So, in your opinion, how does the passage you quoted suggest that deregulation contributed materially to the financial crisis? In what way did deregulation materially worsen the current crisis compared to what would have occurred otherwise? If you cannot say for some reason, it is probably unreasonable to expect anyone else to be able infer what your intentions are by quoting that passage either.
Uh...dude. GR already provided you several articles made by different economists refuting your "position" when he first posted. You ignored every single article he posted and continued to whine about proof after he already gave you the links. IMHO that just showed you're too freakin' lazy and too set in your opinion to talk with other people. I personally would have left it at that, but GR was still kind enough to give you a timeline. A reasonable person interested in debate and discussion would have taken the time to read it and made some counter points of their own. Instead what you did was to ask how they were linked together? What are you, an idiot? Can't you infer it on your own? Its not like he just posted timelines and dates, the stuff he posted showed several reasons already. Instead of him doing all the work why don't you provide some analysis and insight on your own showing that deregulation didn't cause the crisis? Nobody here is asking you to make up arguments from the ground up, why don't you do it like he did and dig up some articles arguing for your position and then quote what you feel are the highlights? That would facilitate discussion more than you demanding GR bend over backwards for you. However, what I'm really curious about though is what is your point/goal for arguing for deregulation? If, supposing everyone agreed with you and said that deregulation isn't the cause of the crisis, what would you argue to be done? Since deregulation didn't have anything to do with the crisis, are you arguing the market to be deregulated even more now, and whatever rules and restrictions the banks have be lifted? In your opinion, would that prevent this kind of crisis from happening again?
While I did not read the articles GR linked by title only, I did read the passage that he quoted. It discussed a number of regulatory acts and even a few deregulatory events. It also discussed several failures in the financial system, such as Enron. However, he included no analysis of his own, which is consistent with the rest of his posts in this thread. And he did not even attempt to discuss how any of the deregulatory events that are mentioned in his time outline contributed to the financial crisis. Just because there have been acts that constituted deregulation, it does not automatically follow that these events contributed to the financial crisis in any way. Since it is the very purpose of the thread to discuss this question, is it too much to ask that he share his observations about what the links between these deregulatory events and the financial crisis are, if he indeed he has any such observations? Honestly, I do not believe he does have any such observations to offer, or he would have offered them already. The only person who has made a sincere attempt to offer any such observations was F.D. Khan, and he had to dig quite deep to come up with any. But his observations were excellent indeed, and if GR or anyone else can offer any similarly high quality observations about how deregulation contributed to the financial crisis, I promise that I will enthusiastically recognize the excellence of those contributions, just as I did with F.D. Khan. I am not arguing for deregulation. I have posted extensively on this topic here in this thread, and I have addressed this point repeatedly along the way, so I can only assume at this point that you are making assertions about my position on this question without having bothered to read the answers I have already provided. I am not going to repost all my answers again, but I will repeat myself briefly in an effort to answer your question. A lack of regulation in certain sectors certainly contributed to the current financial crisis, especially in the mortgage banking sector and the investment banking sector. There are also several other sectors of the financial industry that need to be restructured or more closely regulated, especially including the rating agencies. We are in need of a thorough review of the financial regulations here in this country, and we need to extend the regulatory umbrella to cover all areas of the financial sector, especially the mortgage banking and investment banking segments. But we need to do this with wisdom and a light touch. More regulation does not automatically constitute better regulation. We need the right amount of regulation. Excessive regulation results in excessive costs, and a reduction in the availability of capital. Our economy depends on the financing that the financial sector provides. We need to make sure that financial risks are properly managed and prudently constrained by all of the major institutions in the financial sector. We also need to keep in mind that this crisis was initially enabled by an overly loose monetary policy by the Federal Reserve and overly loose credit underwriting standards promoted and funded by Fannie Mae and Freddie Mac. If the government had not been overly promiscuous in its efforts to provide excessive amounts of cash and credit, this financial crisis would not have happened, certainly not anywhere close to the extent that it did. In the aftermath of these unfortunate actions by these government institutions, there is certainly plenty of additional blame and responsibility to go around. But it was initially the actions of the government that enabled and encouraged this whole mess. So we might be smart to address the regulation of these institutions first and foremost. In summary, a lack of regulation in certain parts of the financial sector did contribute materially to the financial crisis. However, it appears that deregulation (the reversal or diminishment of previous regulations) did not. Or at least no one here (or anywhere else that I have seen - and I have made a substantial examination of this issue) has offered any suggestions of how "deregulation" actually contributed in a material way to this financial crisis. If you want to provide some sort of a reasonably brief quote from the comments of some outside expert regarding how deregulation has materially contributed to the financial crisis, together with your own comments analyzing those remarks and sharing your own opinion of how, based on what you have quoted, you believe that deregulation has materially contributed to the financial crisis, I would be sincerely interested in reading that and discussing it with you further.
ZOMG, if you can't get from the targeted quotes I posted, then this discussion is truly lost on you. Do you really need my analysis to make sense of the information I posted? Good lord you are slow. The 1980 act lowered reserve requirements, which are the limits on the amount of funds that banks have to keep on hand. This allowed banks to have more leverage, or ability to lend more money with the same amount of cash on hand. The 1982 act allowed savings and loan organizations to make more kinds of loans than they had previously been allowed to and also raised the amount of their reserves that could be invested in nonresidential real estate. This again changed the risk ratios of the banks (in favor of the banks) and also set up a safety net for banks in the NWCP that would embolden them to take the new risks, knowing that the government was willing and had a mechanism in place to bail them out. In 1987, the Glass Steagall act was mostly undone in an act that tore down the walls that, since the Great Depression, had kept commercial banking and investment banking separate and also kept those organizations from being insurers. This led to a MASSIVE increase in the amount of risk taking that banks could engage in and, as we have seen and bankers have testified to, any risk that a bank is allowed by law to take, it will take in the name of increased profits. Then, in 1988, banks started securitizing mortgages into Mortage Backed Securities that were exempted by (friend of the banking industry) Phil Gramm (and his wife), who also exempted credit default swaps from regulation. So, the two biggest contributors to the current crisis, mortgage derivatives and CDS, were a direct result of deregulation. Then, in the late '90s, the remnants of Glass Steagall came crashing down with the merger of Citibank and Travelers, which was illegal at the time, though the law gave the company five years to get it legal, which they did behind $300 million in lobbying money. This change allowed banks to be investment brokerages and insurance companies and created the largest of the "too big to fail" companies. The new behemoth holding companies were allowed to take depositor's money and invest the funds (at insane leverage ratios) in extremely risky ventures. These ventures included the now famous sub-prime mortgage market, which was not rated for risk appropriately due to the lack of regulation of mortgage backed security derivatives as well as massive gambles in the stock market. All of that led directly to where we are now. You didn't deserve any of that analysis, given your dearth of any substantial arguments at all, but there it is, your pwnage on a platter.
deregulation has allowed commercial banks, investment banks, and insurance companies to compete in the same markets. through this commercial banks have leveraged themselves 30:1, and used those funds to make suspect loans. the rest is history
I think the idea that regulation will stop the next crisis is just wrong. Government regulations are reactionary to the previous crisis and ultimately end up costing companies that weren't to blame more which in turn raises prices for consumers. The markets destroyed Lehman, Adelphia etc. No one would offer credit to these firms and they went belly up. The market punished any company with questionable earnings in 2001-2002 before sarbanes-oxley came to being and the market punished Lehman, Merrill, Goldman etc. to the point of failure as their toxic assets were unvaluable and their leverage unsustainable. I think certain deregulations like the 2004 net capital rule exclusion for $5b+ firms contributed to the crisis, but I don't think regulations will stop the next one. I do like the idea of tying risk to writers of loans and I will never believe in something where one lacks skin in the game. When did we start checking shoes at the Airport? After the shoe bomber. The question is what is next and I don't think the government has the ability to understand the next bubble or problem when the private sector can't figure it out.
Glass-Steagall kept the banks from taking extreme risks so well that we did not have a repeat of the Great Depression, not even anything remotely close, until after the act was gutted by deregulation. Regulations can and do prevent these kinds of problems.
Bear Stearns, Lehman Brothers, AIG, Merrill Lynch and Hedge Funds weren't governed by Glass-Steagall. These were the biggest failures of risk management. These firms made up the 'shadow banking' system. This shadow banking system provided over 50% of all credit for housing, loans etc. by buying these loans and packaging them into MBS and CDO's. Their leverage ratios allowed them to buy even more long CDO's while borrowing short-term in the commercial paper and shorter-term bond market. Maybe Citi wouldn't have been affected as much but Smith Barney/Solomon would have if they hadn't merged. The significant decline of loans through the dropoff in these other firms would have really hurt the conventional Citibank/Bank of America/JP Morgan though not as dramatically. The failure of LTCM (Long-Term Capital Management) in 1998 is a prime example of derivative risk pre-Gramm-Leach-Bliley act. The default of Russian bonds caused credit spreads to widen which destroyed many firms trading on levered bond spreads. I believe this is not about regulation but the failure of an idea pioneered in the Solomon bros. trading room in the early 1980's and a growth in industry through the 90's and until this crash. "You can't get equity type returns with bond type risk by using leverage." I think Keynes says it best regarding leverage when he said "The markets can remain inefficient longer than you can remain solvent."
Then we need more modern regulations to keep them from taking the kinds of risks that got us into this bind. I guess my point is that deregulation did play a significant role in the current crisis. There was a lot of excessive risk taking going on and the deregulation allowed everyone to take the kinds of risks that previously only firms like Lehman and Stearns were. Once the dominos started falling, everyone was at risk because everyone was leveraged up the a$$ and was taking on risky ventures.
Actually, the Depository Institutions Deregulation and Monetary Control Act of 1980 (DIDMCA) lowered the mandatory reserve requirements that banks keep in non-interest bearing accounts in Federal Reserve Banks. At the same time, it required state chartered banks and thrift institutions (S&L’s) to maintain reserve account balances for the first time, and phased in mandatory reserves for all depository institutions by 1988. So, this element of the act was not really a “deregulation,” rather it was really more of an expansion of the regulations, and a leveling of the playing field. In any case, the Federal Reserve does have the authority to raise these reserve requirements, at its discretion; and there are no mandatory restrictions on adjusting these rates upwards as circumstances warrant. The changes made in the structure of these regulations 30 years ago in the DIDMCA were not a material factor in the current financial crisis. And considering the overall content of the changes made to these reserve requirements, they cannot, all relevant factors taken into consideration, be fairly characterized overall as a deregulatory action anyway. Here is a brief and easy to read summary of the DIDMCA for anyone who is interested: http://www.answers.com/topic/depository-institutions-deregulation-and-monetary-control-act As you are probably aware, the Savings and Loan crisis occurred during the late 1980’s and early 1990’s. The Garn-St. Germain Depository Institutions Act of 1982 (GSGDIA) that you are apparently referring to here did significantly deregulate the activities that Savings and Loans could participate in, and also substantially contributed to the Savings and Loan crisis. But that was more than 20 years ago, and since that time, S&L’s have been regulated basically as if they were banks, which they effectively are. In fact, the one regulatory merger that is being proposed as part of the current reform efforts, which I expect to be approved, is the phasing out of the Office of Thrift Supervision (OTS), which oversees S&L’s, with the duties of the OTS. These responsibilities will be folded into the portfolio of the FDIC. S&L’s are all effectively banks, and they will all be effectively regulated by the same regulations as banks going forward. But that has really been the case since the end of the S&L crisis, if not since the inception of the GSGDIA that you quoted above. I am not aware of any serious person who has suggested that the deregulatory actions relating to S&L’s in the 1982 act that you quoted above have made any serious, direct contribution to this crisis. S&L’s have conducted themselves as banks for nearly 30 years now, and have been treated that way certainly since the early 1990’s. The breakdown in the oversight in the 1980’s was a major causative factor in the occurrence of the S&L crisis. But after the 1990’s, S&L’s are effectively treated as banks for regulatory purposes. S&L’s were not a separate, major contributing factor to the current financial crisis. With regards to banks being able to take more risks as a result of this act, this was not really a deregulatory function as much as it was an adjustment of the regulations in response to the continuing evolution of the financial marketplace. The actual change for banks was to allow them to raise the legal lending limit for national banks from 10% to 15% of capital and surplus. This was not a particularly major change for the banks back in 1982, and it was certainly not a significant contributing factor to the current financial crisis. I do not believe anyone is currently proposing to change this ratio back to the pre-1982 levels, either. So, you are really reaching on this particular suggestion. Here is a brief and easy to read summary of the GSGDIA for anyone who is interested: http://www.answers.com/topic/garn-st-germain-depository-institutions-act You keep making these vague and unsubstantiated references to the reversal of Glass Steagall being a major contributing cause to the current financial crisis. I know this is one of the “Main Stream Media’s” regular talking points on this issue. But just because someone recites a bullet point on television does not make it so. You still have not explained how the reversal of Glass Steagall contributed to the current crisis. Not you, nor anyone else for that matter. Apparently this bullet point has just been repeated enough times (without substantiation) that you have just taken it for the truth and that is all you want to know about the topic. Well, that is not good enough. And your discussion in the paragraph quoted above about how the reversal of Glass Steagall could have hypothetically contributed to the current crisis, is not good enough either. Are you saying that these hypothetical linkages actually contributed in a substantial and material way to the current crisis? What makes you think that? Can you provide any sort of substantiation for these particular assertions? Because you certainly have not done so at any point so far in this thread. And pitching a fit will not substitute for a legitimate answer; so do not think that anyone with a brain in their heads is going to be fooled by that kind of a ruse from you (again).
This was not an act of deregulation, but an example of inadequate regulation. Also, the banks were not the major source of the origination problems in the securitization of mortgages. It was the mortgage banks at the front end of the pipeline, and the investment banks at the back of the pipeline; both of which were never adequately regulated with regards to their respective functions in this process. As far as that goes, banks that do originate and sell these types of securities frequently do so through mortgage banking subsidiaries. The problems with securitized mortgage lending and mortgage backed securities were not caused by an act of deregulation, so they cannot serve as examples of how deregulation materially contributed to the financial crisis. You appear to have put this section together rather hastily, so I will get right to the point. Bank regulations require banks to make loans that are to be retained for their own books to conform to safe and sound underwriting standards. Sub-prime loans do not meet these requirements, and as a result, you will be hard pressed to find very many examples at all of banks with sub-prime loans on their books that they originated for their own portfolios. Also, they generally did not knowingly[/} purchase or take as collateral for a loan sub-prime mortgages that were contained in mortgage backed securities (MBS). To be fair, there are a good number of banks that have suffered losses in connection with sub-prime loans that they unknowingly purchased or took as security for a loan that were contained in mortgage backed securities (MBS). That was at the root of the interbank lending crisis that was really at the heart of the freezing up of the financial markets. For that, their risk management functions have been justifiably criticized, and regulatory reform has justifiably been proposed. But this was not a result of deregulation. It was due to a lack of proper regulation in the mortgage banking system, and insufficient risk management procedures by the banks. With regards to derivative products, and more specifically credit default swaps (CDS), these were primarily the domain of the investment banks and AIG, which were not regulated under bank regulations, and which did not have any kind of guaranteed financial backing from the US Government in the event of a serious crisis, such as the one that ultimately occurred. The stated presumption prior to the onset of the crisis was that if any of these entities were to fail, they would be on their own to sink or swim. In effect, they continued to function as if Glass Steagall was continuing in full force and effect. That made no difference. In the final analysis, the government bailed them out anyway. In any case, if you are actually suggesting that you believe that the banks actually lost substantial amounts of money as a result of their involvement with credit default swaps (CDS), then I challenge you to substantiate that. The banks were, for the most part, using CDS as insurance policies to help manage the risks inherent in their loans and loan portfolios. The use of CDS by banks largely reduced their risks. Perhaps it is your sense that banks should be restricted to the activities that they performed back in the 1950’s. If so, then perhaps you would have also been in favor of protectionist measures relating to the mandatory manufacturing of buggy whips, and also the legislating the production of automobiles without the use of robotics and computer assisted manufacturing. The world financial markets continue to grow and evolve along with the rest of our society. Banks have to grow and evolve with them. Just because banks have continued to expand and modify their product offerings in response to an ever-changing world, and to ever-changing financial markets, it obviously does not automatically follow that they were doing this as a result of “deregulation”. Banks are not restricted to a fixed list of products and services that they can provide. Bank regulations have always provided for a substantial degree of innovation and new product development. Innovation in most cases comes from their own creativity and ingenuity, and not from deregulation or the small-hearted, narrow-minded bureaucrats that staff the offices of the financial regulatory agencies. As a matter of course, new financial products and services are routinely developed without any need for a “deregulation” prior to the introduction of the new product or service. If you were not willing or able to offer your own analysis, which you failed to do prior to your most recent post, then that raises some real questions as to why you wanted to post in this thread to begin with. I am not sure if your petulant attitude is intended to convince others that you are strong, or smart, or tough; or if maybe you hope this type of presentation will somehow come across as intimidating, or impressive in some way. I can only imagine what sort of crowd that you must be accustomed to trafficking with, such that you are inclined to act this way. Who would be moved or impressed by this kind of conduct? The first group that comes to mind is the stereotypical rap-music video stars, posturing as ghetto-toughs, dissing each other in public and thinking that is cool, and treating the women that they run with like animals. I am sure there are also other groups who act like this, with similar attitudes, but from different, yet still similar cultures. It is groups like these that I would expect to be impressed with your little act. But I have never encountered any person or group of people that comes from any kind of a culture of class and character that would be anything other than unimpressed with the behavior that you have put on display here in this thread. You might not have had a chance to think about it, but you only serve to diminish yourself and your ideas with this rude, antagonistic, and petulant tone. You are doing yourself a real disservice with this sort of conduct. I do not know if you are ready to hear this yet or not, but maybe in the years to come, these comments might be helpful to you in some way.
I posted in this thread because my reading of the various acts of deregulation, repeal of Glass Steagall, and obvious lack of oversight tell me that the financial industry needs to be TIGHTLY regulated to keep their greed from choking this country to death. Twice now in our history, the greed of bankers has nearly brought us to our knees and in this most recent episode, the only part of the country that seems to have recovered is the financial sector, the very guys who got us in this boat to start with. They are getting million dollar bonuses on the backs of the credit that the taxpayers gave them at a much lower cost than they would have taken if we had not bailed them out. Meanwhile, the rest of the country is seeing 17% un- and under- employment, flat or negative wage growth, and are just now starting to pull out of it. I act that way towards you because you continuously refuse to engage in honest, fact based discussion in favor of weak talking points and tired platitudes. Given your history I am amused that you act surprised that you draw any more than a virtual sneer from anyone who has sampled your attitude. I treat my wife like a queen because she deserves it. I treat my children like the cutest things on the planet because to me (most of the time ) they are exactly that. I treat you like a troll because that is how you have acted since you showed your moniker on this BBS. Who says liberals are more condescending?
I agree that more modern regulations are needed but if Wall Street doesn't know the next bubble, how can the government understand it and create regulations to control it? Lets be straight here, the first Treasurer of this fledgling nation had to bail out the financial industry as groups tried to corner the market on 6% yielding bonds with the Bank of New York. We've had dozens of bailouts of sorts since this country began. In spite of this we've had phenomenal growth of GDP, lifestyle and progress. Banking blowups are common and part of an over-heated economy. We gained much because of the growth of credit and lending from the 1980's and 1990's, but felt the post-repurcussions now. We're concerned because the S&P hasn't moved in 10 years but its returns since 1980 and historically are still strong. Lets not stifle growth, productivity and innovation with regulatory entities that will never catch the next crisis and simply add layers of cost that ultimately get passed on to consumers. The consumers then have less disposable income to pay off debt and one day maybe start a small business which is the lifeblood and the true 'great' employer of our nation. Leveraged trading is pretty dead. If anyone wants to know the next blowup its probably in algorithmic, flash trading. All the buildings around the NYSE aren't filled with people, but servers as if they're closer than they can trade faster with less lag time. 70% of all volume of the indices is in quant/flash trading and it could cause a technical blowup like 1987. But i'm trying to look at the next crisis, and not the last one which any government regulation would do.
I don't want to stifle growth, but would like to see regulations that will help to curb the excesses that bankers always seem to engage in. I am not married to any particular type of regulation, but would like to see something that protects Main Street from the excesses of Wall Street and hopefully something that keeps us from having to bail out the bankers again. Their quests for ever greater profits at the risk of taking down the entire economy needs to stop. I don't mind them taking risks, ultimately that is the entire point of investing. I guess I would just like to see them shoulder the risk and not foist extreme risks to the taxpayer. One of the things I wouldn't mind seeing in the banking sector is a change in the way we treat firms currently categorized as "too big to fail." Any entity that is so massive that its failure jepordizes the entire economic system needs to be tightly regulated and constrained from taking the kinds of risks that could lead to such an outcome. If smaller firms want to take incredible risks, that is up to them, but any firm that has the US government as its safety net (IE, any firm that is "too big to fail") should not be able to engage in such risky behavior. The biggest reason that I see the repeal of GS as one of the major factors in this crisis is that it enabled bank holding companies to become "too big to fail." Whan you have commercial banking, investment banking, and insurance under the same roof, ALL of their practices must be overseen by an outside entity so that they are not allowed to risk our economic system on their gambles.
I agree. Banks and other financial institutions should be regulated to shells of their former selves. Savings should precede spending. Too bad the inmates run the asylum and real reforms will never happen regardless of who is in control of Congress. The elites love ruling this country and they are never going to give that up. There is a reason TARP saved wall street and left the rest of us dollar holders holding the bag.
