Today, the Counterparty Risk Management Policy Group III (CRMPG III or the Policy Group), a group chaired by former New York Federal Reserve President E. Gerald Corrigan, now Managing Director at Goldman Sachs, and Douglas Flint, Group Finance Director, HSBC Holdings, released a report, "Containing Systemic Risk: The Road to Reform," featuring proposals that are, in theory, designed to prevent a recurrence of the kind of tectonic financial crisis that has unfolded over the past year or so.

As might be expected, the mainstream media appeared to swallow the notion -- hook, line and sinker -- that these "experts" know what they were talking about and that this was some sort of noble effort to address structural issues that had only come to light during the past year or so.

As far as I can tell, no one raised the possibility that this "initiative" was mainly intended to deflect the blame away from where much of it belonged: Wall Street. And no one asked the most pertinent question: How is that "senior executives" and "risk managers" who worked at Lehman, Morgan Stanley, Bank of America, Merrill Lynch, JPMorgan Chase and HSBC -- firms that have written down billions and billions of dollars over the past twelve months because of their lack of foresight and ability to control risk -- now know what has to be done when they were utterly clueless before things started to unravel?

Anyway, I thought it would be interesting to look at a few snippets from the report's Introduction and offer up my two cents (in italics) on what they really mean:

The scope of the CRMPG III initiative was designed to focus its primary attention on the steps that must be taken by the private sector to reduce the frequency and/or severity of future financial shocks while recognizing that such future shocks are inevitable, in part because it is literally impossible to anticipate the specific timing and triggers of such events.

(By "specific timing," do they mean a particular hour of the day? Otherwise, there were a number of individuals, including yours truly, who were warning about a brewing financial crisis within months of its beginning. In fact, it was clear to anyone who took the time to think about what was going on -- excluding the highly paid experts on Wall Street, that is -- that events leading up to the reckless orgy of speculation that occurred in the spring of last year were the clear set-up for a major financial earthquake.)

The background to this effort is, of course, the chain of events that is now properly labeled the credit market crisis of 2007 and 2008. In retrospect, these events clearly stand out as the most severe financial shock we have witnessed in decades with visible damage not only to the financial sector but extending to the real economy as well. Indeed, the cost of the credit market crisis in economic, financial and human terms has already reached staggering proportions and, even after 12 months, substantial vulnerabilities remain.

The write-downs experienced by large integrated financial intermediaries – especially in the United States and Europe – are also of staggering proportions. It is probably fair to say that, as late as the summer of 2007, virtually none of us would have imagined that, as of July of 2008, financial sector write-offs and loss provisions would approach $500 billion, even as the write-off meter is still running. Fortunately, the starting capital positions of the affected institutions were relatively strong and, even more fortunately, most of these institutions have been able to raise very large amounts of additional capital in recent months.

(Since "none of {the people who put this report together} would have imagined that...financial sector write-offs and loss provisions would approach $500 billion," my question is: Why are they qualified to write the report? Shouldn't it have been produced by those who actually anticipated those sorts of losses, including people like Nouriel Roubini, Dean Baker, Mike Shedlock -- and, again, yours truly?)

Even with the benefit of hindsight, there exists a large and troubling question as to the manner in which events unfolded beginning in the July to August interval of 2007. Namely, why were so many, in both the official and private sectors, so slow in recognizing that we were on the cusp of a financial crisis of the magnitude we have experienced? The list of possible explanations is long.