Goldman Sachs Business Principles

We still have the last edition of Goldman's phone directory that we received before moving on.

Point 1 states: Out clients' interests always come first. Our experience shows that if we serve our clients well, our own success will follow.

Point 2: Our assets are people, capital and reputation. If any of these are ever lost, the last is the most difficult to regain.

We hope that these points still feature prominently in the phone directory (which by now will probably be in electronic form only).

Greece: Why not declaring bankruptcy?

Martin Feldstein's piece in yesterday's Financial Times (Let Greece take a holiday from the Eurozone) caused us to send him a brief note and we will watch the reply of the sage with interest:

Dear Mr. Feldstein!

Your article - like most other articles concerning the Greek Debt Saga - tacitly assumes that one simple way to solve the problem is not feasible: a declaration of bancruptcy and subsequent resolution comparable to Chapter XI in the USA.

At present, the only two options that are being discussed are (1) a bailout by EU member states or (2) Greece leaving the Eurozone. Eliminating the option of bancruptcy from consideration creates an unproductive stalemate between two diametrically opposed viewpoints (aften aggravated by different ideologies regarding the philosophy behind the creation of the Euro).

Harmonised Stress Tests - Good in Theory

CEIOPS plans to introduce a harmonised stress test for Insurance companies in Europe. While this is a worthwhile project it will create one practical problem: what amount of stress will be applied to the balance sheets of the insurers? Well before the Credit Crunch started in the middle of 2007 we often asked the question: What would happen in the hypothetical case that all asset prices drop 20 per cent? would the banking and financial system in general be able to withstand such a shock - given that the margin of safety on a lot of lending was much less than that! We all know the answer to that question and I think that lessons still have not been learned. The problem is, that only by relying less on debt and debt instruments (in any form) and more on equity will the risk of a financial meltdown be successfully contained. Regulators will be hard-pressed to set the appropriate level of 'stress' in any test - too much and they regulate the insurance industry out of business, too little and the test becomes meaningless.