gimme some outrage people! i know youre capable of it. no copyrighted music in this one for big media to pull
BTW, Harold Raines...that is all
Capitalizt
A little less regulation here...a little more regulation there.. It wouldn't have mattered. In the end those entities were doomed to collapse anyway.
Government entwined with private industry = fail
Q5echo
quote:
Originally posted by Capitalizt
In the end those entities were doomed to collapse anyway.
theres your f**king laissez fair right there so to speak
wtf? does the Queen Mary II just drive itself from London to New York? NO, it doesn't.
there was NOBODY managing the distribution of trillions of dollars of outstanding debt! and when someone tried to drive the damn thing years ago they were told to get lost! how can you defend that?
pkcRAISTLIN
quote:
Originally posted by Capitalizt
Government entwined with private industry = fail
that's an outrageously simplistic statement.
Lebezniatnikov
The thread title poses a very good question.
John?
quote:
John McCain Vs. John McCain On Regulation»
mccainme.JPGIn the last few days, the U.S. financial system has been thrown into turmoil by the failure of Lehman Brothers and Merrill Lynch, the troubles of insurance giant AIG, and the corresponding drop in the stock market.
This evidently sparked a debate regarding government regulation of the financial markets within the McCain campaign, and McCain just can’t decide which way he wants to have it.
Here is a look at McCain’s back-and-forth on regulation during the last 24 hours:
- Deregulation: McCain issued a statement Monday morning saying that “we cannot tolerate a system that handicaps our markets and our banks.”
- Regulation: McCain’s campaign then put out an ad calling for “tougher rules on Wall Street.”
- Deregulation: This morning, on NBC’s Today Show, McCain said, “Of course, I don’t like excessive and unnecessary government regulation.”
- Regulation: Then, on CBS’s The Early Show, McCain said, “Do I believe in excess government regulation? Yes.”
- Both: On CNBC’s Squawk Box, McCain said, “We don’t want to burden average citizens with over-regulation and government bureaucracy…And I’m proud to be a Teddy Roosevelt Republican, who said, ‘unfettered capitalism leads to corruption,’ and we’ve got to fix this.”
The video of McCain’s morning show flip-flop is available on Think Progress here.
As the New York Times wrote this morning, while McCain has “struck a populist tone” in advocating regulation, “his record on the issue, and the views of those he has always cited as his most influential advisers, suggest that he has never departed in any major way from his party’s embrace of deregulation.” In fact, in 1995, “Mr. McCain promoted a moratorium on federal regulations of all kinds.”
Fannie and Freddie should never have existed in the first place. That's what I'm saying Q5. Given that they did exist and taxpayers were on the hook for their actions however..yes, they should have been regulated better.
Shakka
I don't think it's so much an issue of lack of regulation or deregulation, it's an issue of utterly incompetent regulators being asleep at the switch.
Trancer-X
quote:
Originally posted by Shakka
I don't think it's so much an issue of lack of regulation or deregulation, it's an issue of utterly incompetent regulators being asleep at the switch.
There were actually a few people who spoke up about it, too.
It's too bad that nobody listened but apparently that seems to be a reoccurring theme these days.
quote:
(From 2005)
Federal Reserve Chairman Alan Greenspan has expressed concern that the government subsidies provided to the GSEs makes investors underestimate the risk of investing in Fannie Mae and Freddie Mac. Although he has endorsed many of the regulatory "solutions" being considered here today, Chairman Greenspan has implicitly admitted the subsidies are the true source of the problems with Fannie and Freddie.
Mr. Speaker, HR 1461 compounds these problems by further insulating the GSEs from market discipline. By creating a "world-class" regulator, Congress would send a signal to investors that investors need not concern themselves with investigating the financial health and stability of Fannie and Freddie since a "world-class" regulator is performing that function.
However, one of the forgotten lessons of the financial scandals of a few years ago is that the market is superior at discovering and punishing fraud and other misbehavior than are government regulators. After all, the market discovered, and began to punish, the accounting irregularities of Enron before the government regulators did.
Concerns have been raised about the new regulator's independence from the Treasury Department. This is more than a bureaucratic "turf battle" as there are legitimate worries that isolating the regulator from Treasury oversight may lead to regulatory capture. Regulatory capture occurs when regulators serve the interests of the businesses they are supposed to be regulating instead of the public interest. While HR 1461 does have some provisions that claim to minimize the risk of regulatory capture, regulatory capture is always a threat where regulators have significant control over the operations of an industry. After all, the industry obviously has a greater incentive than any other stakeholder to influence the behavior of the regulator.
The flip side of regulatory capture is that mangers and owners of highly subsidized and regulated industries are more concerned with pleasing the regulators than with pleasing consumers or investors, since the industries know that investors will believe all is well if the regulator is happy. Thus, the regulator and the regulated industry may form a symbiosis where each looks out for the other's interests while ignoring the concerns of investors.
Furthermore, my colleagues should consider the constitutionality of an "independent regulator." The Founders provided for three branches of government – an executive, a judiciary, and a legislature. Each branch was created as sovereign in its sphere, and there were to be clear lines of accountability for each branch. However, independent regulators do not fit comfortably within the three branches; nor are they totally accountable to any branch. Regulators at these independent agencies often make judicial-like decisions, but they are not part of the judiciary. They often make rules, similar to the ones regarding capital requirements, that have the force of law, but independent regulators are not legislative. And, of course, independent regulators enforce the laws in the same way, as do other parts of the executive branch; yet independent regulators lack the day-to-day accountability to the executive that provides a check on other regulators.
Thus, these independent regulators have a concentration of powers of all three branches and lack direct accountability to any of the democratically chosen branches of government. This flies in the face of the Founders' opposition to concentrations of power and government bureaucracies that lack accountability. These concerns are especially relevant considering the remarkable degree of power and autonomy this bill gives to the regulator. For example, in the scheme established by HR 1461 the regulator's budget is not subject to appropriations. This removes a powerful mechanism for holding the regulator accountable to Congress. While the regulator is accountable to a board of directors, this board may conduct all deliberations in private because it is not subject to the sunshine act.
Ironically, by transferring the risk of widespread mortgage defaults to the taxpayers through government subsidies and convincing investors that all is well because a "world-class" regulator is ensuring the GSEs' soundness, the government increases the likelihood of a painful crash in the housing market. This is because the special privileges of Fannie and Freddie have distorted the housing market by allowing Fannie and Freddie to attract capital they could not attract under pure market conditions. As a result, capital is diverted from its most productive uses into housing. This reduces the efficacy of the entire market and thus reduces the standard of living of all Americans.
Despite the long-term damage to the economy inflicted by the government's interference in the housing market, the government's policy of diverting capital into housing creates a short-term boom in housing. Like all artificially created bubbles, the boom in housing prices cannot last forever. When housing prices fall, homeowners will experience difficulty as their equity is wiped out. Furthermore, the holders of the mortgage debt will also have a loss. These losses will be greater than they would have been had government policy not actively encouraged over-investment in housing.
Wait--Greenspan embraced the concept of exotic mortgages while he kept interest rates artificially low following the tech bubble crash and 9/11! He is absolutely not to be trusted.
Capitalizt
lol, this reminds me of the John Stewart clip using "past Bush" and "present Bush" debating each other..
Trancer-X
I'm not about to pretend that I know all of the details of the situation but I thought that this next article was well written.
Market Failure? Try Yet Another Government Failure!
Are we headed for another 'Great Depression'?
by Alan Bock
Amid the financial crisis that has many people talking about a new Great Depression, or 10 years of the kind of stagnation that Japan endured during the 1990s, the most predominant talk you hear is that this is a failure of the capitalist system. If only the Bush administration had not been so devoted to deregulation, many have said, we wouldn't be in this mess. What we need now is more regulation, more government oversight of financial institutions, more rules to prevent greedy investors and sellers of risky investment vehicles from fleecing the public.
On the contrary, I suggest, this crisis is about as far from a repudiation of laissez-faire capitalism as it could possibly be. While many private actors played big roles in bringing on this crisis, in most cases they were responding to strong incentives put in place by government policies and regulations – regulations whose intentions may have been laudable but whose effects have been disastrous. From creating moral hazard to having the government become a big player in financial markets, this disaster has a distinct made-in-Washington flavor to it. The Bush administration, although it talked about deregulation, didn't do it; in fact, spending on regulation enforcement steadily increased during the Bush years.
This is not to deny that heads of financial institutions made bad calls, that thousands of people in the financial industry failed to consider the likelihood that housing prices would not rise forever, that private credit rating bureaus failed abysmally, or that some loan officers were less than explicit (or hid the details) with customers about the possible perils of subprime or adjustable-rate mortgages.
It is important to remember, however, that we do not live in a laissez-faire market environment, but in a business environment created and heavily influenced by a patchwork of regulations and mandates that have been increasing steadily since the New Deal, 75 years ago. People, especially in business, respond to incentives, and the government created all too many incentives, sometimes pliably in cooperation with business.
THE HOUSING BUBBLE
Although events accelerated in the past few years, this is a crisis long in the making. It starts with the Community Reinvestment Act, a Carter-era law designed to require banks to serve their entire communities. The perception was that many banks engaged in "redlining," declining to provide mortgages and small-business loans to poor and minority neighborhoods. The CRA provided that a bank's record of serving such communities would be taken into account.
As revised and strengthened during the Clinton administration, this law virtually created the subprime mortgage market – home loans to people whose credit would be considered shaky under ordinary free-market considerations – by allowing subprime mortgages to be "securitized," or bundled into those infamous Mortgage Backed Securities, or MBSs. The first securitization of MBSs consisting of loans mandated or incentivized by the CRA happened in 1997, by Bear Stearns. The number of CRA mortgage loans increased by 39 percent from 1992–98, compared with an increase of 17 percent for other loans.
In 1999, credit requirements were loosened further. As reported in the New York Times at the time, "In a move that could help increase homeownership rates among minorities and low-income consumers, the Fannie Mae Corp. is easing the credit requirements on loans that it will purchase from banks and other lenders." The intention was perhaps laudable – to increase homeownership rates among the "underserved" – but it had unintended but perhaps predictable consequences.
The housing bubble was further inflated by a loose-money policy at the Federal Reserve, in the wake of 9/11, that lasted from 2002 to 2005, according to William Niskanen, now chairman of the Cato Institute and a Reagan-era member of the Council of Economic Advisers. The bubble really expanded in 2005 when the government-sponsored enterprises, Fannie Mae and Freddie Mac, which have come to dominate the secondary mortgage market because they don't pay taxes, had access to cheaper credit and had lower capital requirements than fully private institutions, and began securitizing subprime and Alt-A (the next-riskiest class of mortgages).
This came in the wake of a $10.6 billion accounting scandal at the two institutions that blossomed in 2003–04, as it became obvious Fannie and Freddie were artificially inflating their profits in order to qualify top officers for monstrous bonuses. The price Congress exacted for not looking into the scandal any more closely was to urge Fannie and Freddie to become even more active in providing mortgages to low-income people who might not otherwise qualify for them. The Bush administration (supported by John McCain) pushed legislation to rein in the two government-sponsored enterprises – not thoroughgoing reform but increasing government oversight and putting an upper limit on their growth – but Democrats in Congress wouldn't let it come to a vote because they were comfortable with Fannie and Freddie, which lobby and donate aggressively, as they were.
So, the government virtually created the subprime mortgage and cheered it on. In April 2005, former Federal Reserve Chairman Alan Greenspan exulted that various "improvements have led to rapid growth in subprime mortgage lending." Huzzah!
The problem was that while packaging mortgages into securities made more money available for lending and offered big profits to highly leveraged institutions like investment banks and Fannie and Freddie, the risk on the downside was huge if the housing market began to go south, which it did.
MARK TO MARKET
Another government mandate that accelerated the crisis was an otherwise obscure new accounting rule, implemented last November, called "mark to market." Again the intentions were good – to make financial transactions more transparent and to prevent overstating of profits of the sort that eventually brought down companies like Enron.
As explained by John Berlau, director of the Center for Entrepreneurship at the free-market-oriented Competitive Enterprise Institute: "[I]f a troubled bank sells a mortgage-backed security at a fire sale, many solvent banks have to take a paper loss on similar assets. This is the case even if the loans are still performing and even if the banks are holding the loans to maturity and simply collecting the payments instead of selling. In a small market such as those for unique securities, one fire sale can set the 'market price.'
"If all this required was showing a loss to shareholders in annual reports, this would still be bad accounting, but not that much of a contagion problem. But because mark-to-market has been adopted as part of solvency rules, these 'losses' contract banks' 'regulatory capital' on paper and mean they can't make as many loans without being declared technically 'insolvent.' So these financial assets become 'hot potatoes,' as banks scramble to get them off their books, driving the asset prices down even further. This explains much of the 'cascading effect' that has caused the credit crunch."
Good intentions – to encourage more transparency – and something similar, if a bit less ironclad, might not be a bad idea. But it set up a downward spiral in the paper solvency of all kinds of financial institutions. Berlau thinks simply suspending the mark-to-market rule might be enough to arrest the downward spiral without a government bailout. William Isaac, chairman of the Federal Deposit Insurance Corp. from 1981–85, agrees that mark to market has been a mistake. But Treasury Secretary Henry Paulson seems utterly opposed to such a reform.
REPEAL OF GLASS-STEAGALL
A number of commentators, led by Ralph Nader, have suggested that one of the most egregious examples of deregulation that contributed to this crisis was the repeal of the Depression-era Glass-Steagall law. It barred commercial banks, which take deposits, from engaging in marketing securities and other investment activities that investment banks can do. It was repealed in 1999, with the chief instigator being, conveniently enough, Sen. Phil Gramm, who committed the "nation of whiners" gaffe. Bill Clinton signed it, which Nader says illustrates his contention that both parties are guilty of irresponsible deregulation.
However, the evidence, if anything, is that the Gramm-Leach-Bliley bill, which replaced Glass-Steagall, mitigated rather than exacerbated the crisis.
The institutions that have failed, Bear Stearns and Lehman Brothers, were investment banks that declined to take advantage of the Gramm-Leach-Bliley loosening of regulations and get into depository activities. They were bought by banks, JPMorganChase and Bank of America, that had. A few smaller banks are likely to fail after having invested too heavily in Fannie and Freddie securities. Washington Mutual had to be bought by JPMorganChase after expanding too quickly and suffering a bank run. But, by and large, the banks that took advantage of the ability to combine depository and securities activities are in reasonably decent shape. Most have money to lend, but given the crisis they are being more demanding than ever of creditworthiness, which is likely to be the way this financial crisis wreaks real damage on the "real economy."
WHAT'S NEXT?
Going forward, besides repealing the mark-to-market accounting rules, what kinds of reforms might help to stanch the sense of panic without putting taxpayers (or our grandchildren) on the hook and tying the hands of the next administration (which might not be such a bad idea)? Some people, notably Jeremy Siegel, who teaches at the Wharton School, have suggested extending federal deposit insurance to money-market funds and/or increasing the amount the feds will cover from $100,000 to $500,000 or even $1 million. That might halt in the short run the urge to draw money out of institutions already facing liquidity problems, but in the long run it would reduce the incentive for depositors to pay closer attention to the soundness of the institutions where they put their money, which could encourage risky behavior again.
Maybe a short-term expansion of deposit insurance?
Of course, Fannie Mae and Freddie Mac should be broken up and reconstituted as much smaller, purely private enterprises with no access to the federal treasury.
Right after the Bear Stearns collapse, Paulson put forward a fairly comprehensive financial regulatory-reform proposal that had been in the works at Treasury for several years. Given that the financial markets are governed by a patchwork of regulations and agencies that have been added to since the 1930s without much concern about whether they fit together coherently, that could be the basis of regulatory reform once the current crisis has passed – if it does.
Given the decisive contribution of government rules and mandates to the current crisis, however, I fear what we will see will be the equivalent of giving an alcoholic free drinks for the rest of his life.
October 1, 2008
Alan Bock is Senior Essayist at the Orange County Register. He is the author of Ambush at Ruby Ridge and Waiting to Inhale: The Politics of Medical Marijuana.
