The SEC Killed Wall Street On April 28, 2004

RealClear Markets ^ | February 18, 2009 | Vanessa Drucker

[Ernest_at_the_Beach]

In the long run, when we are all dead, historians will be debating the root causes behind the global financial meltdown of 2008. They will join up multiple dots, just as they did after the September 11 terror attacks. Among the precipitating factors, toxic mortgage debt securities grossly inflated banks’ balance sheets and investors’ portfolios. Credit rating agencies blessed those assets’ illusory values. Real estate tumbled in a vicious downward spiral, while steep oil prices helped reverse the business cycle.

Inadequate regulation, in America and elsewhere, clearly exacerbated all the other drivers. Specifically, when regulators permitted major American investment banks to take on more leverage, they “made the dollar amounts larger and the margin of safety less,” describes Barry Ritholtz, director of Equity Research at Fusion IQ. Imagine climbing up the outside of a building. The leverage lets you climb higher, and also takes away the safety equipment.

[ding_dong_daddy_from_dumas]

This out of kilter economy which you then keep trying to rev up with bubbles like the internet bubble...

In the internet bubble days, I remember going to the coffee shop and not being able to to find a table because of all the hastily formed groups writing "business plans" to get money for projects they did not understand, and a lot of them got their money. People who actually understood computers and their protocols had to accommodate the trend to keep their jobs. After it blew up, a lot of competent people lost their jobs, as employers discovered that they could pressure the government to increase visa quotas and get visas approved improperly.

Youtube: Lawyers teach employers how NOT to hire US citizens

Question: If there were powers who wanted to turn the USA into a 3rd world sh**hole, how would they proceed?

[bert]

.......Are “job holders” the enemy?.....

No, of course not. The point is that jobs are not a right and are not forever. The post war era gave way to global growth. Those nations once backward and incompetant have become educated and capable.

Americans must compete. If there is wage competition Americans will loose. Americans win by being more productive. The managed economies of the blue zone are bringing them to their knees. Those states are failing because they cling to 60’s mentality.

Mexico does not have the entrapranurial spirit of say Taiwan or China. Mexicans seem to work but lack the ability to design and manage. Chinese on the other hand have many well educated engineers and managers that take initiative and run with it.

Paying a Pennsylvanian more to make something that can be made as well and at a lower cost elsewhere will only happen in a managed economy. Americans eschew a managed economy

[dennisw]

What a great post! You know, there are a good number of us here on FR who remember very clearly the streams of workers leaving the factories and mills when the shifts changed; some of us remember leaving ourselves.

Thanks, especially coming from my intellectual superior! I've seen the old mills in New England. All on rivers because they were water powered back in the day. People came from everywhere to work in them. From Quebec which was very poor back then. From Ireland, from Lithuania, from Greece, from Portugal, from Italy and so on

More recently our southern mills and textiles have been hollowed out by NAFTA and GATT

In my town, the mills are all closed and the shoe industry is dead. We still have shoes and sheets...from China and Vietnam and Indonesia and Malaysia. The names on the products are the ones we grew up with and the owners of those companies are richer than ever...and the children and grandchildren of their former workers are flipping burgers or collecting welfare to support their 3 illegitimate kids.

Someone said---
"We shifted from being a producer oriented economy to a consumer economy when the real big money found out they could make a larger return on WalMart then they could at GM" They make more money in malls and retailing and the consumerism ethic (which is kind of brainless in my book) than in producing and manufacturing and the work ethic
Production is more masculine while consumption is more feminine and dependent

GM of course was once our largest corporation at roughly 100 billion in sales 9 years ago.....That's when WalMart became number one

[dennisw]

In the internet bubble days, I remember going to the coffee shop and not being able to to find a table because of all the hastily formed groups writing "business plans" to get money for projects they did not understand, and a lot of them got their money. People who actually understood computers and their protocols had to accommodate the trend to keep their jobs. After it blew up, a lot of competent people lost their jobs, as employers discovered that they could pressure the government to increase visa quotas and get visas approved improperly.

H1-B were brought and all those people are staying here even if they lose their jobs in this downturn. Legally they are supposed to go back home

Youtube: Lawyers teach employers how NOT to hire US citizens

I've seen that video where lawyers (I'm sure they never got punished by those who enforce H1B laws) advise clients how to play games with law and make sure jobs only go to low paid H1B workers

Question: If there were powers who wanted to turn the USA into a 3rd world sh**hole, how would they proceed?

The way they have
It all started with the end of USSR communism and East Bloc communism
Prior to that our energies were directed towards being a "nation security state"
Our main thoughts were on Russia and China and how to keep them from expanding

Once the USSR bit the dust we could relax and the powers that be moved us in NAFTA/GATT/'free trade" and it has been downhill ever since. The big big money turned us from a producer nation into a consumer nation..... Because consumerism was more profitable
A very very loose conspiracy against the average American. A meeting of the minds by the really big guys. What do you think they talk about up in the skyboxes at NFL football games?

Also once communism fell suddenly we had a lot more people who could produce via capitalist methods. All Eastern Europe started producing more. China produced more. Vietnam liberalized and started producing. So the world was flooded with cheaper and cheaper goods which makes tariff more difficult to implement but far from impossible...Which is what the "free traders" say

Without communism Russia started producing more oil/natgas and raw materials

[dennisw]

Paying a Pennsylvanian more to make something that can be made as well and at a lower cost elsewhere will only happen in a managed economy. Americans eschew a managed economy

You mange that via tariffs
But you prefer 700 billion dollar trade deficits
Europe is much more protectionist and keeps out a lot of the cheap foreign crap you have a hankering for

[bert]

.....You mange that via tariffs.....

It is 2009, not 1899

[dennisw]

Right................you prefer bankrupting the USA even more via more 500-700 billion dollar trade deficits

BTW.... I challenge you to find another developed nation that runs trade deficits or ones even one tenth our size (per capita). If they run one it is minor compared to ours. Great Britain might. The Japs and Germans sure don’t. I doubt the French do

[ding_dong_daddy_from_dumas]

Europe is much more protectionist and keeps out a lot of the cheap foreign crap you have a hankering for.

But suppose we found a way to keep out the "cheap foreign crap." China stops buying T-bills, and the USA owes many trillions (with Bush/Paulson setting Obama up nicely), and the Dems trying to add trillions more to the deficit, and more future entitlements like medicaid and SS. What happens next? I don't know if this is planned or accidental, but we seem to be backed into a corner.

Meanwhile, Obama Budget Aims to Cut Deficit in Half by End of Term (Sophistry). We don't even need satirists any more.

[ding_dong_daddy_from_dumas]

[Dan Cooper]

The freepers who defend these faux capitalists of Wall St/AIG/banks tend to be libertarians. They have limited powers of discrimination. They always blame government and regulators. We are plagued by EPA, EEOC and OSHA regulators and some freepers foolishly extend this to all regulators

It's not the Wall St. entities that need defending, but the idea of free markets and free exchange. The economic collapse is happening because of human frailty. More regulation is not going to change that. Madoff apparently went for years under the noses of the regulators that were supposed to be looking out for his flagrant type of fraud. It wasn't because there weren't enough regulations to prevent his scam, but that corruption and greed bent the rules to let him get away with it. Financial regulators are only giving false confidence to the market that the game is not fraudulent and corrupt. Its better for people to know the truth than be mollified that some authority is looking out for them. It should be up to the institution that wants your investment to prove that they are sound. And it should be their hide if they screw it up.

What the problem is today is that the greedy and fraudulent are escaping their fate by using more fraud. The bailouts are rewarding stupid behavior. Stupid is supposed to hurt. Let them go bankrupt, it's the only way for the lesson to be learned. It would be painful, but beneficial in the long run. People will remember what Caveat Emptor means. That is the very essence of free markets. Freedom is messy, but resilient.

I realize that it is not likely to happen that way with the socialists in power. Assuming that we spend our way our of this mess, which is very unlikely, more regulation is only going to enable more fraud and corruption. The additional power given to government to regulate commerce will be bent to enrich the elite and connected. But please don't indict freedom and free markets for this failure, fraud and greed are just unfortunate parts of human nature. We have to vigilant against these failings at a personal level and realize it takes personal greed to be conned and that accepting fraud at any level means that nothing can be trusted. If the market was allowed to fail without government intervention it wouldn't be half as bad as it's going to be. We would rebuild from the ashes as has been done many times before. And we would be learning the correct lessons.

[dfwgator]

Madoff apparently went for years under the noses of the regulators that were supposed to be looking out for his flagrant type of fraud.

More like Madoff had key people in the SEC paid off.

[dennisw]

Europe is much more protectionist and keeps out a lot of the cheap foreign crap you have a hankering for.

But suppose we found a way to keep out the "cheap foreign crap." China stops buying T-bills, and the USA owes many trillions (with Bush/Paulson setting Obama up nicely), and the Dems trying to add trillions more to the deficit, and more future entitlements like medicaid and SS. What happens next? I don't know if this is planned or accidental, but we seem to be backed into a corner.

If we impose tafiifs then China would recat but if we just stop buying so much stuff abrad I don't thenk they would take it so hard

So we are backed in a corner because minus tariffs we keep buying Chinese stuff...  Many of those WalMart shoppers used to have good jobs where they could buy American instead of Chinese. People get so poor that Chinese is all they can afford

Europe is more protectionist because they are not in hock up to their eyeballs to the Chinese

[dennisw]

It's not the Wall St. entities that need defending, but the idea of free markets and free exchange. The economic collapse is happening because of human frailty. More regulation is not going to change that. Madoff apparently went for years under the noses of the regulators that were supposed to be looking out for his flagrant type of fraud.

Not more but better and intelligent regulation. Is that too much to ask for?
You really prefer letting Wall Street run wild?
They are pyromaniacs over there
You have to keep an eye on pyromaniacs

Must I mark you down as a libertarian who wants no regulation of Wall Street?

 

[Dan Cooper]

More like Madoff had key people in the SEC paid off.

I'm sure that there is a pretty sordid tale there that won't ever see the light of day. But that is my point, the regulators are susceptible to fraud and corruption. It is a false confidence to say that the Government is looking out for you.

[dfwgator]

But that is my point, the regulators are susceptible to fraud and corruption.

This is one area the ChiComs get it right. They execute people for corruption, I think those that are responsible for putting in this mess deserve the same punishment.

[Dan Cooper]

Wall St. can't run wild if people are afraid to give them their money. Are you going to trust Government regulators to keep an eye on your money? Let the market forces clean up the mess. Mark me down as you will, but the Regulators have proven to just as fraudulent as the pyromaniacs. Where are you going to find your incorruptibles?

[dennisw]

Wall St. can't run wild if people are afraid to give them their money. Are you going to trust Government regulators to keep an eye on your money? Let the market forces clean up the mess. Mark me down as you will, but the Regulators have proven to just as fraudulent as the pyromaniacs. Where are you going to find your incorruptibles?

Does your reply about incorruptibles also include the police judges and courts? 
The SEC drank the free market kool-aid
Corruption was not so much the problem

You got your beloved "free markets" in credit default swaps.
Are you happy about the outcome or are you still blaming government and not the Wall Street players who made billions

I don't like our over taxing imperial government in DC. But we need good people in the SEC and more... Who know the limitations of totally free markets

[dennisw]

Let the market forces clean up the mess.

You are hallucinating
Yes markets are self correcting but you just might not like it when depressions, bread lines, communal violence, racial riots and wars are part of that self correcting

[Dan Cooper]

I suppose the libertarians want zero regulations Like an NBA game with no referees because you all trust the innate intelligence and fairness in people. A major miscalculation. Libertarians I see are smart and fair people...they project this on other people. This can be fatal

I think you are getting the basic premise wrong. It's not because people are always smart and fair, but because that they are sometime greedy and corrupt that the power of government should be limited. With a stronger regime of regulations you are telling people to trust the government to ensure that they are not defrauded. But what we've seen is that the regulators are complicit. You have to ensure your own welfare by being more skeptical, not trusting that someone else will look out for you. If you don't think the game is fair, take your ball and go elsewhere.

[ding_dong_daddy_from_dumas]

Excess of liberty, whether it lies in state or individuals, seems only to pass into excess of slavery.

Who will guard the guadians?

- Plato