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Post by jerseyhoya34 on Apr 19, 2010 16:27:05 GMT -5
jgalt, interesting perspective. I guess my response is as follows:
1. Saying regulation did not prevent a bubble burst, so let's take it away is kind of like saying we should have benched Greg because he didn't prevent us from losing to Rutgers. The question is what was the cause of the bubble burst and how best to address it. I think the overwhelming evidence and most responsible economic treatment has suggested deregulation was partially responsible for it and fostered the ridiculous speculation that you have mentioned. SirSaxa/hoyainspirit only reinforce that thinking in their discussions above.
2. When we look at the speculation, I guess what I am getting from your point is that we should blame the government for fostering the buy a house attitude, which, I think, is a product of deregulation and the various tax cuts/incentives that lure people toward buying houses (for better and for worse). In that sense, I view it as the attitude of limited government as the problem rather than a pro-regulation attitude that seeks barriers to speculation.
3. Most any government action provides an incentive of some kind - that is not going away any time soon. As a result, we'll continue to see the kinds of New Deal v. Reaganism arguments, regardless of whether their proponents live up to the ideas/principles of FDR and Reagan.
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TBird41
Platinum Hoya (over 5000 posts)
"Roy! I Love All 7'2" of you Roy!"
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Post by TBird41 on Apr 19, 2010 16:38:46 GMT -5
jgalt, interesting perspective. I guess my response is as follows: 1. Saying regulation did not prevent a bubble burst, so let's take it away is kind of like saying we should have benched Greg because he didn't prevent us from losing to Rutgers. The question is what was the cause of the bubble burst and how best to address it. I think the overwhelming evidence and most responsible economic treatment has suggested deregulation was partially responsible for it and fostered the ridiculous speculation that you have mentioned. SirSaxa/hoyainspirit only reinforce that thinking in their discussions above. 2. When we look at the speculation, I guess what I am getting from your point is that we should blame the government for fostering the buy a house attitude, which, I think, is a product of deregulation and the various tax cuts/incentives that lure people toward buying houses (for better and for worse). In that sense, I view it as the attitude of limited government as the problem rather than a pro-regulation attitude that seeks barriers to speculation. 3. Most any government action provides an incentive of some kind - that is not going away any time soon. When you're looking for people to blame for the credit/housing crisis, don't forget Alan Greenspan and his free money.
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Post by jerseyhoya34 on Apr 19, 2010 16:41:58 GMT -5
Fair enough - I don't follow the Fed much (largely Greek to me), but Greenspan's testimony under oath before Congress, reported by the illustrious Wikipedia, bears a quote:
In Congressional testimony on October 23, 2008, Greenspan acknowledged that he was "partially" wrong in opposing regulation and stated "Those of us who have looked to the self-interest of lending institutions to protect shareholder's equity — myself especially — are in a state of shocked disbelief."[36] Referring to his free-market ideology, Greenspan said: “I have found a flaw. I don’t know how significant or permanent it is. But I have been very distressed by that fact.” Rep. Henry Waxman (D-CA) then pressed him to clarify his words. “In other words, you found that your view of the world, your ideology, was not right, it was not working,” Waxman said. “Absolutely, precisely,” Greenspan replied. “You know, that’s precisely the reason I was shocked, because I have been going for 40 years or more with very considerable evidence that it was working exceptionally well.”[64] Greenspan admitted fault[65] in opposing regulation of derivatives and acknowledged that financial institutions didn't protect shareholders and investments as well as he expected.
* * * I generally have a favorable opinion of Greenspan, notwithstanding political differences, because of comments such as these that reflect careful thought.
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SFHoya99
Blue & Gray (over 10,000 posts)
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Post by SFHoya99 on Apr 19, 2010 18:26:01 GMT -5
jgalt,
Regulation that restricts or incents certain actions can create as many problems as they solve from an economic standpoint. I don't get why those things are somehow worth less than market efficiency, but you are right.
What shouldn't create a lot of problems are regulations that provide information and guarantee accuracy. I'm not sure why you bundle those two together, but most economists are fans of increased information to all.
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The Stig
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Post by The Stig on Apr 19, 2010 19:03:00 GMT -5
I dont know why i think it will be constructive to engage in this debate, but i feel compelled to only if to give me something to do besides homework. Look, the Financial industry is one of the most if not THE most regulated industry in the world. The number of government agencies, personnel, and resources dedicated to the "regulation" of the financial industry is outstanding. But yet all that precious regulation has never prevented any bubble from bursting and never will. It is impossible. Its like asking someone to perfectly time the market every day, every year. It will never happen, it cant happen. And for everyone to run around shouting about how the regulators failed, but in the same breath asking for more regulation is ludicrous. No rational person could possibly look at the actions and failures of regulators for the past hundred years and reasonably conclude that MORE regulation is necessary. The fact is that this crisis was only enhanced by the actions of the government, who, for the past 80 years (since the last huge crisis) have been peddling the myth that everyone should own a home and this will increase wealth. It is total BULL Edited, period. Owning a home is out of reach for most citizens. It is incredibly expensive and will never "create" wealth. If you look at the data, equity in the CDO and CDS market greatly increased once Fannie and Freddie (government agencies no matter how much you want to spin it) decided to lower their standards and begin to buy CDOs. Federal regulation, i.e. that Fannie and Freddie are set fourth by the government to increase home ownership among lower income families and that they are essentially backed by the US Gov, created much of the crisis we are in now. It is highly irresponsible for the government to promote any financial action be undertaken by its citizens. By promoting home ownership as the American Dream and by putting in place financial incentives for people to buy homes they are to blame for the lowering of lending standards across the country. The government continues to promote home ownership and it is completely disgusting. Do i think any of this has changed anyone's minds? No. Do I think that regulation will increase during the Obama administration only to be repealed in 3 years when a Republican is president? Yes. And the hole cycle will repeat again, decreased, but still inefficiency causing, regulation will create a second bubble that will burst around about 2018/9. Nothing will be fixed until the government chooses between a full free market system or a full socialized system. A mix doesn't work and never will. I don't disagree with most of your post, but I don't think you're talking about government regulation of the market. The way I see it, promoting ideals (like every American owning a home) and government regulation of the market are two completely different things. Regulation isn't an attempt to promote a certain vision of America, it's an attempt to prevent abuse, predatory, and harmful actions in the market.
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jgalt
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Post by jgalt on Apr 19, 2010 19:49:49 GMT -5
jgalt, Regulation that restricts or incents certain actions can create as many problems as they solve from an economic standpoint. I don't get why those things are somehow worth less than market efficiency, but you are right. What shouldn't create a lot of problems are regulations that provide information and guarantee accuracy. I'm not sure why you bundle those two together, but most economists are fans of increased information to all. I agree that I did bundle those two together and I shouldn't have. I agree that increasing and maintaining accuracy and access to information is important and that that is a legitimate role of government in this equation. What I fear, and what I think has happened and does happen (and this is a bipartisan issue), is that politicians campaign on ideals- ideals that they promise they can create, and so when they get into office they create or vote for programs and regulations which make that ideal more realistic/attainable. This creates inefficiencies as the products and services involved in those ideals are favored. I good recent example is the tax incentives and government funding given to the production of ethanol. But as we have seen, ethanol is not as ideal as was first thought and corn prices have risen as a result of supplies being diverted to ethanol productions. This hasnt had a significant effect in this country but a recent report on CNBC showed that in countries such as India the small rise in prices has greatly hurt the poor in that country by significantly raising food prices. I think the role of the government in this case should only be to prevent and prosecute cases of fraud. I believe that if the government (at least on a federal level) refrains from creating inefficiencies all that is necessary is for fraud to be prevented and that any crisis or bubble (they will happen no matter what) will be isolated to certain industries or regions. As a devoted Randian, I cant let a mention of Greenspan pass by without comment. I just want to make clear that long ago he gave up any true feelings toward a completely free market. I find it very hypocritical for him to claim to be a free market capitalist yet run (or used to run) the biggest creator of market inefficiencies. I just wish the media would stop claiming that Greenspan is like Friedman or F.A. Hayek reincarnate ;D The final point (at least for now ) I want to make is that I am much more concerned with the policies of the federal government regarding the economy than with what state, cities, or municipalities have. I view this issue as a "tragedy of the commons problem." The common solution put forth to a "tragedy of the commons problem" in my understanding has traditionally been to create laws and regulations which delineate the course of conduct with in the commons. But I believe that more efficient solution, and one which plays to human nature, is to reduce either the size of the commons or the number of people who use the commons. In my estimates one person, or a small, representative group of people, can accurately reflect, account for, and weigh the opinions of about 500 people at most. Once a group becomes larger than 500 there will inevitably be individuals who are unhappy with the actions of the group. So what does that mean in relation to government regulation in 2010? Basically that it is my opinion that the federal government should give to the states as much power (and money by not collecting taxes) as possible. And that those states should gives as much power and money as possible to cities and municipalities. This would create lots of regional variability in rules and regulations through out the country, but more people would be happy (I know that is a utilitarian philosophy but just go with me here) and therefore more productive. You would have regions which favored business more and those that favored social programs more and therefore individuals and businesses would have greater choice. Anyway that was all completely unnecessary and if you read it all im shocked ;D i almost fell asleep typing it. That is mostly all straight Objectivism with a few tweaks. **The bottom line is I want the smallest federal government possible but state governments can be as big or as small as the citizens of those states choose.** And that was all completely off thread. Sorry
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SirSaxa
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Post by SirSaxa on Apr 21, 2010 8:03:28 GMT -5
For a basketball board, I thought the following helped explain the situation pretty well: Excerpt “This isn’t just about the fact that Goldman sold its clients some bonds and then later bet against them,” writes Stephen Spruiell at The Corner. “In my view, that wouldn’t be so bad.” So what’s the problem?
Goldman structured and sold a particular bond, a structured product known as a Collateralized Debt Obligation (CDO). … The outside consultant Goldman hired to select which mortgages would go into the CDO, a hedge-fund manager named John Paulson, is now known as one of the most famous housing shorts ever — he made an estimated $3.7 billion betting that these kinds of mortgage-backed bonds would go bad. So it is pretty disturbing that Goldman would bring him in as an “independent manager” to help it construct a CDO and not disclose this fact to the CDO’s buyers.
It would be like holding a basketball game, letting a Vegas sharp secretly select the players on one of the teams, and then presenting it to the public as a fair game. The sharp would have an incentive to select the worst players for his team and then bet against it. According to the SEC, that is exactly what Paulson and Goldman did. Goldman’s Stacked Bet
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SirSaxa
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Post by SirSaxa on Apr 21, 2010 8:08:52 GMT -5
More on this complex deal and SEC Charges from CNBC: Excerpt The government has testimony from a Paulson & Co. official that could contradict its own claims against Goldman Sachs, CNBC has learned.
Paolo Pellegrini told the government that he informed ACA Management that Paulson intended to bet against, or short, a portfolio of mortgages ACA was assembling.
If true, the testimony would go directly against government claims that ACA did not know Paulson was hoping the collateralized debt obligations would fail, and subvert charges that Goldman breached its duty by not informing ACA of Paulson's position. Testimony Could Undercut SEC Charge Against GoldmanNo response yet from the SEC.
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Post by jerseyhoya34 on Apr 28, 2010 15:29:22 GMT -5
It looks like there have been some flip-flops on the otherwise uncontroversial issue of whether bank reform should be debated, so we should now proceed with open consideration of the reform legislation with open debate about amendments and the like.
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theexorcist
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Post by theexorcist on Apr 28, 2010 16:10:27 GMT -5
It looks like there have been some flip-flops on the otherwise uncontroversial issue of whether bank reform should be debated, so we should now proceed with open consideration of the reform legislation with open debate about amendments and the like. The debating of bank reform, as you state, is an uncontroversial issue. The actual issue of bank reform, which apparently involves an institution whose staffers were looking at porn (none of whom were fired!) leads me to question whether more legislation is the solution or whether or not the SEC should be doing what it was chartered to do in the first place.
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Post by jerseyhoya34 on Apr 28, 2010 16:20:57 GMT -5
The SEC has not done a very good job in this century - I agree. I guess the question then becomes one of what the cause of that is. In the past 10 years or so, my sense is that the SEC really hasn't been asked to do much or has ignored what it otherwise should have been doing because of command from on high. Madoff is Exhibit A. Unfortunately, there are other exhibits. The staff issue did not arise yesterday and is a sideshow IMO when taken in context of the agency as a whole, so we can agree to disagree. There have been firings arising out of the scandal - www.grassley.senate.gov/about/upload/04272010-2.pdf. I am not sure how we connect 30 staffers doing what they should not be doing to an idea that we should not seek reforms on Wall Street, and I am not sure you are making the connection to be fair.
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Post by hoyawatcher on Apr 29, 2010 12:17:36 GMT -5
All the senators are now saying GS was unethical or unamerican in their actions - not illegal. Almost every IB and securities lawyer I know are saying that the actual charges against GS would not stand up in trial. Take it for what it is worth but note there are no "victims being brought into Congress as the other side of this transaction was big hedge funds and banks as well who don't have any sympathy value.
The derivatives market should be more regulated and just as importantly better disclosed in financial statements. Most of that can be done by capital requirements and better disclosure of uncovered risk positions. They should also be looking at some standards for risk committees to keep AIG type situations from happening again (aka billions of uncovered hedge positions).
Regulating derivatives does not require further regulation of consumer credit nor setting up a fund with authorization for the president to use it when he wants to. Force folks to go through bankruptcy not politically driven deals where politically connected classes currently in favor get sweetheart deals over bond, equity or other unsecured creditors.
BTW I fully agree that the SEC needs to be shaken up. Madoff in particular was outrageous. But be careful about thinking regulation is going to take all the pain out of financial markets.
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theexorcist
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Post by theexorcist on Apr 29, 2010 12:35:59 GMT -5
The SEC has not done a very good job in this century - I agree. I guess the question then becomes one of what the cause of that is. In the past 10 years or so, my sense is that the SEC really hasn't been asked to do much or has ignored what it otherwise should have been doing because of command from on high. Madoff is Exhibit A. Unfortunately, there are other exhibits. The staff issue did not arise yesterday and is a sideshow IMO when taken in context of the agency as a whole, so we can agree to disagree. There have been firings arising out of the scandal - www.grassley.senate.gov/about/upload/04272010-2.pdf. I am not sure how we connect 30 staffers doing what they should not be doing to an idea that we should not seek reforms on Wall Street, and I am not sure you are making the connection to be fair. They fired CONTRACTORS, not govenment employees. The standard joke about the government is that, if you don't kill any coworkers or look at porn on your computer, you move up a GS step every few years. Apparently, all you need to do is not kill people. You think it doesn't matter and it's not "fair". I'm going with the broken windows approach, and that not expecting basic standards from the SEC has lead to a culture of total incompetence. That's not a stretch. When government employees are looking at porn, they're not spending my tax dollars wisely - and any agency that doesn't immediately start to fire someone who was looking at porn isn't run well. The only proposals on the street are to create other agencies to do what the SEC was chartered to do IN THE FIRST PLACE. And, of course, the SEC won't be dissetablished - its GS-13s will still be viewing porn and missing the next Madoff while checking OPM to see if they get a snow day. The issue is the management of the SEC. It's not legal authority, of which the SEC has plenty.
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Post by jerseyhoya34 on Apr 29, 2010 12:55:36 GMT -5
I am not sure how the dot is connected between "30+ staffers were idiots at the SEC" and the idea that the proposals only create new, unnecessary agencies, accepting the latter as true. At least the connection does not seem clear if it is not a non-sequitur.
Subcontractors were fired. SEC employees "resigned" - what do you think that means? Did they retire? Did they magically find other work at the same time given the abilities they showed at SEC?
I think the SEC scandal does matter and never said it didn't. The question is what you do about it. If the plan only creates new agencies, the issue certainly does not matter according to what the public dialogue suggests. It is rather like saying we should not add an agency to the Pentagon because SEC staffers were looking at porn. The issue, as presented, does not lead me to the conclusion that we should be strengthening the SEC or asking it to do what it should have been doing, particularly if the agency is run by "incompeten[ts.]" It may also lead to absurd results when we consider the ramification if soldiers received Playboy magazines in a warzone. Do we fire their commanders? Fire them? Fire the top management in the Pentagon? Cut funding for the war? Be outraged that our tax money is going to this and to pay for the delivery of the porn overseas?
Regardless, I think we're both led to the same place, which is that the SEC has to do a better job with its mission.
How much of your tax money has gone to the SEC?
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SirSaxa
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Post by SirSaxa on Apr 29, 2010 15:40:22 GMT -5
Before we bury the SEC for incompetence or worse, let's remember which administration was naming the SEC Chairs over the last 8-10 years -- the same guys who named Mike Brown head of FEMA. Now if you have an administration that doesn't believe in government, doesn't believe in regulations, doesn't think the government can do anything well.... what would you expect them to do vis a vis the SEC? Just to go over a few highlights: Harvey Pitt was a cantankerous SEC Chair in the early days of the Bush Admin. Some of Harvey Pitt's stumbles in 2002 (anyone remember Enron?):July: Pitt, apparently without consulting the White House, asks that the SEC be elevated to Cabinet status with a pay raise for the chairman. Oct. 3: House Democrats criticize Pitt for reportedly meeting with the chairman of Goldman Sachs, which is under SEC investigation. Oct. 9: Democratic leaders ask President Bush to remove Pitt, saying he is caving in to the accounting industry by opposing John H. Biggs as head of a new accounting oversight board. Oct. 31: The SEC orders an investigation into the selection of William Webster to head the accounting board after reports that Pitt withheld information from other SEC commissioners about Webster's involvement with a company now facing fraud charges.USA Today on PittWilliam Donaldson was next, the founder of Wall St. firm Donaldson, Lufkin & Jenrette, former CEO of the NYSE, member of the Nixon Admin. He was brought in to clean up the SEC and give it some teeth. Many thought this Republican Wall St insider would play along with the boys. But he took his job seriously. When he was perceived to be playing TOO rough with the Wall St. boys, they forced him out. Then came Christopher Cox. Cox was a congressman for 17 years from the S. Cal conservative enclave of Orange County. Cox leaves mixed legacy at SECExcerpts Cox, who was a senior associate counsel to former President Ronald Reagan, had a free-market philosophy that was perfectly aligned with the Bush administration. But the administration's stance proved to be a weakness as it failed to adequately regulate increasingly sophisticated financial products that eventually blew up and triggered the financial crisis.
A devastating article in The Wall Street Journal in June described Cox as having failed to attend critical meetings and conference calls during the Bear Stearns crisis and bailout, exacerbating the perception of a regulator who was missing in action.
Lynn Turner, the agency's chief accountant during the Clinton administration, described Cox as "the worst" chairman to ever lead the agency. "I can't think of anything he did that was really protecting investors," Turner said. You may recall Candidate John McCain saying SEC Chair Cox should be fired over the global economic meltdown. And we know the SEC was warned multiple times about Bernie Madoff yet never took a single step to investigate the greatest ponzi scheme of all time. Does this mean all Republicans are "bad guys"? Of course not. But, when trying to evaluate how effective the SEC has been, should be, could be... let's not forget who was running it... and the ideology behind them. Belief in the "Free Market System" is not the same as belief in the "free-for-all" system. Derivatives DO need to be regulated and traded on an open exchange just as stocks and bonds are. Investors need transparency and credible financial statements and info. "Off balance sheet" gimmicks should be reined in. Capital requirements for financial firms should be increased and enforced. These steps are not "anti-business", they will strengthen businesses -- just as the FDIC made it possible for Americans to trust the banks in depression times. Without that kind of confidence and trust - that ONLY the US Government can ensure, the investment community would be nothing more than the wild west of Wall St. Suggesting these kinds of regulatory reforms and enforcements would be "anti-Free Markets" is poppycock. Basic rules of the road and availability of information makes for a level playing field for all, and will help prevent future economic catastrophes. Of course, if we once again have an administration that actively proclaims that government is the enemy and can't do anything right, then all bets are off. We'll be right back to the days cronyism and ideology over competency, and "helluva job Brownie".
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SirSaxa
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Post by SirSaxa on Apr 29, 2010 15:56:26 GMT -5
Goldman Set to Settle SEC Fraud Case Soon: ReportExcerpts Goldman Chief Executive Lloyd Blankfein and other executives faced a blistering cross-examination from U.S. lawmakers about the company's ethics and behavior toward its clients on Tuesday.
The [New York] Post report, citing sources familiar with the matter, said Wall Street's top investment bank was mulling closing the fraud case with the U.S. Securities and Exchange Commission (SEC) to limit damage to its reputation.
"It's almost a certainty that there will be a settlement," the paper quoted a source as saying.
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The Stig
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Post by The Stig on Apr 30, 2010 14:35:29 GMT -5
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