Wait a second... you want to blame ME for the financial crisis?

The current populist uproar is absolute insanity. I don't know how else to say it. You are never going to legislate away greed. Period. It is part of the human psyche. That's all there is to it. You can either fight it, or use it. Incentives work. This is why.

1. Starting back in the 1970s Congress addressed discrimination in mortgage lending (which was really a serious problem) with the Home Mortgage Disclosure Act of 1975. This approach was to open lending statistics by requiring banks to disclose the details of their lending by geography and, eventually, demographics and income level. This was a stroke of genius. Large banks were shamed into good citizenship. The act did have the effect of elevating a number of "civil rights" personalities (Jesse Jackson, for instance) as they used shrewd public relations to expose some rather egregious practices by large banks when it came to mortgage lending. These same personalities, names you doubtless recognize, in some cases, adopted more aggressive tactics, some that borderline on blackmail and extortion today. I leave it to you to determine if this downside outweighs the upside of truth in lending practices. I, for one, think that forcing disclosure like this was enlightened. It was to be the last of its kind.

2. The Community Reinvestment Act really was a serious break with the legislative practice before the legislation. Suddenly, you have a small number of people determining where dollars will flow based on some political definition of who is worthy. The early definition could be right as rain in terms of who is deserving, needs a leg up, has been wronged, etc. etc. but once you go down this path, you are truly in trouble. Once you start dictating capital flows based on political worthiness (an entirely subjective and whimsical standard) you have opened the door to all kinds of mess. Play stupid games...

3. ...win stupid prizes. In the 1980s and 1990s Congress literally had a hornet's nest up its ass with mortgage regulation. Almost 400 bills in the 101st Congress contained the word "mortgage." This doesn't seem like a big deal until you realize that the housing ranged from 7-20+% of GDP in a quarter. Absorb that. Something like 1/5 of quarterly GDP. Now put in place mechanisms to literally pour trillions of dollars into the system to encourage "The Dream of American Home Ownership." Think of it. You have a small group of regulators/legislators (less than 100 people are making major decisions about how much Freddie or Fannie will lend, or what their capital ratios will be raised to, or what interest rates should be) controlling a massive portion of the economy. You suddenly have price fixing for a sizable fraction of the GDP. To compete with Fannie and Freddie, their subsidies, their tax breaks, their implied government backstop and their downward pressure on interest rates, you have to take on more risk for less money. Hello Countrywide. (Just a bit of history, Countrywide was explicitly founded to collateralize the only loans left to non-GSEs- those not already being siphoned by Freddie Mac and Fannie Mae). GSEs held 1/3 of all residential mortgages by 2001 or so. ONE THIRD. GSEs were run by political hacks, installed there as a reward for political services rendered. These are facts.

4. Banking and Insurance regulation is, and always has been, daft. The blind focus on capital ratios, reserve ratios and the like, and the pedantic concentration on definitions of risk that results in notional insured figures being counted in capital ratio calculations but credit default swaps not counted in this way was insanity. Of COURSE massive capital is going to flow into the exception you, regulator, have explicitly written into the regs. Now you are shocked and surprised that people wrote Credit Default Swaps like there was no tomorrow? Incentives matter. Period.

I am not stupid enough to ask you to explain to me why you cannot just let dying firms in dead industries FAIL? Watching an airline enter its THIRD bankruptcy, and proceed to wage a deleterious price war, only to suck down millions if not billions in federal aid may pull $50 off a ticket to Florida, but it also fucks the entire industry. You've created the appearance of a right to cheap airfare, cheap gas, cheap insurance, and bailout if the McMansion you were stupid enough to built on a 20 year flood plain gets- quelle surprise- leveled by a storm. Of course you can't let anything fail. You've promised the world. You've been borrowing and delaying the inevitable to deliver it for decades.

5. The market for talent is global, and you can't legislate it away. Like it or not there is a ton of money in finance. The power to create, move or allocate wealth is very valuable. It always will be. You aren't striking a blow for social justice by enacting the first salary caps in the modern history of the United States. You are guaranteeing that finance experts will flee. The hiring binge going on right now as the likes of UBS suck out talent is just amazing. UBS, with the support of the Swiss Government, is offering 10 year permits to execs and their families who relocate to Switzerland, not to mention the ability to negotiate your personal tax rate for the next 10 years up front in some Cantons. You can't determine what finance execs will be paid, folks. You can only determined WHERE they will be paid. Who exactly do you think is going to pull the United States out of this mess. Big Auto?

You've spent the last two decades pumping trillions upon trillions of dollars into particular segments of the mortgage market, a major portion of the U.S. economy, dictating what risks were appropriate, how much would be paid for assuming those risks and generally underpricing risk in the entire system for years and years. You've been inflating a bubble and assuring that the inflation passed to the riskiest portions of the economy. You've been passing the buck for four decades. Every time the economy tries to correct itself, you stall, pump borrowed money into the system, and grow the disaster the country will eventually have to face. You buy votes year after year by delivering graft now, to be paid for later (after you've long left office). In effect, nearly one third of the American economy has been run by central planning for the last five years. During this inflation, you happily collected taxes on everyone, effectively collecting tax on borrowed money and inflated assets (none of which you propose to repay- what luck would I have asking for the real-estate taxes I have paid for years on appraisals that were pure illusion?) I didn't hear you complaining when you saw massive, record revenues to the Treasury thanks to the boom the finance community facilitated and delivered to you, year in and year out. I didn't see you pointing fingers when we dug in and pulled your ass out of two recessions. Finance is a massive portion of the economy because it creates wealth. Period. Your social programs, state and local, are massive bloated vote-buyers because of our hard work, sweat and craft. (New York State, I'm looking at you). We work until mid-May for you and your vote purchasing juggernaut. I accept that. I have for years. This is because what I make from June to December is more than enough to, not just enjoy the American Dream and the promises of success and wealth, but to take the capital I collect over the years and invest it, again and again back into American business, start-ups, and even your messed up GSE mortgage securities (which my taxes support). We carry the freight. 10% of us pay 70% of all income taxes. 50% of us pay 97% of all income taxes. We tolerate this because this is the promise of America. Work hard, pay taxes, and no one will second guess what you spend your money on in your personal time. No one will tell you how much is a "fair wage."

Now, now that you have run out of delaying tactics, you want to point the finger at... me?

I came to this country for a reason. I spent 9 years in U.S. universities, which I busted my ass to get into. I didn't borrow a dime to do it. I paid every cent myself. I've never so much as accepted a single unemployment check. I've never availed myself of any government largess that I wasn't forced to take. I have repeatedly declined to challenge some of your more deluded tax claims against my income in court, as was my right. Two of these I clearly could have won, though expensively. What's more, I consider myself a patriot. I consider it a great privilege to live in the United States and to be called one of her adopted children. I defend this country, and what used to be her ideals, to any European socialist moron who cares to engage me in conversation. I support the troops. Wherever they are. Unconditionally. I create jobs. Aside from two years where I broke even, I have made money for my clients and partners every year since I have been in professional life. This includes 2008 and 2009 YTD. You could house 50 families in reasonable comfort for 10 years on what I have paid in taxes since I've been here. Actually, now that I've actually done the calculation just now for this post, you are really pissing me off.

Now you want to call me greedy? Are you kidding me? After you messed this place up? You want to tell me that capitalism failed? What capitalism? You've socialized/centralized almost half of the GDP. Now, you want to use me and the paycheck I've earned year after year to deflect attention from the basic fact that you have been shoving debt on people who couldn't hope to find within themselves the character to take responsibility for repaying it? They get a pass and I get... what... a sharp stick in the eye?

I will tell you what is "enough." Me paying for your power grab for the last decade now. That's quite enough.

Let me just tell you, Congressional/Executive Branch Scumbag, Esq., if you do this... if you take this turn... I won't even think twice. I will move my firm to Switzerland, or to London before the year is out. Those employees who do not follow me, I will have to fire. The corporate taxes I pay will no longer be yours. Instead, they will go to something useful, like a nice tunnel through a mountain for high speed trains that actually work. Further, I will dedicate a substantial portion of my personal time, effort and capital to frustrating your every attempt to collect personal taxes on me thereafter- given your draconian anti-expatriation laws. But that's not all. My job is to make money for my clients, in whatever way I can. I will short your flagging financial firms mercilessly and remorselessly. I will buy QGRI puts to bet against any firm that took bailout money. I will buy credit default swaps on every firm you put your greasy paws on, because I know your fingerprints are laced with poison. For every boneheaded centralist move you make, I will be there, profiting from your lunacy. I will never again take a client who pays taxes in the United States. I will not permit any capital or profit to be diverted to any such. I will do this because in the same way you believe it your divine right to punish "greed," I consider it my duty to punish the stupidity and arrogance that is central planning, and because I believe in economic freedom. I will divert as many of your resources to my new home and its relative economic freedoms as I can. I will promote free markets in this way, and I will never look back. You will have made it clear that you are my enemy, and I do not forget such declarations.

I take no pleasure in this fight. I did not ask for it. I only asked for liberty, and the pursuit of happiness. Deny me these at your peril. In the end, I can only hope I'm not alone.

Strawman? Fear-mongering? Really?

Administration Seeks Increase in Oversight of Executive Pay

"The new rules will cover all financial institutions, including those not now covered by any pay rules because they are not receiving federal bailout money. Officials say the rules could also be applied more broadly to publicly traded companies, which already report about some executive pay practices to the Securities and Exchange Commission."

http://www.nytimes.com/2009/03/22/us/politics/22regulate.html?_r=2&pagewanted=1

It wasn't necessary. Goobermint, throughout the 20th century and into this one, has done nothing whatever but expand its power (or try to) at every turn. The faux-syllogism for these tyrants-in-waiting seems to be: ''If I can regulate or control X, then I have the right to regulate Y'', where X and Y may or may not be related or interdependent.

Strawman? You're abusing a rhetorical term, mate. You might, if you disagree with me, accuse me of the rhetorical error of 'faulty analogy', but there is nothing at all 'strawmanish' about asserting that goobermint have continually abused power in order to accrue more of it. This is simply a true statement.

I love how people run to the NYT as a source when it suits them..

The salary regs are reffered to as a “could be” or a “possibility” throughout the article, in which the author fails to provide any basis of facts for his assumptions.

Now, that is a faulty analogy.

In the private sector, one consents to work for a company for a known wage, which may in turn rise or fall over time. That wage is not set by an outside party, but by the company, with or without employee input as the case may be.

In the current goobermint-floated scheme, an outside party -- anmely, the goobermint -- proposes to set wages or cap them under some (soon to be all) circumstances.

And you compare these two? Sheesh.

I’m sorry, would you preffer Fox News?

Report: Obama Administration Seeks to Regulate Executive Pay
FOXNews - Mar 21, 2009
Obama is expected to announce the plan, which officials said would include a broad new role for the Fed to oversee large companies, ahead of the G-20 summit ...
http://www.foxnews.com/politics/elections/2009/03/22/report-obama-administration-seeks-regulate-executive-pay/100days/

Or Maybe National Review?

Obama to Propose Government Oversight of Executive Pay [Andy McCarthy]
National Review Online Blogs - Mar 22, 2009
“The Obama administration will call for increased oversight of executive pay at all banks, Wall Street firms and possibly other companies as part of a ...
http://corner.nationalreview.com/post/?q=YWM2ODFlNDMxOTYwN2RlYzg4YzdkNmRjNTNmYjMxOWE=

Camel's nose, m'friend. This chap sees quite clearly that, if the goobermint can unlawfully regulate the salaries of ANY persons, then sooner or later it will be regulating the salaries of everyone.

Perhaps so -- and I think that would be a bad thing.

OTOH, your comment does nothing to address the fact that the greedy bastards who caused this problem were actually taking advantage of a lack of government regulation in certain areas.

John Adams said, "We have no government armed in power capable of contending with human passions unbridled by morality and religion. Our Constitution was made only for a religious and moral people. It is wholly inadequate for the government of any other."

Where, as here, the finance types are clearly devoid of the sort of self-restraint about which Adams spoke ... a government based on an assumption of self-restraint is quite clearly insufficient to the task of making them behave.

No offense, but you're mistaken. There were a plethora of applicable regulations. Remember, we're talking about securitsed loans at the root of the problem. There are 3 separate regulatory agencies that must pass on bundles of securitised loans before they can be put on offer.

Greedy bastards? Yep, no shortage of those. The greedy bastards couldn't have put the ball in play, though -- couldn't even have got the game going -- without the sheer and persistent incompetence of SEC, COC, CFTC, FASB, HUD, and easily a dozen other alphabet-soup agencies.

Remember, we're talking about securitsed loans at the root of the problem. There are 3 separate regulatory agencies that must pass on bundles of securitised loans before they can be put on offer.

AIG didn't fail because of securitized loans. They were done in by credit default swaps that were anchored in air -- and not regulated.

While I can certainly agree with you about the incompetence of those groups -- not to mention the politicians who appear to have stayed bought -- the greedy bastards are still to blame for their actions.

An honest financier would not have played the games those guys did.

I only commented on the source as a point of humor. But the main point was that the language, specifically the word possible is the thing that you are not paying attention to.

Much like the 90% ex-post facto tax hike, such regulation of non-involved entities is not likely to pass a judicial challenge.

They weren't when they fomented the problem, courtesy of greed and ridiculously lax and/or ineffective regulators. The banks and AIG are only owned by the goobermint now because of yet still more incompetence on goobermint's part in executing these ludicrous, and damned nearly criminal, bailouts.

The Swedes solved this type of 'crisis' very nicely in 1993-1995. One would have thought they'd solved it once and for all, for similar 'crises' in future...but then one wouldn't have reckoned with the level of incompetence of which the US goobermint is capable.

AIG is an insurance company, principally, and as such is subject to all sorts of regulation, state and Federal, including supervisory regulation of investments they make. The regulators simply looked past CDSs, which is -- in retrospect -- hilarious.

Writing a CDS is nothing more, really, than writing a naked put on a debt instrument. When you or I -- or, ftm, Goldman Sachs or Merrill -- write a naked put on anything, we are required to margin the position properly. How the regulators 'thought' (if I may use that word; they clearly didn't think at all) that AIG or any other insuror could write untold stacks of these instruments WITHOUT proper margin requirement is just another indicator of how incompetent the regulators were...and undoubtedly still are.

I should have included CDSs in the original post, sorry.

Reread the posts.

I never -- not once -- said or even implied that there was too much goobermint regulation, but rather that such regulations as existed were not enforced by the incompetent boobs who call themselves 'regulators'. Further that, greed notwithstanding (there will always be greedy bastards, after all), regulators could easily -- and I mean VERY easily -- have prevented something on the order of 65-70% of this debacle by simply doing their respective jobs.

Do please try to read what I wrote, and not what you'd like to think I wrote.

Part of the other 30-35% of the fiasco, btw, was caused BY regulators, specifically the ones who enforced Cuomo's 1994 rewrite of the regs governing the CRA of 1977. Without that little soiree, hundreds of billions in dodgy mortgage loans would quite literally never have been made, and thus not become a problem.

Correct. I am NOT talking about securitised loans, and never have been. I am talking about the process of converting individual debt instruments into a larger debt instrument ('bundling') or into a quasi-stock or other form of tradeable security (which, sorry to tell you, is called 'securitisation'). Most CDOs were created by 'securitisation', which little fact btw also voids your other argument.

Guess what, sophist. CDOs (and SIVs, for that matter) cannot be issued and sold generally without approval of SEC and other alphatbeteers. They can be sold as private placements, and doubtless were in some cases, but most certainly not to the extent that they are now known to have existed. Not more than a moderate fraction, perhaps 25-30%.

Also, CDOs are not CDSs; they have no similarity at all. A CDS is effectively an insurance policy that buyers of CDOs and/or other debt instruments may sometimes desire, to protect against the default of the CDO or other debt. The fact that you co-mingle these two instruments in your arguments shows quite clearly your lack of understanding of what the hell went on.

Sorry, no more time to waste on this. Recommend you take a course or two in finance, or better still, start dealing in the real world with your own capital. Best way to learn. Ta-ta.

I love how you support the article complaining about an excess of regulation and blame government and regulators for everything, yet you never complain about to much regulation...

Obviously Wall St. has no blame... it’s always someone elses fault...

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