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[DRAFT] Preventing Financial Crises

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Imperium Anglorum
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[DRAFT] Preventing Financial Crises

Postby Imperium Anglorum » Wed May 30, 2018 3:39 pm

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Preventing Financial Crises
Category: Advancement of Industry | Area of Effect: Commercial Enterprise



Whereas financial crises happen, but diversifying assets and creating a system to prevent those crises from freezing up economic activity would help stop them from harming average people:

And whereas securitising debt increases liquidity in capital markets, transfers risk from risk-averse investors to willing buyers, and increases the supply of loanable funds, thereby speeding recoveries:

And whereas a single nation's assets lack the diversity to stop highly correlated movement in default rates:

Now, therefore, be it enacted by this most excellent World Assembly, as follows :—

  1. Member nations shall allow the sale of secured financial products, i.e. "base assets", to the Credit Securitisation Facility and other public investors. Member nations may make reasonable purchasing rules on those base assets unless they affect the Facility.

  2. There shall be established a Credit Securitisation Facility, i.e. "the Facility", to tranche and securitise reasonably uncorrelated base assets. It will raise funds from the sale of securities it creates. It shall publicly document the components from which those securities are produced. All produced securities shall fulfil the most stringent reasonable transparency rules established by member nations or the Assembly in future legislation.

    1. The Facility may subcontract out the maintenance of its products to third parties. When it does so, those products must maintain their original uncorrelated character and posted coupons.

    2. The Facility may guarantee its products. It may use funds from its support programme to make those guarantees credible.

    3. The Facility shall produce public indices to provide information on current pricing practices for securities it produces and their component base assets.
  3. The Facility shall create a liquidity support programme. It shall invest its net income in safe interest-bearing assets. If an illiquidity crisis threatens a member nation's financial system and the Facility has exhausted its loanable funds, it may borrow monies from the General Fund for this purpose.

    1. For a financial institution to be eligible for liquidity support, the institution must file public disclosures detailing:

      1. its owned properties and subsidiaries, its balance sheet, the balance sheets of its subsidiaries,

      2. risk factors to its business, currently on-going legal proceedings,

      3. documentation of its accounting procedures, and

      4. other data that the Facility believes useful in determining an institution's value.
      Institutions shall certify that their disclosures are truthful. The Facility may undertake any necessary and proper actions to ensure that institutional disclosures are accurate. Institutions must also have a history of and commitment to maintaining such disclosures before being eligible for support.

    2. If financial institutions require liquidity support, the Facility may extend such support, for limited times only, at its discretion. It will do so through secured loans or preferred share purchases. The Facility shall publicly report the quantity and details of all its liquidity actions. When providing liquidity support, the Facility shall secure its loans with proffered equity capital or illiquid assets, in this subsection, "collateral". The Facility shall govern:

      1. the proportion of the principle secured so that it is not onerous on or a subsidy for that institution and

      2. the value of that collateral at reasonable normal market rates.
    3. The Facility may not support what it believes to be truly insolvent institutions.
  4. The Facility shall publicly release data it believes helpful and not sensitive for investors in valuing eligible institutions.
Last edited by Imperium Anglorum on Wed Jan 16, 2019 1:28 pm, edited 33 times in total.

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Imperium Anglorum
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Postby Imperium Anglorum » Wed May 30, 2018 3:39 pm

What does this do?
It creates a programme to prevent liquidity crises from freezing the credit market. Why should you care about that? People need money from the future (i.e. a perspective on credit) to meet sticky liabilities, especially when revenues are not so sticky. Mass movement to cash can massively reduce economic activity and cause prolonged issues. See liquidity trap.

The programme, to do this, raises funds by the sale of asset-backed securities. Why ABS? (Not the muscle.) Because ABS allow for people to better determine what risk they are willing to bear. Moreover, by selling ABS from a wide range of areas, this helps to deal with localised shocks which could cause correlated default rate movement within smaller areas. Moreover, expansion of financial reporting from ABS helps to de-obfuscate foreign economies for domestic investors, meaning that fixed liability funds can pursue higher returns with lower risk burdens.

On top of that, it also creates a voluntary (but pretty sweet) agreement between financial institutions writ large and the public. Enroled financial institutions will be required to disclose public information which also helps to reduce market information barriers, meaning that equity markets are safer and have lower barriers to entry.

Part of why this is fair writ large is because there is an explicit provision of a lending channel to the General Fund. This is necessary for two reasons: (1) credibility and (2) runs, though you could call that credibility as well. A fund which is not credible at making its obligations is one which people will defect from (see generally prisoners dilemma), making it more difficult for that fund to achieve its goals. This is the case in policy as well as in markets, and why we have things like deposit insurance.

Whereas there are significant under-utilised personal savings which currently fail to produce returns that savers could use to purchase goods or invest in themselves or others:

And whereas debt obligation securitisation would financialise those funds so to increase liquidity in capital markets, provide a risk transference mechanism, and increase the supply of those loanable funds, which are in fact loanable, around the world:

And whereas it would provide significant support to the real economy to maintain liquidity in capital markets, requiring a source of funds that cannot easily be found absent significant fiscal intervention (at least insofar as the Assembly is unwilling to exert direct control over a nation's monetary policy):

Now, therefore, be it enacted by this august and most excellent World Assembly, by and with the advice and consent of the Delegates and Members, in this present session assembled, and by the authority of the same, as follows :—

  1. All member nations shall permit the sale of the income streams derived from financial products and commercial paper, hereinafter referred to as "base assets", to the Credit Securitisation Facility and other public investors. Member nations may make reasonable regulations on who may purchase those base assets, excepting regulations on the purchasing ability of the Credit Securitisation Facility.

  2. There shall be established a Credit Securitisation Facility, hereinafter referred to as the Facility, to produce tranched securities made up of demonstrably uncorrelated base assets. All such securities shall keep available a list of the base assets of which they are made and fulfil the most stringent reasonable transparency requirements that may be established by member nations or the Assembly in further legislation.

    1. The Facility may contract to financial services firms the maintenance of the pools of base assets in securities created by the Facility insofar as the derived income streams from those pools maintain their original base assets' uncorrelated character and contractually promised coupons.

    2. The Facility shall produce indices to measure the value of different kinds of base assets and the securities produced. Those indices shall be released to the public so to provide pricing information and transparency on current pricing practices.
  3. The Facility shall create a liquidity support programme. The Facility shall use the proceeds of its sales to invest in investment grade assets and safe interest-bearing securities to fund this programme. It may borrow from the General Fund monies for this purpose, if it believes that an illiquidity crisis threatens the financial system and has run out of its own loanable funds.

    1. For an institution to be eligible for liquidity support, it must file disclosures which include data detailing the kind of business in which the institution engages, risk factors to that business, owned properties and subsidiaries, currently on-going legal proceedings, its balance sheet, the balance sheets of its subsidiaries, documentation of its accounting procedures, and other data that the Facility believes useful in making determinations on an institution's value. Institutions agree to penalties should their disclosures include falsehoods.

    2. In those cases where financial institutions require liquidity support, it may extend such support, for limited times only and only in the form of a debt instrument, at its discretion. The details of the instruments through which the Facility exercises that liquidity support shall be released to the public.

    3. In exchange for liquidity support, it shall receive from those institutions which it supports collateral equity capital or illiquid securities commensurate with the magnitude of its support. Under no circumstances shall the Facility provide liquidity support to a financial institution with liabilities exceeding the value of its assets and capital.
Last edited by Imperium Anglorum on Mon Jan 07, 2019 4:20 pm, edited 3 times in total.

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Essu Beti
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Postby Essu Beti » Wed May 30, 2018 6:07 pm

“Can you please explain this in a way that’s clear to the layman?” asks Inan. “I’d be surprised if there’s a single person in my nation that knows what a tranched security is.”
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Separatist Peoples
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Postby Separatist Peoples » Wed May 30, 2018 6:09 pm

Essu Beti wrote:“Can you please explain this in a way that’s clear to the layman?” asks Inan. “I’d be surprised if there’s a single person in my nation that knows what a tranched security is.”

"We are ambassadors, not laymen. Laws should not be written for laymen."

Ooc: a couple minutes with a dictionary makes this relatively simple. IA insists on writing it in the least clear way, but it's not insensible, and its something any sane financial regulatory agency already requires.
Last edited by Separatist Peoples on Wed May 30, 2018 6:12 pm, edited 1 time in total.

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Sierra Lyricalia
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Postby Sierra Lyricalia » Wed May 30, 2018 6:36 pm

"The Facility's liquidity transfer activities should have the same transparency requirements as its securities issuance appears to have, especially in the event of a crisis dire enough to justify tapping the General Fund. Also, the effective interest rate of liquidity support must be high enough to require the supported institution to treat such support as the loan that it is."

OOC: In other words this WA agency should not duplicate the RL Fed's (fuckup? Gift?) to Goldman Sachs of interest-free loans which the bank then used to buy T-bills, essentially printing money.
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Imperium Anglorum
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Postby Imperium Anglorum » Wed May 30, 2018 8:02 pm

Essu Beti wrote:“Can you please explain this in a way that’s clear to the layman?” asks Inan. “I’d be surprised if there’s a single person in my nation that knows what a tranched security is.”

ELSIE MORTIMER WELLESLEY: Taking modern finance is a prerequisite for any degree in economics in the United Commonwealth. You may want to find on your staff an economist or two. We also require introductory economics of all secondary school graduates – it's part of the civic curriculum – which touches on these topics.

Separatist Peoples wrote:Ooc: a couple minutes with a dictionary makes this relatively simple. IA insists on writing it in the least clear way, but it's not insensible, and its something any sane financial regulatory agency already requires.

If there's any clarifications you'd like seen, feel free to send them over via Discord. I presume there'll be a lot.

Sierra Lyricalia wrote:"The Facility's liquidity transfer activities should have the same transparency requirements as its securities issuance appears to have, especially in the event of a crisis dire enough to justify tapping the General Fund. Also, the effective interest rate of liquidity support must be high enough to require the supported institution to treat such support as the loan that it is."

ELSIE MORTIMER WELLESLEY: What kind of transparency do you mean? In the liquidity support instruments? Or the liquidity support actions themselves? I think it would also be substantially relevant to introduce transparency requirements for firms opt-ing into both schemes we are proposing.

Sierra Lyricalia wrote:OOC: In other words this WA agency should not duplicate the RL Fed's (fuckup? Gift?) to Goldman Sachs of interest-free loans which the bank then used to buy T-bills, essentially printing money.

A number of issues with this narrative.

Before discussing this, I think it's important to note that in the 2007 financial crisis, savings banks had little to do with the crisis. It was mostly investment banks and the operations of special investment vehicles which caused the crisis. The financial institutions which became insolvent (mostly due to illiquidity rather than total insolvency, except in the case of (if I remember correctly) AIG) were not part of the banking system per se, they were part what economists call the shadow banking system.

Most of what the Fed did vis-à-vis the printing of money is termed quantitative easing. That has little to do with the US Treasury and Federal Reserve's liquidity guarantees during the crisis. The FDIC instituted something called the Temporary Liquidity Guarantee Programme. But this also has little to do with the mechanism which I'm describing here. Rather, instead of simply guaranteeing the value of all securities (TLGP) or executing large scale non-governmental asset purchases (quantitative easing),1 this simply provides loans.

The interest-free loans you're taking about weren't interest free. Nor did the taxpayer lose money in present discounted-value terms in the provision of those loans. In fact, the Treasury (and the Fed's liquidity window) both turned profits for the government – both in terms of not letting the economy crash because of liquidity-induced failure and directly from the loans themselves.

I also dealt considerably with the issue of overly-large government intervention to prop up failing banks. I think truly insolvent banks should fail (unlike what happened in the post-Asian financial crisis in the 1990s in Japan, where insolvent banks were simply kept around due to a lack of marked-to-market accounting). The issue is that most financial institutions do not fail because they are truly insolvent, i.e. they do not have enough assets in total value to meet their liabilities.

Rather, they are insolvent because of liquidity shortfalls. What happened in the 2007 financial crisis was mostly that financial institutions were unable to replenish their cash reserves they need to meet daily liabilities. Financial institutions are in the business of turning long-term savings or cash flows into short term liquidity (for example, the entire idea of a loan: pay me these coupon payments so you can have all this money now). Insofar as those financial institutions are unable to acquire liquidity2 because all cash in capital markets is being hoovered up, there needs to be an injection of liquidity into those markets. The only real body able to do that is the government.

1: I'm not a fan of the words 'quantitative easing'. I'd call them too jargon-y (and that's saying something, though, the words QE also convey as much meaning as the Fed wants you to get out of them, i.e. none). Bernanke, the Fed chairman, preferred the term 'large scale asset purchases', which whilst longer, is actually descriptive of what it was: large-scale purchasing of private assets.

2: Nor can those financial institutions simply sell assets. They have tons of them, but (1) everyone is selling assets to raise money and (2) there are no buyers because everyone is trying to build up cash reserves. The inability to sell assets is what I mean by a illiquidity crisis.



EDIT: I used the word 'draw', which implies not a loan. I changed it to the word 'borrow'.
Last edited by Imperium Anglorum on Wed May 30, 2018 8:37 pm, edited 2 times in total.

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Tinfect
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Postby Tinfect » Thu May 31, 2018 3:57 am

OOC:
No support, regardless of however sensible it may or may not be, until I can read it in plain fucking English. This goes for your other one as well. We're not all economists and lawyers in real life.
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Bananaistan
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Postby Bananaistan » Thu May 31, 2018 3:57 am

OOC: At best this is oblique and obfuscated terminology and a joke proposal. At worst it is incomprehensible jargon and verbal diarrhoea and a deliberate attempt to exclude any non-lawyer or non-economist from debate. Either way, it is pathetic and would have as much a negative effect on the GA as the "obstructionists" which the OP continuously rails against.

Separatist Peoples wrote:
Essu Beti wrote:“Can you please explain this in a way that’s clear to the layman?” asks Inan. “I’d be surprised if there’s a single person in my nation that knows what a tranched security is.”

"We are ambassadors, not laymen. Laws should not be written for laymen."

Ooc: a couple minutes with a dictionary makes this relatively simple. IA insists on writing it in the least clear way, but it's not insensible, and its something any sane financial regulatory agency already requires.


All well and good for you to say with your legal training. I could say the same. However, this does not make it fair or reasonable to expect others to do so.

Imperium Anglorum wrote:
Essu Beti wrote:“Can you please explain this in a way that’s clear to the layman?” asks Inan. “I’d be surprised if there’s a single person in my nation that knows what a tranched security is.”

ELSIE MORTIMER WELLESLEY: Taking modern finance is a prerequisite for any degree in economics in the United Commonwealth. You may want to find on your staff an economist or two. We also require introductory economics of all secondary school graduates – it's part of the civic curriculum – which touches on these topics.


Pathetic again. Yeah, I’ll roleplay an economist and suddenly I’ll have an understanding of what a “tranched security” is.
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Postby Desmosthenes and Burke » Thu May 31, 2018 6:59 am

Essu Beti wrote:“Can you please explain this in a way that’s clear to the layman?” asks Inan. “I’d be surprised if there’s a single person in my nation that knows what a tranched security is.”


"We agree," stated Iulia with a stern look.

Separatist Peoples wrote:"We are ambassadors, not laymen. Laws should not be written for laymen."

Ooc: a couple minutes with a dictionary makes this relatively simple. IA insists on writing it in the least clear way, but it's not insensible, and its something any sane financial regulatory agency already requires.


"We do not agree. Laws are to be written so as to be comprehensible by a person of average intelligence and a general education. This proposal fulfills neither of those requirements."

OOC: And for those of us who are not native speakers of English, this requires more than a few minutes with a standard dictionary. This proposal IS insensible to me without far more effort than it is reasonable to expect from people.

Tinfect wrote:OOC:
No support, regardless of however sensible it may or may not be, until I can read it in plain fucking English. This goes for your other one as well. We're not all economists and lawyers in real life.


OOC: I am agreeing with Tinfect on something. I do not think I can say enough Hail Mary's to repent for this.

I will refrain from quoting Bananaistan, but suffice it to say I agree with those sentiments as well.

------
OOC: TL;DR: I cannot understand the resolution, so no support. Come back with a draft I do not need a specialist bilingual dictionary to comprehend and we can talk.

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Kenmoria
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Postby Kenmoria » Thu May 31, 2018 1:21 pm

"This seems to be a domestic issue, rather than an international one. Perhaps a longer preamble might show why the WA should address this."
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Imperium Anglorum
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Postby Imperium Anglorum » Thu May 31, 2018 3:18 pm

Bananaistan wrote:OOC: At best this is oblique and obfuscated terminology and a joke proposal. At worst it is incomprehensible jargon and verbal diarrhoea and a deliberate attempt to exclude any non-lawyer or non-economist from debate. Either way, it is pathetic and would have as much a negative effect on the GA as the "obstructionists" which the OP continuously rails against.

I honestly don't understand this knee-jerk reaction against financial services, regulations, and liquidity support. This topic is the core of the main conduct of government in a financial crisis. It is something that, if we believe that government should regulate and move in to deal with crises, is at the core of economic policymaking.

So much so that similar schemes to that proposed here (with wildly different funding mechanisms and modes of operation) were proposed during the last financial crisis in many different jurisdictions. The Bank of England engaged in liquidity support during the financial crisis. A report on it can be found here. It also engaged in a Homeowner Mortgage Support Scheme, and two packages (the "October" and "January" packages) to recapitalise banks and provide further liquidity support. The latter package also included aspects

  • extending the drawdown window for new debt under the Government’s Credit Guarantee Scheme (CGS) which is designed to reduce the risks on
  • lending between banks;
  • establishing a new facility for asset backed securities;
  • establishing a new Bank of England facility for purchasing high quality assets;
  • offering capital and asset protection scheme for banks, with proposals for this to be co- ordinated internationally; and
  • clarifying the regulatory approach to capital requirements, through an announcement by the Financial Services Authority (FSA).
You can read more about that initial response in this Parliamentary research briefing.

The US Federal Reserve created a multitude of liquidity support programmes: the Term Asset-Backed Securities Loan Facility, the Commercial Paper Funding Facility, the Asset-Backed Commercial Paper Money Market Mutual Fund Liquidity Facility, the Money Market Investor Funding Facility, along with further support for liquidity in a M1 sense in the Dollar Liquidity Swap Lines, Foreign-Currency Liquidity Swap Lines, and North American Framework Agreement Swap Lines. Moreover, the Federal Reserve also created a Term Auction Facility and created a programme offering Single-Tranche Term Repurchase Agreements. All of which is to ignore the preexisting Discount Window.

This is a very serious topic, and it isn't something that should be dismissed with handwaving.

Kenmoria wrote:"This seems to be a domestic issue, rather than an international one. Perhaps a longer preamble might show why the WA should address this."

The recent financial crisis proved significant correlation in valuations and default risks of the individual securities composing pools in collateralised debt obligations. The expansion of the geographic and general extent of financing both reduces that correlation and increases the quantity of loanable funds by financialising many different types of debt. This means that developing nations experience significantly higher utilisation of their domestic savings and that foreign savers are more able to engage in developing nation capital markets. This would both buttress a stable investment environment and also expand developing country economic growth.

Moreover, by creating tranched securities, we can better reallocate risk from people unwilling to take it to those who are. This means that pension funds and other investment companies primarily serving fixed-income households are more able to find safe and well-performing assets. This kind of international capital allocation also reduces the chances of warfare by creating interconnected markets. Restricting something of this sort to domestic markets only would imperil savers and require significantly more work on the part of government in handling financial crises.

Desmosthenes and Burke wrote:"We do not agree. Laws are to be written so as to be comprehensible by a person of average intelligence and a general education. This proposal fulfills neither of those requirements."

ELSIE MORTIMER WELLESLEY: I don't know what kind of laws your country writes, but this is relatively simplistic. It does little that isn't uncontroversial and does so succinctly.
Last edited by Imperium Anglorum on Thu May 31, 2018 7:13 pm, edited 2 times in total.

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Jarish Inyo
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Postby Jarish Inyo » Thu May 31, 2018 9:23 pm

Opposed. The Empire will not allow foreign interest to infiltrate our financial institutions.
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Bananaistan
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Postby Bananaistan » Thu May 31, 2018 9:40 pm

Imperium Anglorum wrote:
Bananaistan wrote:OOC: At best this is oblique and obfuscated terminology and a joke proposal. At worst it is incomprehensible jargon and verbal diarrhoea and a deliberate attempt to exclude any non-lawyer or non-economist from debate. Either way, it is pathetic and would have as much a negative effect on the GA as the "obstructionists" which the OP continuously rails against.

I honestly don't understand this knee-jerk reaction against financial services, regulations, and liquidity support. This topic is the core of the main conduct of government in a financial crisis. It is something that, if we believe that government should regulate and move in to deal with crises, is at the core of economic policymaking.

... <snip> ...


OOC: I think you know right well that I stated no objection to the subject matter in the post you quoted and that your post here justifying the subject matter is a non-sequitur. The language used is my issue. We have a rule that proposals must be written in understandable English. This is not. Stop acting like a pompous buffoon.
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Kenmoria
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Postby Kenmoria » Fri Jun 01, 2018 6:48 am

(OOC: While all the IC ambassadors should be able to understand this, and native English players are able to read the proposal with the aid of the dictionary and the might of the internet, when this comes to vote, I doubt the average player will bother to google what all the terms mean before voting. Even for someone who has researched what "tranched security" is, it's far harder to critique something written as loquaciously as this.)
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Imperium Anglorum
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Postby Imperium Anglorum » Fri Jun 01, 2018 10:22 am

Banana. This This proposal is written in is understandable English.

EDIT: Before someone tells me that I'm only referring to this post, see above edit.
Last edited by Imperium Anglorum on Fri Jun 01, 2018 10:23 am, edited 1 time in total.

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Bananaistan
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Postby Bananaistan » Fri Jun 01, 2018 1:30 pm

Imperium Anglorum wrote:Banana. This This proposal is written in is understandable English.

EDIT: Before someone tells me that I'm only referring to this post, see above edit.


And yet the majority of posters in this thread have testified otherwise. Even Sep admits that it's necessary to study a dictionary to understand this. And I have seen how you have resorted to such tactics as using incomprehensible jargon many times both here and offsite. It's hard to take it seriously.

In any case, it's a terribly bad idea if you want to actually give effect to what you're on about here. GenSec works on the basis of the ordinary meaning of words. I suspect that the ordinary meaning of words in combinations you have used here may not necessarily be your intended meaning of such phrases. The use of several undefined terms in opaque language is likely to backfire.
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Imperium Anglorum
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Left-Leaning College State

Postby Imperium Anglorum » Fri Jun 01, 2018 1:55 pm

You don't need a dictionary. And I don't think it's unclear in the slightest, barring a few grammatical constructs that I threw together in a hurry. The use of the terms here is neither incomprehensible or unclear. If you think there is anywhere to clarify, I'll be happy to make edits to the language insofar as they do not reduce precision.

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Kenmoria
Senator
 
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Founded: Jul 03, 2017
Corporate Bordello

Postby Kenmoria » Sat Jun 02, 2018 1:01 am

"At least define “tranched security” somewhere in the draft, as the layperson won't know what it means."
A representative democracy with a parliament of 535 seats
Currently centre-right on economy but centre-left on social issues
Located in Europe and border France to the right and Spain below
NS stats and policies are not canon, use the factbooks
Not in the WA despite coincidentally following all resolutions
This is due to a problem with how the WA contradicts our democracy
However we do have a WA mission and often participate in drafting
Current ambassador: James Lewitt

For more information, read the factbooks here.

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Maydia
Civil Servant
 
Posts: 8
Founded: Jun 02, 2018
Ex-Nation

Supporting

Postby Maydia » Sat Jun 02, 2018 11:35 am

Supporting your draft.

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Bananaistan
GA Secretariat
 
Posts: 2063
Founded: Apr 20, 2012
Civil Rights Lovefest

Postby Bananaistan » Sat Jun 02, 2018 11:35 pm

Imperium Anglorum wrote:You don't need a dictionary. And I don't think it's unclear in the slightest, barring a few grammatical constructs that I threw together in a hurry. The use of the terms here is neither incomprehensible or unclear. If you think there is anywhere to clarify, I'll be happy to make edits to the language insofar as they do not reduce precision.


Here's all your incomprehensible jargon:

under-utilised personal savings
debt obligation securitisation
financialise
liquidity in capital markets
risk transference mechanism
sale of the income streams
financial products
commercial paper
tranched securities
uncorrelated base assets
pools of base assets in securities
uncorrelated character
contractually promised coupons
indices to measure the value of different kinds of base assets and the securities produced
investment grade assets
safe interest-bearing securities
illiquidity crisis
debt instrument
collateral equity capital
illiquid securities

I can't see why it's necessary to use all this for the simple concept of using a committee to accept funds and loan them out.
Delegation of the People's Republic of Bananaistan to the World Assembly
Head of delegation and the Permanent Representative: Comrade Ambassador Theodorus "Ted" Hornwood
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Singalet
Political Columnist
 
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Founded: Dec 28, 2017
Capitalist Paradise

Postby Singalet » Sun Jun 03, 2018 12:10 am

This looks like a good proposal. I understand some of the words here and maybe it was because I studied Business Administration with emphasis on Finance although not with best grades. But there should be a few revisions on some words or phrases to make it clearer like indices on different base assets and risk transference mechanism, tranches securities, and un correlated character. Terms like commercial paper, financial products, and investment grade assets should be familiar to most people who majored in economics or finance or look at investments. Basically what liquidity is the ease of availability of funds or converting to cash for the people involved. But it does need work to make for people to understand.
Last edited by Singalet on Sun Jun 03, 2018 12:41 am, edited 5 times in total.

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Essu Beti
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Founded: Apr 24, 2017
Liberal Democratic Socialists

Postby Essu Beti » Sun Jun 03, 2018 8:14 am

Kenmoria wrote:(OOC: While all the IC ambassadors should be able to understand this, and native English players are able to read the proposal with the aid of the dictionary and the might of the internet, when this comes to vote, I doubt the average player will bother to google what all the terms mean before voting. Even for someone who has researched what "tranched security" is, it's far harder to critique something written as loquaciously as this.)


(OOC: My IC ambassador certainly can’t understand this, and neither can the intern currently filling in for him. Essu Beti has practically no one who could, because, well, Inan can explain it:)

Imperium Anglorum wrote:
Essu Beti wrote:“Can you please explain this in a way that’s clear to the layman?” asks Inan. “I’d be surprised if there’s a single person in my nation that knows what a tranched security is.”

ELSIE MORTIMER WELLESLEY: Taking modern finance is a prerequisite for any degree in economics in the United Commonwealth. You may want to find on your staff an economist or two. We also require introductory economics of all secondary school graduates – it's part of the civic curriculum – which touches on these topics.


Inan takes a few moments to try to think of a tactful way to say things, but comes up blank. “Your nation’s educational requirements are irrelevant to this, except in that I’d think it would let you figure out how to explain things more clearly. What is relevant is that you’re talking to the assistant to the ambassador of a nation made of people who, up until very recently, were not allowed to have jobs that weren’t basic manual labor. The vast majority of our civilians work in agriculture running small family farms, and those that don’t still have gardens and raise animals for personal use. Our economy is mostly based on barter.

You should stop pretending every nation is as well-off as yours.”
Parent: Naqil Puppet: This City of Ours. Trust Factbooks, not stats.

The Ambassador of Essu Beti is Iksana Gayan and he's an elf. He's irritable and a bit of a troll and it's been suggested that he's only the ambassador to keep him out of Essu Beti.

Everything I say in the WA is IC unless otherwise specified. Iksana is a tactless jerk and I would never say the same things he does to someone IRL.

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A Bright Future
Spokesperson
 
Posts: 109
Founded: May 30, 2018
Inoffensive Centrist Democracy

Postby A Bright Future » Sun Jun 03, 2018 8:20 am

"I do not support the proposal in its current form although I can see merit in an international emergency lending facility based on principles of transparency providing support to nations. This Facility does not do this, instead supporting national financial institutions. This should be left to national financial regulatory authorities who should be able to seek support through an international facility to maintain financial stability within their jurisdictions.

The proposal is illegal based on language that is not legalese, but financialese. I think it must be substantially redrafted to remove financial jargon. I recommend using general principles (not employing any of the terms listed by Bananaistan) in determining how the facility is to operate and potentially a non-binding Technical Annex in financialese for implementation guidance although I expect the author will be able to express these rules in legalese.)

I would also encourage the author to reduce the overall word count to encourage readability and eliminate superfluous text. Also, I encourage renaming the facility the Financial Institution Short-Term Support Facility or some other name reflecting its purpose as opposed to the mechanics of its operations which is too general. Additionally the name is problematic as the word 'credit' appears only in the title.

I have elaborated on my concerns in bold below.

Imperium Anglorum wrote:
(Image)
Credit Securitisation Facility
Category: Free Trade | Strength: Mild



Whereas there are significant under-utilised personal savings which currently fail to produce returns that savers could use to purchase goods or invest in themselves or others:

It is down to the saver to choose how to produce returns and there is no law or even norm against sub-optimal lending or investment.


And whereas debt obligation securitisation would financialise those funds so to increase liquidity in capital markets, provide a risk transference mechanism, and increase the supply of those loanable funds, which are in fact loanable, around the world:

And whereas it would provide significant support to the real economy to maintain liquidity in capital markets, requiring a source of funds that cannot easily be found absent significant fiscal intervention (at least insofar as the Assembly is unwilling to exert direct control over a nation's monetary policy):

The proposal rightly highlights that the WA should not interfere in national monetary policy, in particular in controls on capital flows (i.e. cross-border lending and investment).


Now, therefore, be it enacted by this august and most excellent World Assembly, by and with the advice and consent of the Delegates and Members, in this present session assembled, and by the authority of the same, as follows :—

  1. All member nations shall permit the sale of the income streams derived from financial products and commercial paper, hereinafter referred to as "base assets", to the Credit Securitisation Facility and other public investors. Member nations may make reasonable regulations on who may purchase those base assets, excepting regulations on the purchasing ability of the Credit Securitisation Facility.

    The income streams are not what will constitute the base assets but the financial instruments themselves.
    This clause given the provisions of 1a will essentially force national financial markets open to foreign investment and divestment through the Facility. Member nations weary of rapid in and out fluxes of investment should be free to prohibit any investment and lending flows. If the Facility is as helpful as it purports to be, members will willingly opt in. Additionally, I am sure many members maintain open capital markets and hence the facility will not likely be constrained to an undiversified (uncorrelated) asset pool.
    Without the optionality, the resolution strength must be 'strong'.
    There may be a further issue of ongoing international capital market integration leading to rising correlations across markets.


  2. There shall be established a Credit Securitisation Facility, hereinafter referred to as the Facility, to produce tranched securities made up of demonstrably uncorrelated base assets. All such securities shall keep available a list of the base assets of which they are made and fulfil the most stringent reasonable transparency requirements that may be established by member nations or the Assembly in further legislation.

    The facility will under this system struggle to meet the many possible transparency requirements of the member nations, raising the facility's operational costs. Consider providing the transparency rule.


    1. The Facility may contract to financial services firms the maintenance of the pools of base assets in securities created by the Facility insofar as the derived income streams from those pools maintain their original base assets' uncorrelated character and contractually promised coupons.

      This clause should provide further constraints on the investment and divestment decisions. In particular the facility must not contribute to systemic financial risk.

    2. The Facility shall produce indices to measure the value of different kinds of base assets and the securities produced. Those indices shall be released to the public so to provide pricing information and transparency on current pricing practices.
  3. The Facility shall create a liquidity support programme. The Facility shall use the proceeds of its sales to invest in investment grade assets and safe interest-bearing securities to fund this programme. It may borrow from the General Fund monies for this purpose, if it believes that an illiquidity crisis threatens the financial system and has run out of its own loanable funds.

    The General Fund should under no circumstance be opened to the facility. Unlike most national budgets, the General Fund accrues revenue from donations and cannot raise tax. It is also subject to a legally binding no deficit spending law and is not allowed to accumulate surpluses. It has no loanable funds. There are no provisions for the WA to lend either. Finally, the Fund must remain intact if the WA and the facility itself are to remain operational. This would be of particular importance during a financial crisis. Future proposals for the facility must ensure that the General Fund is ring fenced from it.


    1. For an institution to be eligible for liquidity support, it must file disclosures which include data detailing the kind of business in which the institution engages, risk factors to that business, owned properties and subsidiaries, currently on-going legal proceedings, its balance sheet, the balance sheets of its subsidiaries, documentation of its accounting procedures, and other data that the Facility believes useful in making determinations on an institution's value. Institutions agree to penalties should their disclosures include falsehoods.

      Institution here is not specific enough. A definition of financial institutions should be given and this should be used consistently throughout the proposal. Some reasonable constraint should be provided on data believed useful and on the penalties.

    2. In those cases where financial institutions require liquidity support, it the Facility may extend such support, for limited times only and only in the form of a debt instrument, at its discretion. The details of the instruments through which the Facility exercises that liquidity support shall be released to the public.

      The facility should be mandated to provide support not given discretion to. Conditions under which financial institutions are eligible should be provided. The form of debt instrument should also be favourable and not driven by market rates. If driven by market rates, the financial institution may as well borrow on the market which, assuming it is in distress, will not necessarily be accessible.

    3. In exchange for liquidity support, it shall receive from those institutions which it supports collateral equity capital or illiquid securities commensurate with the magnitude of its support. Under no circumstances shall the Facility provide liquidity support to a financial institution with liabilities exceeding the value of its assets and capital.

      The facility's intervention could hereby drive the financial institution into insolvency. In potential bankruptcy proceedings after support, the facility should receive the same national treatment as other senior debt holders and investors and no better.

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Erithaca
Envoy
 
Posts: 337
Founded: Apr 10, 2018
Left-Leaning College State

Postby Erithaca » Mon Jun 04, 2018 3:12 pm

"Us ambassadors are not trained in legalese, but trained in government and foreign relations. Please simplify or define the language in your proposal to allow any discussion on it at all. The fact that a GenSec member felt the need to weigh in on this speaks for itself. We are unable to comment until the text is written in a clear manner. "

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Christian Democrats
GA Secretariat
 
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Founded: Jul 29, 2009
New York Times Democracy

Postby Christian Democrats » Mon Jun 04, 2018 4:20 pm

I support this proposal in theory but agree with Bananaistan that, as written, it violates the Language Rule:

Proposals must use understandable English. Conventional legalese and Latin terms are acceptable within reason. Proposals written in incomprehensible English or a foreign language will be deleted.

The use of jargon in this proposal is not "within reason." Most WA voters do not have graduate or professional degrees -- or even high school diplomas for that matter. The average WA voter is an adolescent.

At present, this proposal has a Flesch–Kincaid grade-level score of 20.5. In other words, a person needs the equivalent of a 12th grade education, plus eight and a half years of tertiary education, to understand this proposal.
Leo Tolstoy wrote:Wrong does not cease to be wrong because the majority share in it.
GA#160: Forced Marriages Ban Act (79%)
GA#175: Organ and Blood Donations Act (68%)^
SC#082: Repeal "Liberate Catholic" (80%)
GA#200: Foreign Marriage Recognition (54%)
GA#213: Privacy Protection Act (70%)
GA#231: Marital Rape Justice Act (81%)^
GA#233: Ban Profits on Workers' Deaths (80%)*
GA#249: Stopping Suicide Seeds (70%)^
GA#253: Repeal "Freedom in Medical Research" (76%)
GA#285: Assisted Suicide Act (70%)
GA#310: Disabled Voters Act (81%)
GA#373: Repeal "Convention on Execution" (54%)

* denotes coauthorship
^ repealed resolution
#360: Electile Dysfunction
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#570: Clerical Errors

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