“The deregulation allowed too many systems to be tied together. The reason they were separated was to keep one from overflowing to so many others.”
The regulation and this comment makes no sense.
“This explains why insurance companies are being jolted by the housing market.”
Insurance companies are being jolted because they underwrote insurance on financial assets and the financial assets went south. But consider, if the insurance market didnt exist, front line firms are more exposed. You want to OUTLAW insurance!?!? Id hope not!
the real question is this nutty idea that the market would be more stable if the market was segmented: Why should the govt create an artificial separation between different types of fiancial services providers? That’s like says corn farmers shouldnt grow soybeans and vice versa. It was a dumb regulation that did no good and blaming it for the current mess is absurd. there were many other factors involved; this was not it.
“They could have deregulated it if they had replaced it with some common sense regulations that didn’t hinder the economy.”
- OK, thats a reasonable statement but what are the ‘common-sense regulations’? I’d suggest these:
1. Recognize that the financial industry is one industry, and end the artificial barriers between investment banking, commercial banks and S&Ls.
2. Since it is one industry have ONE AGENCY to oversee all aspects of the financial markets. That means the SEC, CFTC, and some of the
3. There are specific areas of unregulated assets and off
Create transparency in the assets on balance sheets. WHile we are at it, mark-to-market might need to be replaced or looked at in valuing illiquid instruments.
“But they were pretty much all following their pocketbooks on that one and didn’t pay attention to the ramifications.”
- Govt is inherently in the business of creating unintended consequences. Lets not ascribe to malice what is best viewed as a matter of limited competence.
“The regulation and this comment makes no sense.”
That’s because I was typing too fast. I’ll rephrase. The deregulation allowed too many systems to be tied together. The reason they were separated before the deregulation was to keep one from overflowing to so many others.
A quick look at the Great Depression makes it look like we are doing it all over again. The stock market crash destroyed the entire banking system and our real estate market. So the separations were put into place to keep one crash from having an affect on so much of our economy.
Take a good look at what Insurance companies are doing, you will see that since the deregulation, they now own broker dealers and investment banks. Part of their meltdown was that not only do they insure against loss, but they actually own a lot of the debt too. So they lose because they have to pay claims, but they lose more because they own mortgages. Their own portfolios become less diverse and more risky. This is what the deregulation has allowed.