Ask Me Help Desk - Regulation part Deux - subtitled

Hello again:

Somebody closed my other thread... So, I'm opening it again. Please don't call names...

Yes, Obama is proposing regulations that will STIFLE business... That's TRUE, if you want to FORGET the past. But, you CAN'T forget the past if you want to FIX the present. I don't know WHY we don't look back. It's kind of STUPID... No, it's REAL STUPID!

So, in terms of regulations, (and let's be specific here, I'm talking about regulations that rein in the banks), one MUST realizes that over the past 30 years we have DEREGULATED the banks. The current proposals don't regulate the banks to the degree that they WERE regulated in the past... The KEY is that WHEN they were regulated, they DIDN'T cause the economy to crash. Since they've been DEREGULATED, THEY DID. Given the HISTORY over the past 30 years, it seems clear to me, that the banks need to be RE-REGULATED, so they don't DO that to us again.

So, YES, the proposed banking regulations WILL stifle business, it's true.. But, THAT particular business, we really WANT stifled.. Really - we DO. History counts!

excon

Duplicate post see below

Again you are missing the boat on this... It was the regulators and lawmakers that mandated the actions the financial institutions took .

I rarely recommend anything from a NY Slimes reporter ;but I will recommend an eye opening and balanced book about the crisis by Slimes reporter Gretchen Morgenson ' Reckless Endangerment '.
Trust me ;she doesn't spare those you think were the primary culprits ;the Country Wide's and Goldman Sach's of the world . But she doesn't neglect the bigger culprits like James Johnson of Fannie Mae ,HUD Director Andrew Cuomo ,and Congressmen like Barney Frank and Sen Chris Dodd... and the revolving door between regulators and the financial industry .

My contention remains the same.. The regulations were in place. But the regulations did not trump public policy ;and public policy was to expand home ownership no matter how it was done.

Quote:

Originally Posted by tomder55

Again you are missing the boat on this ..

My contention remains the same .. The regulations were in place. But the regulations did not trump public policy ;and public policy was to expand home ownership no matter how it was done.

Hello again, tom:

I think you're missing the same boat. I believe we're talking about TWO related, yet distinct events.. You don't want to talk about MY event (what the banks did), and you don't think I want to talk about YOURS (what the policy makers did).. Not so..

My contention has always been, that the housing bubble was a SMALL event compared to what the banks did.. It was DEREGULATION, or the LACK of regulation in the first place, that allowed the banks to package the bad loans, and peddle them to the WORLD. It allowed them to create a bailiwick of financial devices, like CDR'S and credit default swaps, that were NOT understood by the regulators, and have YET to be fully unwound. Frankly, current regulatory proposals don't address them at all. And, when they ARE unwound, as they surly will be, they're poised to heap another round of devastation upon us. Obama is looking the other way.

What the BANKS did to us, and are ready to do AGAIN, OUTWEIGHS what the housing market did to us, by VOLUMES.

excon

yes indeed they are related .
Here is part of FannieMae's director Franklin Raines letter to the Shareholders 2003 Annual Report :

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Ten years ago the typical conforming mortgage required a down payment of 10-20%, and low-down payment mortgages were considered too risky. But then we helped to standardize the 3-5% down payment loan, brought it to global capital markets, and made it available to lenders and communities nationwide. Now low-down payment loans are commonplace. And we just adopted a new variance in our underwriting standards that will make the $500 down payment loan widely available as well...

In 1994, we pledged to provide $1 trillion in capital to ten million underserved families by the end of 2000. Thanks to our housing and industry partners, we met that goal early.

Then in 2000, we launched our American Dream Commitment, a pledge to provide $2 trillion in capital to 18 million underserved families by the year 2010, including $400 billion targeted specifically for minority families (later raised to $700 billion in response to President Bush's Minority Homeownership Initiative). After four of the strongest years in housing and mortgage finance history, we've already surpassed the top-line goals of this commitment. But our work is far from complete.

So in January 2004, we announced our Expanded American Dream Commitment and pledged significant new resources to tackle America's toughest housing challenges. Our new commitment has three main goals.

First, we will expand access to homeownership for six million first-time home buyers in the next ten years, including 1.8 million minority first-time home buyers.We also will help raise the national minority homeownership rate from 49 percent to 55 percent, with the ultimate goal of closing it entirely.

Second, we will help new and long-term homeowners stay in their homes through a series of initiatives, and commit $15 billion to preserve affordable rental housing and $1.5 billion to support the revitalization of public housing communities.

Third, we will increase the supply of affordable housing and support community development activities in at least 1,000 neighborhoods across the country through our American Communities Fund, and through targeted investments like Low-Income Housing Tax Credits that help finance affordable rental housing.

It is because of initiatives like our Trillion Dollar Commitment and our American Dream Commitment that we have exceeded our HUD affordable housing goals for ten consecutive years.

According to Morgenson Fannie became ;
“the largest and most powerful financial institution in the world.” Its power derived from the unstated certainty that the government would be ultimately liable for Fannie's obligations. This assumption and other perquisites were subsidies to Fannie Mae and Freddie Mac worth an estimated $7 billion a year. They retained about a third of this." In fact ,by 1995, the subprime loan market had reached $90 billion in loan volume, and it then doubled over the next three years.

The bank too big to fail was a government contruct. They did away with moral hazard and systematic risk ,and replaced it with government command and control of the market.
By 2003, the government was financing through Fannie and Freddie almost half of the home loans. As the bubble grew and these govt. secured loans continued to be made available ;homeowners were refinancing and using the equity to pay for other goods and services . By 2005, almost 40% of new subprime loans were for amounts larger than the value of the properties.

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Imagine yourself in the place of one of those low-income householders who acquired a property in the late 1990s as a result of the Clinton home-ownership drive. What happened next? Chances are you managed OK for a while, but after a few years found that like most poor Americans, your income wasn't going up, it was declining. Around 2003, with your credit cards maxed out, you desperately needed to release some equity from your home. Luckily there was equity there to release, so you refinanced for the first time and enjoyed having some real money for a change. A couple of years later a pushy mortgage broker called to suggest you do it all again, squeezing out the last drops of equity and opting for a low-start mortgage. So you did — and that was fine while it lasted, but the interest rate just sky-rocketed. You will never pay off that loan, it is pure poison to you, just like it's pure poison to the investment bank that ended up with it on its books. You will just walk away. It's not your fault. It's not the bank's fault. And it certainly isn't George W. Bush's fault — every attempt he has made to reform the mortgage market has been blocked by Congressional Democrats.

Clinton Democrats are to blame for the credit crunch | The Spectator

I will also remind you the swaps and CDOs did not come out of thin air . These were in place throughout the 1990s and ramped up considerably through an act of law passed by Congress and signed by President Clintoon; the 'Commodities Futures Modernization Act of 2000'. Clintoon has now said he was the victim of bad advice from his financial advisors Robert Rubin(who stepped down as treasury secretary to become chair of Citigroup ) and Larry Summers . Again ;the reason the market for these risky investments expanded is BECAUSE there was a presumption of a government bailout if the market tanked .

High rollers don't take unnecessary risks .They knew very well that sugar daddy would be there because the people at the helm of government were their good buddies from the industry. This was a policy of huge government subsidies to a few giant politically connected banks.

The regulators KNEW what was going on and ENCOURAGED such behavior . That's the bottom line . Plenty of lawmakers warned of the dangers of the policies being adopted ,but there were too many on board with the policy. Sen. Dodd and others were financially rewarded by the very banks their committees in the legislature oversaw.

by the way ;did you catch Palin's speech to the Iowa TP yesterday ?
Can't wait for all candidates from both parties to address her proposal to eliminate all corporate taxes and to make corporations totally responsible for their own decisions w/o gvt bailout.
The only part of the equation she missed to completely end so called crony capitalism (which isn't capitalism at all) would be term limits.

Might be there are a few other activities you want regulated as well as the banks Ex, such as hedge funds and share traders.

As I see it we have gotten to where we are through the activities of unscrupulous individuals. Therefore there need to be real limitations on what some people can do and it comes down to making sure the capital they are risking is their own. I would remove the ability to short sell as a speculative tactic requiring all stocks traded to be backed by stock in hand, in other words no CFD.s and derivatives. I would further regulate to ensure that all liabilities must be accounted for and definitely lift the capital requirements of banks

That's what happens when you give the fox the keys to the hen house, no eggs, no chickens, no nothing.

The fox gets fat, and the farmer goes hungry.

Clete if you got rid of short selling you would take one of George Soros' biggest weapons away. The libs favorite investor Warren Buffet is also a big fan of short sales. As I recall it was short sellers who exposed Enron's frauds.
You stop short sales and you create the mother of all bubbles .I'm not opposed to the up-tick rule if you want to add regulation to short sales .I'm not opposed to banning naked short sales (which is what I think you are talking about anyway... the borrower should take possession of the stock ). But a ban is a bad idea.

Look there are laws against fraud. The government should make a case against the financiers they think were hosing investors . That is the best regulation and the best enforcement mechanism. Like Palin said; let them be responsible for their actions.

Report: U.S. to sue big banks over mortgages - CBS News

We will see what happens. There will always be people who bend the rules to profit, why are bankers and rich guys any different. I saw Inside Job, narrated by Matt Damon. Interesting. I guess they can't afford to loan money for job creation, because they may need some really good lawyers.

Good ;can't wait for discovery when they question Dodd ,Frank,Cuomo Raines Johnson,Paulson ,Geithner ,Mozillo et al .

Quote:

Originally Posted by tomder55

Clete if you got rid of short selling you would take one of George Soros' biggest weapons away. The libs favorite investor Warren Buffet is also a big fan of short sales. As I recall it was short sellers who exposed Enron's frauds.
You stop short sales and you create the mother of all bubbles .I'm not opposed to the up-tick rule if you want to add regulation to short sales .I'm not opposed to banning naked short sales (which is what I think you are talking about anyway ...the borrower should take possession of the stock ). But a ban is a bad idea.

Look there are laws against fraud. The government should make a case against the financiers they think were hosing investors . That is the best regulation and the best enforcement mechanism. Like Palin said; let them be responsible for their actions.

Yes I believe naked short selling should be banned and I believe deritatives should be banned because they are used to disguise exposed positions. Laws need to be proactive, not the get caught and you go to jail type but the no you can't do that. If that takes security deposits and capitalisation of the movers in the securities indiustries then so be it. Why should a person with a finance degree and nothing else have a license to advise on investment?

Are you suggesting that government be proactive and actually regulate an industry. That is a change in your laissez faire stance

You are mistaken .I have NEVER been an advocate of doctrinaire laissez faire . That would be a libertarian position ;not a conservative one.

It is a proper role of government to make rules for the market place.In fact there are many roles for the government in the economy including creating currency ,running public services ,ensuring public safety ,and enforcing contracts . OF course there needs to be a legal framework in order for capitalism to function .

Yours is the same strawman that others use where if someone opposed excess regulation it means they oppose all regulation. Conservatives believe that government should support the business environment .Now how could the government do that if it had no role in the economy ?

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I believe deritatives should be banned because they are used to disguise exposed positions

So you would outlaw trading in S&P 500 futures ? If your answer is no then you don't believe all derivative trading should be banned. I for one cannot imagine how a farmer could conduct business if that farmer didn't have price guarantees negotiated ahead of time.
But I think you mean OTC's . That were mispriced .

Tom you blow in the wind, always providing an opposing view. You claim you are conservative, but that is inconsistent with your view of capitalism. Things must change if we are to progress. Unbridled capitalism is why we are in the current situation and capital cannot be expected to be the vehicle by which the situation is reversed. Government must create an environment where business has the confidence to borrow and invest and that may require more than regulation. It may require some big nation building projects that capital will be willing to gear up to participate in. Business as usual isn't getting the job done. What happens in a recession is that business discovers that those laid off workers weren't needed after all

Quote:

Originally Posted by tomder55

So you would outlaw trading in S&P 500 futures ? If your answer is no then you don't believe all derivitive trading should be banned. I for one cannot imagine how a farmer could conduct business if that farmer didn't have price guarantees negotiated ahead of time.
But I think you mean OTC's . that were mispriced .

Tom stop trying to obscure the issue. Those commodity contracts are actually contracts to supply, the fact that the farmer may sell out of the position is beside the point. But there are contracts such as swaps and other instruments used by banks and financial institutions which take a future market position without asset backing and in fact are used to alter balance sheet positions. These instruments should be banned because of the losses they can both produce and hide

Unbridled capitalism another tag that misrepresents my position. All you did was replace the words laissez faire with the words unbridled capitalism . Neither represents my position.

Make no mistake... The US Constitution ALLOWS for government involvement in the economy (chiefly the commerce clause) . Again ,my only objection has been excess regulation ;not no regulation.

But your Keynesian solutions fail over and over again and yet you persist in advocating them. Oh well... at least it's Constitutional for the government to create roads. Order more asphalt. That will solve the economy... NOT .

Hello again:

My right wing friends tell us that, if left to their own devices, INDIVIDUALS would NOT act in their own self interest. So, they enact lots and lots of laws governing PERSONAL behavior, and hire lots and lots of cops to ENFORCE them... That's how come we're the worlds largest jailer...

But, when it comes to corporations, their faith in individuals is renewed. They say that corporations don't need no stinkin regulations, because it's in themselves interest NOT to screw people...

Am I missing something here? Am I the only one?? Aren't individuals running corporations??

excon

You would like me to build a road to nowhere, I suggest you have many rocks that need to be painted white but first line your national higways with walls constructed using them. The marvelous part of such a plan is you can't mechanise it easily and so it solves the unemployment problem at a basic level, but surely you have many derelect houses that need to be pulled down and parks created in their place.

I think the problem is you have ceased to think small and so the solution is beyond you. Yes we can has become no we can't

Quote:

Originally Posted by excon

Hello again:

My right wing friends tell us that, if left to their own devices, INDIVIDUALS would NOT act in their own self interest. So, they enact lots and lots of laws governing PERSONAL behavior, and hire lots and lots of cops to ENFORCE them... That's how come we're the worlds largest jailer...

But, when it comes to corporations, their faith in individuals is renewed. They say that corporations don't need no stinkin regulations, because it's in their self interest NOT to screw people...

Am I missing something here?? Am I the only one??? Aren't individuals running corporations???

excon

Ex corporations are an excuse to say it wasn't me. You can't stick me with that bill. That is their only purpose. I've heard that when you write leglislation it has to have weight or it won't pass. 2000 pages is about right. No wonder you don't get anything done.

Your friends are wrong, individuals always act in their own self interests. It is in the interests of others that laws and regulations are needed and when the laws are stacked to the sky, who can know what is legal, thus you have many law breakers.