Friday, May 27, 2011

A Confused Carl Ichan Warns about Financial Leverage

Legendary investor Carl Ichan correctly warns in the interview with CNBC below that leverage is building up on Wall Street again and that this likely means trouble down the road.

But Ichan, in the same breath, goes on to say that Wall Street should be more regulated because of the aggressive risk taking that is going on.
What Ichan fails to recognize is that the current structure of Wall Street only exists because of current government regulation. Small investors don't care what bank they put their money in because they know the FDIC will bail them out. This removes this check on conservative banking--if depositors new their money was at risk, they would pay a lot more attention to how conservative its bank was.

The huge risk-taking banks don't care about the leverage they are taking on because they know the Fed will absorb huge their losses, if they become out of control. So the answer is not more regulation, which will further distort the system in favor of those connected to government, but less regulation and less government interference, which will result in proper risk analysis being put back into the system, and thus a more conservative financial structure, since people will watch their money a lot more carefully if they know it is at risk.

Further, in addition to the distorted risk structure created by government meddling, Ichan also fails to recognize the big elephant in the room, the Fed money pumping, which is the enabler of out-of-control leveraged risk taking.


  1. Bob,

    I doubt that Icahn is confused or ignorant.

    He's probably got skin in the game.

    There's probably some angle in any new regulations that the old predator knows he can work to his benefit in the future.

    It's like Einhorn trashing CDO's.....

    Taibbi caters to the baptists.
    These are the bootleggers pulling the strings..

  2. Baptists and bootleggers... brilliant