I am starting this thread to enable the discussion of the role of deregulation in the financial crisis in response to the following post, which was initially addressed to me in Batman Jones' thread on the idiocy of Republicans. This crisis was foundationally enabled by 1) an overly loose monetary policy promoted by the Federal Reserve under Allen Greenspan in the early-to-middle 2000's and 2) the making and funding of the market for sub-prime loans by Fannie Mae and Freddie Mac around the same time. Without these two initiatives, the financial crisis would not have occurred. Second guessing the Fed is easy in hindsight, but at the time, Greenspan was being hailed by pretty much everyone as a true genius for his handling of the economy. However, the actions of Fannie Mae and Freddie Mac were called out back in 2004 as being dangerous and in need of further regulation. An effort to pass these regulations was made by the Bush administration and Congressional Republicans, including John McCain. But it was blocked by Democrats in Congress, most notably Barney Frank and Christopher Dodd, who were politically championing the making loans to people who could not afford them, funded or guaranteed by the US Government (which means US Taxpayers). While this was initially a completely government-oriented problem, after the private sector saw all of the transactions and the size of the market that the government had made in the sub-prime sector, it decided to get in on the action. It started to use mortgage backed securities to securitize these sub-prime mortgage loans. When the sub-prime loans in these pools started to turn south, it tainted the trustworthiness of mortgage backed securities across the board. There was not an easy way to quickly identify specific mortgage backed securities as safe or risky. So the whole market froze up, and the securities became unsellable for a time. For anyone who is unfamiliar with the concept of "Mortgage Banking," it is the business of originating mortgage loans for packaging into mortgage backed securities (MBS). Mortgage banks are not banks in the proper sense, and they have never been regulated as banks. However, some banks do have mortgage banking subsidiaries that originate mortgage loans for packaging into mortgage backed securities. However, these loans are not retained on the books of the originating entity, they are sold to investment bankers who package pools of these loans together and then sell the MBS into the open market. Perhaps it is just your choice of words, but for something to be "deregulated," it first has to have been regulated to begin with. The mortgage banking industry was never well regulated, partially because it did not come into existence until the 1980's, and partially because its activities did not appear to pose any concerns until around 2004 or so. There never was any reversal of any regulations covering mortgage banking, so it was not "deregulated". And I challenge you to note any specific act of "deregulation" that contributed materially to the current financial crisis. Deregulation meaning the reversal of previously existing regulations. In case anyone wants to bring up the reversal of the Glass-Stegall Act, please explain how the reversal of that act contributed materially to the financial crisis. If you can, that is. We do need to revisit our financial regulations here in the US, and include all commercial financial activities under that umbrella, definitely including mortgage banking and investment banking. I am reasonably confident that we are going to do that, very possibly this year. However, this should not be in the form of some high-handed government take-over. Fortunately, it appears that even Democrats such as Barney Frank are now backing away from the sorts of draconian measures that were initially being discussed. We do need better regulation of the financial sector, but it needs to be done carefully, with as much oversight as is required, but with that in mind, as little as we can get by with. When it comes to government regulation, more is not automatically better.
This post is addressed to the invidual posting as clutchfans.net user "MojoMan" George Soros wrote a book explaining why your dime store explanation is largely oversimplified, and to put it nicely, wrong. I suggest you read it. It is entitled "The Crash of 2008 and What It Means" There is a copy sitting on my desk. If you send me a self-addressed, postage-paid, envelope, perhaps 7x9 or so, I will send it to you, if you warrant and represent that you will return it. I look forward to hearing from you.
This whole topic has been beaten to death and, generically, the mojomans of the world have been shown to be incorrect in their assertions. YAWN
As far as I am aware, you guys have never really discussed this particular topic at all. Of course, when I say "discussion", that means more than just insisting that the financial crisis was due to deregulation, and then sticking your fingers in your ears and shouting LALALALALALALALALALALALALA real loud so no other ideas are allowed to enter.
Speaking of the corruption of Wall Street and its Republican handlers -- Rep. John Boehner tells Wall Street CEOs "Pay us for our services"
"As far as you are aware" and whether it happened or not are totally different things. The crisis really came into focus in 2008. You only joined this board in April 2009... right?
Yup. As far as I can tell, most of the regular posters around here have just blindly accepted the MSM talking points on this issue without any appreciable thought or consideration of their own. In any case, even if it has been discussed before, it has not been discussed since I have been posting here regularly. So in response to roslolian's post that I quoted in the OP, I am opening a thread to have a fresh look at the topic. We are almost 10 posts into the thread now, and no one so far has even tried to offer any substantial refutations to the points I made in the OP on the role of deregulation in financial crisis. So, until someone does, I guess my assertions will just continue to stand unchallenged.
The crisis was ignored until 2008. There are many who saw the crisis coming, but they were overwhelmingly ignored.
This post is addressed to the invidual posting as clutchfans.net user "MojoMan" Actually if you have done any background reading on this topic, you would be in much better shape to solicit discussion regarding why your argument is incorrect. You cannot see the forest for the trees - this failure of perspective is probably why former posters like Trader_Jorge are currently collecting unemployment checks. Again, my offer to allow you to peruse Soros' volume stands.
How Deregulation Fueled the Financial Crisis Great article that lays out the deregulation that started in 1980, signed by Jimmy Carter. Financial deregulation at root of current global crisis Long, detailed article about the deregulation that led us to our current state, plus commentary about what regulation is necessary and what is too much. STUDY SHOWS WALL ST. LOBBYISTS SHAPED DEREGULATION BEHIND CRISIS This article details the ties between Wall Street and K Street and is based on a report produced in 2009. If your opinion differs from that of established economists, financial analysts, and other experts in this field (including Alan Greenspan), then please post your credentials so that we can decide whether you have credibility or (as with your AGW "analysis") are simply blowing smoke. I would ask that you cite your claims if they are made by someone who is an expert and omit them if they are opinions of Faux "News" hosts or other windbags. Please engage in this discussion with some degree of intellectual honesty.
I'm afraid a Nobel Prize winning economist disagrees with you Frankly, I don't have time now to type out what he says in the book, but I do recommend you read it. It not only covers the recent depression but of others, like Mexico, Argentina, the Asian financial crisis. And if I got one message out of that book, it was that deregulation was a big part in causing this recession.
Since I can't edit, I'm afraid I'll have to double post. Mojoman is actually right in his last paragraph. He pointed out that what was important isn't 'more' regulation, but better regulation, which are not necessarily the same, which I thought was a good point that some people ignored. (well, gotta give him credit somehow, he does work hard for these threads).
In other words, you aren't willing. K Deregulation, starting in 1980 and continuing through 2004, is what fueled the current crisis by slowly but surely breaking down the protections that Glass-Steagall installed after the Great Depression. Countless economists and other financial experts agree with the above statement, as detailed in the articles I posted, so if you are more qualified than they to comment on the causes of this crisis, please post your credentials.
So that's it? That's your entire argument why deregulation didn't cause the financial crisis? My choice of words? Semantics? Look, you yourself admit that the controls weren't sufficient and were "overly loose: Why you need to revist your regulations if they were fine? Obviously they aren't, and are in need of revision. Regulations can only become stricter or looser: unless you're a ****ing moron (which doesn't seem to be the case), the regulations should become stricter, because they are so loose that **** like this can take place in the first place. ^ This is the kind of spin that I use when I know what I'm doing is wrong but I don't want to stop it. Your suggestion is ****ing impossible, how can the regulation be better and done with oversight, yet as little as possible? Are you going to increase the regulation a little bit, wait until it causes another crisis, then increase it again? More regulation isn't automatically better, but not increasing your regulation is even worse. What exactly is the downside to increasing your country's regulation? I can't think of anything, can you? Let me make it give it to you straight: I'm a third party in all of this, I don't care whether the Republicans or the Democrats fix the problem, but the problem needs to be fixed. I live halfway across the world, yet I find myself unable to get a better job because you guys won't fix your broken down financial system. Those wallstreet guys profiting of your idiocy, that Goldman Sachs CEO is probably holed up in his room collecting all the books, all the analysis economists have done pointing to guys like him as the culprit and saying "wow, I screwed up the entire world, yet I'm about to collect 100$ M from taxpayer's money. Boo yeah!!!" Common sense would entail that since most of the "profit" GS earned this year stemmed from the AIG bailout, majority of the bonuses those guys earned should be returned to your gov't. Yet that's not what's happening, there are no laws which would compell these guys to return the money they stole. The fact that you guys are still arguing whether stricter laws should be made or not shows me that in your country common sense is not that common after all.
