Racheumeuneu

The upcoming [European Stability Mechanism] will however also face a difficult trade-off between higher lending volume and achieving a AAA rating. With no further increase to the current callable capital levels, the lending capacity of the ESM would decline by Eur200bn. To maintain the current lending capacity and its AAA, then member countries would need to double their level of callable capital into the ESM compared to current commitment. Should euro area policy makers want to double the lending capacity of the ESM from pre downgrade times (while maintaining its AAA), then the ESM would need a callable capital of almost 30% of euro area GDP! Discussions surrounding the potential increase in the size of the ESM in March will be more difficult post downgrade.

Although Euro area member states “will explore the options” to keep the [European Financial Stability Facility]’s triple-A, we expect S&P will ultimately align the EFSF’s rating with that of France and Austria at AA . Indeed, in order to maintain the AAA rating of the EFSF, euro area policy makers would have to accept a reduction in the lending capacity of the EFSF by Eur169bn. Alternatively they would need to increase their guarantees significantly, something we believe unlikely at a time that the focus is shifting on the ESM [European Stability Mechanism].

The amount of money the central bank parceled out was surprising even to Gary H. Stern, president of the Federal Reserve Bank of Minneapolis from 1985 to 2009, who says he “wasn’t aware of the magnitude.” It dwarfed the Treasury Department’s better-known $700 billion Troubled Asset Relief Program, or TARP. Add up guarantees and lending limits, and the Fed had committed $7.77 trillion as of March 2009 to rescuing the financial system, more than half the value of everything produced in the U.S. that year.

No Mr Gruebel: there will always be criminals, there will always be people who want to steal from your bank or go to the casino on your dime. You cannot monitor all those people but you can and should build systems that are as robust as possible to human nature and when you fail to do that you fail in your job.

But worse: your statement that “you can’t do anything” is a statement that you are abdicating your duty. I hope that statement is misquoted because if I were on your board and you took that stance I would be seeking your resignation. To lose money to a determined rogue trader is an error - and all systems have holes. To deny you can do anything about it is to give up being a banker.

A second characteristic for complexity in economics, and finance in particular, is that it is not exogenous, simply sitting out there as part of the world. We create it ourselves, indeed often create it deliberately, and create it expressly to harvest the attendant unanticipated risks.

The dollar’s status as a reserve currency was even more dominant back then. In 1973 it accounted for 84.5% of the world’s foreign exchange reserves. (Today it stands at 62.1%.)