VPILF

[fluffmonster]

I think you are misinformed cipher. Financial crises were a regular occurrence, roughly every decade or so, until 1914 when the Fed was established. The stock market crash of 1929 led to stiffer capital requirements for regulated banks and the FDIC, and there has never been a financial crisis on traditional banks since. Saying this has all led to more instability is simply not correct. Its also difficult to point fingers at regulatory inefficiency when taxpayers have in the last year taken on a trillion (yes, 10^12th power) dollars worth of obligations to sort out the mess that the "self-regulating" financial industry delivered to us. Its one thing to condemn something like usury limits which are basically just price controls, but extending that argument to all regulation is just doesn't work. You invoke informed opinion, but don't seem to make it up to your own bar.

Its not like the current crisis is exactly a surprise either. Some have seen it coming for years, and the housing bubble itself was an open book for anyone who was willing to see it for what it was. I was telling students about it 3 years ago.

As to exactly what regulation would be appropriate, its not a big secret. Its readily available in the news. One big problem is moral hazard. Banks used to lend money for a mortgage, and then they held on to it, so any risk in the loan was something the mortgage issuer was directly accountable for. Now, they package them up and sell them on the secondary market. Issuers knew in many cases they were making bad loans, but there was no downside...they sold the mortgage on, and kept the transaction fees. So, there's one target for regulation, requiring lenders to keep at least some stake in the loans they make similar to capital requirements for banks. Another target is making mortgage issuers verify a borrower's ability to pay, or at least making sure the ability to pay is transparent in the debt itself to it can be properly risked.

Then there are the financial institutions like investment banks being counterparties to huge amounts of derivative debt but without the capital or disclosure requirements of traditional banks regulated by the Fed. The fact that these institutions are not even able to risk or even understand the derivatives they were trading is a good example of market failure. That they are big counterparties makes their behavior a systemic risk...this is where the "too big to fail" comes in. Their capital reserves were inadequate to the risk they took on (which was under-assessed because of the housing bubble), and they had seriously under-assessed the risk involved. They are not required to disclose those risks either, which is a big part of why all this is a "surprise" now. Wall Street is built on promises and trust, and its pretty clear now that they used opaqueness to abuse that trust. The regulatory solution is clear...capital requirements appropriate to the level of risk, and reporting requirements to improve transparency.

so yeah, important to form an educated opinion. Looks like you've some catching up to do.

[HATEFACE]

BTW, we've gotten way off topic. Wasn't this a discussion about Gov Palin?

Yes, but you gotta remember you're dealing with democrats, they practice what is commonly refered to by many people as circle talking.

I think you are misinformed cipher. Financial crises were a regular occurrence, roughly every decade or so, until 1914 when the Fed was established.

The fed should be working to fix this now!

Can't you just let those companies go south? Screw the CEOs who run with their money. They should have one of them fancy, federal Indictments. Buyer beware. The companies will have to be forced into being morally complaint for the consumer and the comsumer will need to be taught what to look out for.

I've also been saying for a long time we're a nation of debt. Democrats, republicans, whatever. They fail to solve it because it comes down to personal financial responsibility and morals. Only one of the two believes they can actually regulate that.

[ç i p h é r]

According to who? History shows that deregulating the S&L's lead to the S&L crisis and bailout.

Research by the CATO Institute. You only reach that conclusion if you take a narrow historical view of the S&L crisis. The majority of S&Ls were already insolvent by the time Congress decided to deregulate as a way out of that crisis. Federal deposit insurance didn't have the money to cover the outstanding liability. It worked initially, but ultimately macroeconomic factors forced them back into insolvency.

[fluffmonster]

The fed should be working to fix this now!

Can't you just let those companies go south? Screw the CEOs who run with their money. They should have one of them fancy, federal Indictments. Buyer beware. The companies will have to be forced into being morally complaint for the consumer and the comsumer will need to be taught what to look out for.

I've also been saying for a long time we're a nation of debt. Democrats, republicans, whatever. They fail to solve it because it comes down to personal financial responsibility and morals. Only one of the two believes they can actually regulate that.

The fed is working to fix it, but more cleaning up the mess than dealing with the problem. Ultimately, the only way to fix it without a 15-year recession like Japan is to clean the bad debt out of the market, and discussions are currently headed that way with many invoking the Resolution Trust Corporation formed after the S&L crisis.

It would be nice to just let irresponsible companies fail, but a financial firm isn't like a restaurant or ball-bearing factory. If a restaurant fails, its competitors get the business and everybody goes about their lives and consequences are concentrated with the failure. The case here is about debt markets, and firms that are heavily leveraged that owe huge amounts of money and are owed huge amounts of money. If they fail, they can bring down other firms whether they've been responsible or not, even their competitors. That's what the "too big to fail" argument is about. Perfect transparency of risk and all might allow for firms to take precautions, but information is costly to obtain and people lie so without a mandate to be transparent, it just won't happen. With a misalignment between responsibility and consequences, your model is invalidated and without its moral purity. Markets with imperfect information are failed, inefficient things. Regulation can improve the efficiency of the market just as it can weaken it, but blind faith in its inadequacy is just that.

[fluffmonster]

According to who? History shows that deregulating the S&L's lead to the S&L crisis and bailout.

Research by the CATO Institute. You only reach that conclusion if you take a narrow historical view of the S&L crisis. The majority of S&Ls were already insolvent by the time Congress decided to deregulate as a way out of that crisis. Federal deposit insurance didn't have the money to cover the outstanding liability. It worked initially, but ultimately macroeconomic factors forced them back into insolvency.

Think tanks: the best way to disseminate research that doesn't stand up to peer review.

[ç i p h é r]

Thanks for answering on Mulu's behalf, Fluff. The intent was to have him formulate an educated response, not a politically motivated one...for a change. Ironically, you seem to have forgotten about the S&L crisis in your broad empirical evaluation.

The CATO Institute published an interesting article (statistical analysis) in its journal on the correlation between financial crises, liberalization, and government size. It's available online here:

http://www.cato.org/pubs/journal/cj27n1/cj27n1-3.pdf

I'm curious to have your thoughts on it, given your background. BTW, you avoided the main thrust of my questioning, which was, are we in this financial crisis as a direct consequence of deregulation? Put another way, are the new banking standards you're now proposing with regard to risk assessment and transparency ever part of the regulatory equation in the last quarter century?

I realize we probably fundamentally disagree on the role of government in our lives, but the fact is that whether the financial markets are overly regulated or totally unregulated, they will always face risk. It's part of the business, after all. Trusting that banks and lending institutions have a far greater desire not to lose money than government officials have of preventing their losses, it seems to me that legislating risk assessment and transparency is simply redundant. It's something they're going to need to and want to do after what has taken place whether or not the government tells them to.

[ç i p h é r]

Think tanks: the best way to disseminate research that doesn't stand up to peer review.

Feel free to challenge their research then.

[Mulu]

BTW, we've gotten way off topic. Wasn't this a discussion about Gov Palin?

That was so last week.

Frankly, if this stuff is true, it can only help bolster Gov Palin's reform credentials.

Not really. What you don't understand is that it's not the governor's job to micromanage personnel matters at the line officer level. The fact that the only time she did it was for her sister's ex-husband makes her look pretty bad, attempts to mollify it within a larger policy notwithstanding.

Investigator Steven Branchflower admitted he had ceded control of his subpoena list to Sen. Hollis French (D.) during Alaska’s Joint Judiciary Committee September 12 hearing that was scheduled to approve subpoena requests. [CLICK HERE FOR AUDIO.] French is a partisan who has endorsed Palin’s Democratic presidential ticket rival Barack Obama for president and is actively supporting his candidacy.

Lawmakers approved 13 of Branchflower’s subpoena requests that day, which included one for Palin’s husband, Todd. Four other subpoenas were approved for aides Branchflower believes participated in a meeting called by Palin’s former chief of staff Mike Tibbles where Wooten’s firing was allegedly discussed.

Rep. David Guttenberg (D.) asked Branchflower why he was requesting subpoenas for only those people attending the meeting and not Tibbles himself.

Branchflower said he would “have to defer that question to Mr. French.”

“I put the list together with, talking to Mr. French,” Branchflower added.

Sen. Gene Therriault (R.) told Branchflower, “I don’t understand why you would have to defer that question to Sen. French. If it’s your list you’re in complete control of the list, then why can’t you answer the question?”

Branchflower had no explanation. He only offered, “I’m not sure why his name was removed. My initial request was to have him on the list.” At that point, French interjected. “It appeared to me there wasn’t the political will to subpoena Tibbles.”

Based on this the "partisan interference" is to reduce the scope of the investigation into Palin. Last I read, the whole investigation was being derailed by Alaska Republicans, who are seeking to delay it entirely until after the election in November.

With the economy once again in the headlines, Sarah's 15 minutes is over.

[Mulu]

Thanks for answering on Mulu's behalf, Fluff. The intent was to have him formulate an educated response, not a politically motivated one...for a change.

You're just mad because I've proven you wrong on almost every point you've made.

The CATO Institute published an interesting article

May as well be quoting Fox News. Realize that on an international level, i.e. in Africa, "regulations" are used as a means of extortion and soliciting bribes. The problem there isn't the regulation, it's the corruption, a fact which free market zealots conveniently ignore.

You're probably better off with wiki.

The major causes of Savings and Loan crisis according to United States League of Savings Institutions
The following is a detailed summary of the major causes for losses that hurt the savings and loan business in the 1980s[5]:
Lack of net worth for many institutions as they entered the 1980s, and a wholly inadequate net worth regulation.
Decline in the effectiveness of Regulation Q in preserving the spread between the cost of money and the rate of return on assets, basically stemming from inflation and the accompanying increase in market interest rates.
Absence of an ability to vary the return on assets with increases in the rate of interest required to be paid for deposits.
Increased competition on the deposit gathering and mortgage origination sides of the business, with a sudden burst of new technology making possible a whole new way of conducting financial institutions generally and the mortgage business specifically.
A rapid increase in investment powers of associations with passage of the Depository Institutions Deregulation and Monetary Control Act (the Garn-St Germain Act), and, more important, through state legislative enactments in a number of important and rapidly growing states. These introduced new risks and speculative opportunities which were difficult to administer. In many instances management lacked the ability or experience to evaluate them, or to administer large volumes of nonresidential construction loans.
Elimination of regulations initially designed to prevent lending excesses and minimize failures. Regulatory relaxation permitted lending, directly and through participations, in distant loan markets on the promise of high returns. Lenders, however, were not familiar with these distant markets. It also permitted associations to participate extensively in speculative construction activities with builders and developers who had little or no financial stake in the projects.
Fraud and insider transaction abuses were the principal cause for some 20% of savings and loan failures the past three years and a greater percentage of the dollar losses borne by the Federal Savings and Loan Insurance Corporation (FSLIC).
A new type and generation of opportunistic savings and loan executives and owners—some of whom operated in a fraudulent manner — whose takeover of many institutions was facilitated by a change in FSLIC rules reducing the minimum number of stockholders of an insured association from 400 to one. [edit] A form of deregulation.[/edit]
Dereliction of duty on the part of the board of directors of some savings associations. This permitted management to make uncontrolled use of some new operating authority, while directors failed to control expenses and prohibit obvious conflict of interest situations.
A virtual end of inflation in the American economy, together with overbuilding in multifamily, condominium type residences and in commercial real estate in many cities. In addition, real estate values collapsed in the energy states — Texas, Louisiana, Oklahoma particularly due to falling oil prices — and weakness occurred in the mining and agricultural sectors of the economy.
Pressures felt by the management of many associations to restore net worth ratios. Anxious to improve earnings, they departed from their traditional lending practices into credits and markets involving higher risks, but with which they had little experience.
The lack of appropriate, accurate, and effective evaluations of the savings and loan business by public accounting firms, security analysts, and the financial community.
Organizational structure and supervisory laws, adequate for policing and controlling the business in the protected environment of the 1960s and 1970s, resulted in fatal delays and indecision in the examination/supervision process in the 1980s. [edit] Another result of deregulation.[/edit]
Federal and state examination and supervisory staffs insufficient in number, experience, or ability to deal with the new world of savings and loan operations.
The inability or unwillingness of the Bank Board and its legal and supervisory staff to deal with problem institutions in a timely manner. Many institutions, which ultimately closed with big losses, were known problem cases for a year or more. Often, it appeared, political considerations delayed necessary supervisory action.

[ç i p h é r]

I meant firing the commissioner for the reasons stated bolsters her credentials.

As for her interest in the officer, I think anyone would take particular notice of someone who's threatened to kill their father and tazered their nephew. Only in election politics would people try to use a dirt bag like Wooten to make some bizarre case of abuse of power.

[Lusipher]

With the economy once again in the headlines, Sarah's 15 minutes is over.

Dont think so, bud. Shes got your whole party scared. Cant wait for the debate in St. Louis. Only wish I had tickets. Shes going to pwn Biden. You guys talk all this nonsense and all you see is the republican party picking up lots of steam going into the election. Obama/Biden arent going to win this Nov.

[Mayhem]

Shes going to pwn Biden.

In all seriousness, how?

Surely he's got MUCH, MUCH more experience of this sort of thing.

From a totally non-partisan perspective, what, realistically, is Palin going to bring to the stump that Biden can't match?

[NickD]

In all seriousness, how?

Surely he's got MUCH, MUCH more experience of this sort of thing.

From a totally non-partisan perspective, what, realistically, is Palin going to bring to the stump that Biden can't match?

Mayhem, she's pretty, Mayhem.

[Rusty]

Danubus has been syndicated.

[ç i p h é r]

As I already pointed out, Mulu, you're taking a narrow historical view of the crisis and not looking at what lead up to deregulation in the first place. The majority of S&Ls were already insolvent.