Simple is better

Nicholas Brady, Treasury Secretary under Reagan and Bush I, prefers simplicity rather than complexity in financial matters.  He thinks regulation would be firmer if the regulations were simple, rather than complex.  In his view, the banking business has changed dramatically in the 21st century.  Most banks now rely on complicated computer models and arcane algorithms to make money.

What the banks don't acknowledge is that the models are based on assumptions about human behavior.  And you know what they say about assumptions (they make an ass out of u and me).  Furthermore, these algorithms are written by human beings.  In forty plus years in the software business, I never saw a perfect algorithm.  People are fallible.  People make mistakes.  You don't want them making mistakes that can bring down an economy.

Brady does not have a new idea as to regulation.  He just wants to keep it simple.  Leverage is his answer and the answer of more and more smart people.  High leverage results in high risk, lower leverage lowers risk.  And leverage is something that can be easily defined by regulators and the finance industry.