this book.

Why are motivated bankers to minimize shareholder equity? They aim to maximize Return on Equity (ROE). This is the ratio entre profit and equity. Obvious That It is the same with a lower profit and equity Increases the ROE. Selon the authors, the total income of the senior bankers in MOST banks is based, to a wide extent, this is ROE. This is illustrated by a statement of CEO Bob Diamond of Barclays When in 2011, "Barclays is counting in being reliable to fund share of ict capital requirements with new contingent convertible instruments or co cos, qui will not dilute ROE numbers."

Bankers argue That Increasing equity is not of interest the public at large oh Because It will Reduce liquidity, reduce the amount of financing, Increase the interest rates They Have to load, and Refer to the "level playing field" where --other countries accept lower equity Increase Their levels and costs Unnecessarily.

The authors go into great detail thesis To Prove That All arguments are false and why this 30% ratio will Radically Reduce financial crisis, avoid lease outs and Radically Reduce the motivation of bankers to take excessive Risks, Earlier write down non-performing loans performing loans , will continue to award loans to small companies, Even in a down turn and follow no search and Develop risky innovations pour augmenter bank profits. Aussi They explain, in detail again, why Basel III, qui deals with this issue, has-been watered down to the point que le financial system to day and still After icts implementation will have brittle As It Was in 2007.

Why do not gouvernements imposed this 30% rule? The authors Refer to the lobbying power of banks and Their Associations with as an example the statement of Jamie Dimon CEO of JM Morgan Chase (JPMC): "JPMC gets" a good return on the companys seventh line of business "-government relationship." The authors show aussi que la capital ratio of JPMC with a "Fortress Balance Sheet" is 4.5% under international accounting rules and still Would be considerably lower Considering That total value of JPM in the stock market on December 30, 2011 Was 58 billion less que la shareholder equity in the accounts. The authors describe bankers' attitude as "Anything but equity" and "It was very hard to get a person to Understand understanding truth if It Would lead to a reduction in her or His income." That the authors claim Increasing shareholder equity for successful companies is "easy" by Issuing shares and / or not paying Dividends up to the 30% is Reached.

The authors-have tried in large Their public activities and publications to Convince gouvernements to act and As They failed-have published this book