by SixofNine 7 Replies latest jw friends

  • SixofNine

    This is what an ideological hatred of regulation looks like:

  • Robdar

    But Sixy, didnt you know the corporations are basically run by good people who only have the best interests of the public at heart? Besides, who needs regulation when the market will take care of itself?

  • SixofNine

    yes, but I think the "invisible hand" has been masturbating. I'm sure it will clean up and show up, soon, to "correct" the little market troubles we're having in this, as McCain likes to say, "fundamentally sound" economy.

  • TopHat

    We are the people, we will survive

  • BurnTheShips
    This is what an ideological hatred of regulation looks like

    This is a total mischaracterization of the problem.


    THERE is a misconception that President Bush’s years in office have been characterized by a hands-off approach to regulation. In large part, this myth stems from the rhetoric of the president and his appointees, who have emphasized the costly burdens that regulation places on business. But the reality has been very different: continuing heavy regulation, with a growing loss of accountability and effectiveness. That’s dysfunctional governance, not laissez-faire............
    ..........In short, there was plenty of regulation — yet much of it made the problem worse. These laws and institutions should have reined in bank risk while encouraging financial transparency, but did not. This deficiency — not a conscientious laissez-faire policy — is where the Bush administration went wrong. It would be unfair, however, to blame the Republicans alone for these regulatory failures. The Democrats have a long history of uncritically favoring expansion of homeownership, which contributed to the excesses at Fannie Mae and Freddie Mac, the humbled mortgage giants. The privatization of Fannie Mae dates back to the Johnson administration, which wanted to get the agency’s debt off its books. But now, of course, the government is on the hook for the agency’s debt. As late as this spring, Congressional Democrats were pushing for weaker capital requirements for the mortgage agencies. The regulatory reality was that few politicians were willing to exchange short-term economic gains — namely, higher rates of homeownership — for protection against longer-term financial risks. Still the Bush administration’s many critiques of regulation are belied by the numbers, which demonstrate a strong interest in continued and, indeed, expanded regulation. This is the lesson of a recent study, “Regulatory Agency Spending Reaches New Height,” by Veronique de Rugy, senior research fellow at the Mercatus Center at George Mason University, and Melinda Warren, director of the Weidenbaum Center Forum at Washington University. (Disclosure: Ms. de Rugy’s participation in this study was under my supervision.) For the proposed 2009 fiscal budget, spending by regulatory agencies is to grow by 6.4 percent, similar to the growth rate for last year, and continuing a long-term expansionary trend. For the regulatory category of finance and banking, inflation-adjusted expenditures have risen 43.5 percent from 1990 to 2008. It is not unusual for the Federal Register to publish 70,000 or more pages of new regulations each year. ...The biggest financial deregulation in recent times has been an implicit one — namely, that hedge funds and many new exotic financial instruments have grown in importance but have remained largely unregulated.* To be sure, these institutions contributed to the severity of the Bear Stearns crisis and to the related global credit crisis. But it’s not obvious that the less regulated financial sector performed any worse than the highly regulated housing and bank mortgage lending sectors, including, of course, the government-sponsored mortgage agencies.

    * It seems to me that the financial landscape changed, and rapidly, with new instruments and derivatives entering the market faster than regulation and transparency laws could keep up.

    EDIT: Along these lines: "government regulation does not work as well in real time as it does in hindsight."


  • SixofNine

    gotta love the premise of that article: We have too been regulating, we just did it really, really badly.


  • Satanus

    Don't forget the 'trickle down' economic doctrine: if the big cats can leverage themselves @ 30:1, then the average joe/jane gets to do it, as well. If you make 30,000 a yr, you can spend 900,000 per yr. Right? Otherwise, they would be hypocrites, wouldn't they?


  • BurnTheShips


    In a similar vein:

    In what some observers are calling a reshaping of Wall Street, two of the world’s largest investment banks, Merrill Lynch and Lehman Brothers, are set to disappear. Lehman has announced it will file for Chapter 11 bankruptcy protection , and Merrill Lynch was bought by Bank of America. For all the complicated financial instruments and relationships involved in the current financial turmoil, the underlying cause is still relatively simple: the bursting of the housing bubble.

    One market strategist told The New York Times: “We are in the grip of a vicious circle and the only thing that to me will break that is for home prices to stop going down.” The most dangerous thing we can do right now is to assume that massive government intervention is needed to shore up home prices. After all, massive government intervention is what caused the housing bubble in the first place.

    Fannie Mae and Freddie Mac were created by Presidents Franklin D. Roosevelt and Lyndon B. Johnson to make homes more affordable for Americans. They accomplish this by buying, repackaging and then selling home loans that other institutions make, thus freeing institutions to offer more loans. Contrary to what some defenders of big government assert, Fannie and Freddie were also key players in the subprime mortgage market. In 2004 alone, they bought 44% of all subprime securities. Every dollar that Fannie and Freddie gave to companies like Countrywide Financial for bundled subprime mortgages was another dollar Countrywide gave out in new subprime mortgages.

    When President Bill Clinton took office, Fannie and Freddie were viewed as “key” to Clinton’s plans to expand home ownership. The Washington Post reports: “The result was a period of unrestrained growth for the companies. … The companies increasingly were seen as the engine of the housing boom.” As the companies grew, conservatives repeatedly warned that their size posed a systemic risk to the financial system. As Sarah Palin put it, thanks to the implicit federal guarantee of their debt, Fannie and Freddie had become too big and too expensive to the taxpayers.

    But Fannie and Freddie pushed back hard, turning to friends on the left for protection. Former Walter Mondale and Barack Obama campaign adviser James Johnson led a fierce lobbying campaign to fight reform of Freddie and Fannie. Clinton administration OMB director Franklin Raines told investors when he was Fannie Mae CEO in 1999: “We manage our political risk with the same intensity that we manage our credit and interest rate risks.” Fannie and Freddie’s lobbying power over the left continues to be strong to this day. According to the Center for Responsive Politics, the top three recipients of campaign donations from Freddie and Fannie’s PACs and employees are all Democrats. From 1989 through today, Sen. Chris Dodd received $165,400, Barack Obama $126,349, and John Kerry $111,000.The Washington Post concludes: “Blessed with the advantages of a government agency and a private company at the same time, Fannie Mae and Freddie Mac used their windfall profits to co-opt the politicians who were supposed to control them.”

    Nobody wants to see anybody lose their home. The current Wall Street turbulence will not settle until home prices do. But before we move to some new massive government spending effort to prop up home prices at some artificial level, we should also remember what the historical record teaches us about the unintended consequences of well-meaning market interventions.

Share this