False profits and prophecies

By Henry C K Liu

In an earlier article for Asia Times Online, Tip-toe regulatory reform [Jun 18], I referred to George Soros - the speculator who broke the Bank of England over a defense of the pound sterling - as having said in the Financial Times that a requirement for lenders selling securitized loans as securities to retain 5% exposure "is more symbolic than substantive". This is because many institutions were playing the game of regulatory arbitrage, the practice of taking advantage of a regulatory difference between two or more markets.

The issue of regulatory arbitrage was discussed in my recent article on my website: "Mark-to-Market vs Mark-to-Model" [1], an abridged version of which also appeared on the website of New Deal 2.0, a project of the Franklin and Eleanor Roosevelt Institute. [2]