Posted on 10/23/2011 5:54:24 AM PDT by MontaniSemperLiberi
Why not admit it. You don’t know much about finance and are easily mislead.
Hard to believe we have freepers here who sound just like the dirty kooks protesting wall street. What is this, Occupy FR?
OK. I admit it. How pointing out that the economic collapse was driven by CRA and subsequent interventions in the mortage market rather than “derivatives” qualifies me as OWS is mystifying.
OK. I admit it. How pointing out that the economic collapse was driven by CRA and subsequent interventions in the mortgage market rather than “derivatives” qualifies me as OWS is mystifying.
I was talking about the guy who blamed the financial crisis on Republicans and deregulation instead of blaming Barney Frank and Chris Dodd.
Thanks for the clarification.
You’re correct of course. Crop insurance is a form of a derivative.
“The banking lawyers and other bureaucrats strongly oppose making derivatives more transparent “
Investment banks, not commercial banks. They lobbied hard to make sure that derivatives remained unregulated.
Derivatives need to be on something like an exchange so that they aren’t hidden from view.
“IOW, even more regulation, even more gov’t-cause market crashes.”
Consider that after dismantling Glass-Steagall, which was Depression era legislation designed to regulate investment banking, it was less than a decade before investment banks were enmeshed in the biggest financial debacle since the Great Depression.
Finance is different from other sectors of the economy. There was a good reason for enacting Glass-Steagall. Without regulation some people will turn the markets into a casino, as we have recently witnessed.
Gretchen Morgenson is one of the few reasons to read the NY Times.
The problem with Moody's, S&P, etc. starts with an oligopoly market with little to lose when they "err." When the assets at risk WILDLY exceed the assets of the rating agency, there is every temptation to take the money for a bogus rating and either stiff the market (as we saw) or fold if it blows up. OTOH, a rating agency that insures itself for error by whatever degree has a financial stake in accuracy because its track record will inflect the cost of coverage and therefore the cost of its services in a competitive market. Thus, the real problems are market structure and socialized risk, as we have seen.
Let them fail. Bailing them out only makes it worse. Delaying a collapse will just make it worse than if it happened right up front.
As with so many other national problems, the lack of regulations , is really NOT the issue.
The absence of reliable, predictable and honest enforcement is the real issue....IOW...Federal employees NOT doing, or refusing to do there jobs. The Federal Government size simply exceeds Congress’ capacity to provide appropriate oversight.
http://abcnews.go.com/GMA/sec-pornography-employees-spent-hours-surfing-porn-sites/story?id=10452544
For what its worth, the Founders insisted upon 1:30000 Congressional apportionment in 1783...which should give an idea of the expected oversight Congress was expected to provide by the Founders. That would equal a Congress of about 10000 representatives today.
Instead we’re almost at 1:500000 today.
True, with limited tools available to Central Bank / the Fed and in typical economic contraction move designed to curb price inflation the old-fashioned way, he has dramatically raised interest rates to make consumer and commercial borrowing prohibitively expensive, which in turn made the double-dip recession inevitable.
The U.S. would be mired in that recession forever were it not for Ronald Reagan's deregulation and tax-rates reforms, so Mr. Volcker has been sharing in the credit and basking in the light of that post-recession glow ever since, just like Bill Clinton appropriating most of the credit for better economic times and deficit reduction that followed Newt Gingrich Revolution and passage and implementation of most points and tenets in the Contract with America which included capital gains reductions and corporate tax credits, deregulations and welfare reforms.
Glass-Steagall was just one of those regulations that have outlived their time and usefulness, if it were ever needed at all. Barney Frank threw out the trial balloon of blame for the mortgage meltdown on the G-S repeal (aka Gramm-Leach-Bliley Act), in a desperate attempt to shift the blame from the role that he and the long line of other Democrats played in mortgage fiasco and point the finger on Republicans by diverting attention from GSEs, HUD, CRA and mandates that demanded that the banks give more and more unqualified loans to larger and larger groups of unqualified recipients (it goes way back to FDR and the Fannie Mae, which was created to finance the mortgage loans issued by FHA, thus effectively creating first MBS market) .
Let's remember that Glass-Steagall didn't save the economy from the booms and busts in the financial sector or real-estate / mortgage sector, the latest of which has occurred in the early 1990's just few years before the repeal. Mostly smaller T&Ls and S&Ls were affected and went out of business then, while larger (TBTF in today's parlance) banks survived and went on to prosper. G-S Act was useless anachronism of over-regulation and laws of 1920s and 1930 and was unnecessarily stifling the U.S. banks from competing with much larger integrated diversified international banks that were draining capital from American banks. G-S didn't prevent the LTCM (Long Term Capital Management) financial crisis of 1998 borne of wrong bets on the interest rates by before-then-unknown hedge fund run by several recipients of Nobel Prize in Economics.
Repeal of Glass-Steagall turned out to be a blessing during mortgage meltdown of 2007-2009, because it were those integrated consumer-and-investment diversified ("TBTF") banks that best survived the credit and liquidity crisis, while the large and small single-purpose banks that didn't have a stream of alternate income failed (e.g., compare integrated BoA, BNY Mellon, Citi, JPMorgan, Wells Fargo with non-integrated Bear Stearns, Countrywide, IndyMac, Lehman, Merrill Lynch, Wachovia, Washington Mutual/WaMu...)
Before repeal, the money simply went into riskier, more profitable venues for investments (foreign banks, hedge funds like LTCM, Bernie Madoff, Soros, KKR, Forstmann Little, Bain Capital, Blackstone Group, BlackRock etc.) thus starving the commercial / consumer banks of lending and reserve capital, and creating the potential of greater crises due to ever larger pool of money involved in ever riskier investments, e.g., LTCM, Barings Bank...
And, as a logical extension of this capital and profit drain, commercial banks will have to find other sources of revenue, such as ATM fees, debit card fees, account balance fee, checks fees, service fees etc. etc. The return to the "good old days" of Glass-Steagall, eh? Politicians delight in that because too many people, from OWS crowd to many on the right, would lay the blame on the "evil banks" and "Wall Street fatcats," to the joy of Democrats who will be happy to "fix" the "problem" with another Sarbanes-Oxley / Sarbox or Frank-Dodd / FinReg type of "solution" - more, "tougher" laws and regulations.
True to an extent, but only because Volcker went even further in proposing regulations than those Obama's economic team felt was feasible to push through even with Dem-controlled Congress. Still, the "Volcker Rule" that is just now being implemented and the already-infamous "Durbin Amendment", which are parts of the Dodd-Frank FinReg law, have effectively restored the worst features of Glass-Steagall Act and are already causing the cash drain from the consumer-commercial banks and more U.S. investment banks are now putting money to better use (and profits) overseas. So don't mourn for Glass-Steagall, Durbin and Volcker saw to it that you will pay more and get less in financial services, and be at more risk, just like before Gramm-Leach-Bliley Act repealed it.
Some examples:
From Steve Wynn Shares 'Occupy' Movement's Frustration - CNBC, by Jane Wells, 2011 October 24
What's more, "That does not show that 25 to 30 percent of their profits are probably tied up in accounts receivable or inventory, stuff that they can't spend or get their hands on." As for what remains, minus cost of living, "They take whatever is left, these so-called 'millionaires', and they open up another shop or another office, and that is the only known engine of growth in the United States of America." Wynn says many young people in the Occupy movement don't understand this, and he's isn't angry with them for vilifying the wealthy. "But if it's a politician that does it, or a union leader, then it represents something much more pernicious. It represents a deliberate misleading of the public." Wynn says he's reluctant to expand in Las Vegas, even as his company continues to do so in China. He told analysts he's been approached by El Ad Properties about the 34-acre Frontier property across from the Wynn and Encore resorts on the Las Vegas Strip. El Ad bought the now empty lot from billionaire Phil Ruffin for a staggering $1.2 billion in 2007, but it hasn't been able to develop it. It stands as a vacant eyesore. ..... < snip > < snip > ..... Wynn called it "worse than hypocrisy" for the Obama administration to attack the rich. "Rich people are now being defined by the administration as people who make a million dollars." He says many business owners who net two or three million dollars pay personal taxes on that.
From Banks' bad omen - NYP, by Mark Decambre, 2011 October 14
The JPMorgan Chase boss is watching as a raft of finacial regulations, the weak US economy and Europe's debt crisis drain revenues and profits across his business.
The extent of his woes was on clear display yesterday when the nation's second-largest bank reported less-than-stellar results for the third quarter, underscoring the challenges facing JPMorgan and the other big banks. ..... < snip >
..... JPMorgan, which kicked off earnings season for the banking industry, doesn't bode well for bank peers that are struggling with a sharp fall-off in Wall Street business. In particular, the investment banking side is suffering from a serious trading slump. ..... < snip >
..... Going forward, JPMorgan said it's facing even more hurdles from new regulations that will restrict its trading operations as well as curb revenue from its retail banking business.
JPMorgan estimates that new rules regarding so-called swipe fees, which put a cap on the amount of fees banks can charge retailers, could cost it $600 million in profits.
Another regulation under the Dodd-Frank financial reform act, the so-called Volcker Rule that restricts certain types of in-house trades, could hit the bank to the tune of $300 million a year. ..... < snip >
Look at Europe and see who is asked to bail out the spend-thrift governments of Greece, Italy, Portugal, Spain et al. It were the "evil, greedy" banks that have been buying the bonds and loaned money to these governments who have lied about their spending and liabilities; now the banks are expected to take a "haircut" to bail out these governments, not the other way around. Yet the politicians are still trying to blame the financial industry in toto, instead of accepting and acknowledging that it was their unsustainable socialist policies that were at the root of the problems.
Politicians are playing people like puppets with their "fatcats" / "greedy banksters" / "lax regulation" slogans, and too many people are dancing to their tune, at the expense to themselves, from the loss of money to the loss of financial freedoms.
The only part of Glass-Stegall that was repealed in the last 15 years was the part that prevents banks from owning brokerages. No one has yet explained to me why the repeal of that regulation caused this financial collapse.
Crucial to the passing of this Act was an amendment made to the GLB, stating that no merger may go ahead if any of the financial holding institutions, or affiliates thereof, received a "less than satisfactory [sic] rating at its most recent CRA exam", essentially meaning that any merger may only go ahead with the strict approval of the regulatory bodies responsible for the Community Reinvestment Act (CRA).[20] This was an issue of hot contention, and the Clinton Administration stressed that it "would veto any legislation that would scale back minority-lending requirements." [21]
Interesting. But there is no instance of a brokerage causing a bank to go under. Some of them lasted longer than they otherwise would have because their brokerage carried them thru. An example is Wachovia.
I don’t know if you’re familiar with the book, “Reckless Endangerment,” but they try to make the argument that Citicorp’s takeover of Travelers doomed it, but even they admit that the Travelers takeover happened before the Gramm Leach Bliley Act.
They can't explain it. It was one of those wild charges that Barney Frank and his comrades in arms "threw against the wall" to see what sticks. Unfortunately, enough of it stuck because people at the time didn't understand what exactly was happening, what caused it to happen and who was responsible, so they were looking for plausible reasons and the associated scapegoats - the idea that repeal of Glass-Steagall supposedly resulted in creation of "TBTF" banks and "lax regulation" seemed like an easy fit for financially and economically challenged.
That this notion still remains a credible "cause of crisis" is sadly bewildering to me.
In fact, without repeal of G-S, the crisis would be much greater to resolve. Simply, purely commercial bank BoA would not have been able to acquire investment bank Merrill-Lynch; JPMorgan (if it chose to be an investment bank instead of integrated) could acquire Bear Stearns but not WaMu; acquisition of Countrywide by BoA would need a special waiver which would delay acquisition and sent CW into bankruptcy; FDIC might not have been able to sell bankrupt IndyMac to a bunch of investment capital groups etc, Morgan Stanley and Goldman Sachs and GMAC couldn't convert to commercial bank status to get TARP liquidity injection that was necessary to stop the run on the banks...)
People are easily manipulated by politicians providing simple, easy explanations of what the "problems" are, and same goes for simple, easy "solutions" especially when people have not had the time to study or have no expertise in the issues.
One knee-jerk comment from a generally trusted, but not well versed in the issue, pundit on TV / radio, and you get people reflexively "stuck on stupid" for a long time.
In fact, that acquisition was the impetus for Gramm-Leach-Bliley Act and repeal of merger condition in G-S. Citi forced the issue by announcing the acquisition of Travelers, which was not going to be possible under G-S Act.
Chairman of Citi and official "Friend of Bill (Clinton)" Sandy Weill went on a tour explaining why the U.S. commercial banks were dying like dinosaurs under G-S merger provision and that the capital was getting drained from the U.S. commercial banks to foreign diversified banks and hedge / investment banks in the U.S. and worldwide, so everyone was interested to finally do away with the G-S provision that never really mattered as the cause or even contributing agent in the previous busts and crises.
Now, if only we could do the same with other legal monstrosities like Sarbanes-Oxley (Sarbox / SOX) and Dodd-Frank (FinReg) and ObamaCare and regulations at EPA, DOEn, DOEd, HUD, FDA etc. etc., it would be a good start to restoring freedoms and competition and leaving only few easily enforceable and sensible regulations.
Disclaimer: Opinions posted on Free Republic are those of the individual posters and do not necessarily represent the opinion of Free Republic or its management. All materials posted herein are protected by copyright law and the exemption for fair use of copyrighted works.