Witnessing colossal failures of capitalism?

[bode]

got this in a n email yesterday. simple but explains alot.

http://docs.google.com/Present?docid...&skipauth=true

[sarbox68]

Bumping this thread b/c this article explains a lot:

http://www.nytimes.com/2008/10/03/business/03sec.html

Fucking lazy regulators. Fucking greedy investment banks. I can't believe we're bailing out these assholes.

I can't believe people are now actually talking about letting people reduce their outstanding mortgage principal in bankruptcy court, etc. This kind of sh!t makes me nuts!! I don't remember any of Main Street whining when they were shoving handfuls of cash in their shorts by selling/taking equity loans on their house/condo for a 200% gain over 3 years. Now it's adjusting the other way, it's all "OMFG... we waz had!!!"

If the federal idiots that are considering options like bankruptcy principal adjustment etc., I can look forward to 1) having to pay down the full balance of the mortgage on my house ('cause I wasn't a f-in moron and bought something that I could afford with money I'd saved... and therefore will prolly not end up in bankruptcy...) and 2) paying higher taxes to bail out the ass-monkies that didn't, which will 3) further delay the normal market cycle adjustments to asset value that would progress much faster if they weren't artificially f-d with.

God-damn you gotta love the government.... this sh!t pisses me off!

[zook]

I hate Glenn Beck but Peter Schiff's latest appearance on his show is awesome. He gets a former Federal Reserve president to "not disagree" that the US might end up with hyper-inflation like Zimbabwe.

http://www.europac.net/Schiff-CNN-10-14-08_lg_FLV.asp

You can skip to 2:30 for the guests and it gets good around 5:30 when the fed reserve president starts getting flustered.

[2_Thumbs_Up]

I hate Glenn Beck but Peter Schiff's latest appearance on his show is awesome. He gets a former Federal Reserve president to "not disagree" that the US might end up with hyper-inflation like Zimbabwe.

http://www.europac.net/Schiff-CNN-10-14-08_lg_FLV.asp

You can skip to 2:30 for the guests and it gets good around 5:30 when the fed reserve president starts getting flustered.

Yeah, good stuff.

I got some thoughts to add on your first post.

I'm not an econ guy but I know the basics and try to stay abreast of the news. I'm starting to think that we're witnessing some truly unique market failures with the subprime mortgage disaster, the gov't takeover of Fannie & Freddie, yesterday's bankruptcy declaration by Lehman Bros., BoA's buyout of Merill Lynch and what looks like impeding doom for AIG, the US's largest insurance company: http://money.cnn.com/2008/09/16/news...ion=2008091617

I think this situation is a clear cut case of government failure, mainly because our entire monetary system is actually an invention of the government. Imo, the denationalization of money is probably the most important political issue, and most people have never even thought of it.

On regulation, the financial sector is probably the most regualated sector in the entire economy already. I think the statement that deregulation caused this is absurd. I'd like it if someone actually names one thing related to this crisis that isn't regulated. I don't think the problem is lack of regulation at all, but rather the kind of regulation. The market is self-regulating. Greed is supposed to be balanced with fear, but the government has taken away all the fear. By looking at what's happening now I think this point gets clearer. It's the market that tries to regulate the bad banks out of business. It's the government that rewards this bad behaviour.

Though I think there is one area where the government has failed to do what it's supposed to. One legitimate role of the government is to regulate fraud. I think the concept of fractional reserve banking is fraudulent and it should be outlawed. With that simple regulation this crisis would never have occured. But this has nothing to do with deregulation, because this regulation has never actually existed in the first place.

[2_Thumbs_Up]

By the way:

http://www.guardian.co.uk/business/2...laries-banking

[zook]

I think this situation is a clear cut case of government failure, mainly because our entire monetary system is actually an invention of the government. Imo, the denationalization of money is probably the most important political issue, and most people have never even thought of it.

On regulation, the financial sector is probably the most regualated sector in the entire economy already. I think the statement that deregulation caused this is absurd. I'd like it if someone actually names one thing related to this crisis that isn't regulated. I don't think the problem is lack of regulation at all, but rather the kind of regulation. The market is self-regulating. Greed is supposed to be balanced with fear, but the government has taken away all the fear. By looking at what's happening now I think this point gets clearer. It's the market that tries to regulate the bad banks out of business. It's the government that rewards this bad behaviour.

Though I think there is one area where the government has failed to do what it's supposed to. One legitimate role of the government is to regulate fraud. I think the concept of fractional reserve banking is fraudulent and it should be outlawed. With that simple regulation this crisis would never have occured. But this has nothing to do with deregulation, because this regulation has never actually existed in the first place.

One of the problems with unfettered capitalism is that people can rip each other off by selling them things that aren't worth what they claim, or don't do what they claim, or are unsafe. Caveat emptor clearly isn't sufficient when you're buying things like pharmaceuticals or even home mortgages. But I agree that gov't played a huge role in the subprime mortgage crisis, both overregulating (Greenspan's monetary policy) and underregulating (allowing banks to become ridiculously leveraged).

[zook]

By the way:

http://www.guardian.co.uk/business/2...laries-banking

LOL

[2_Thumbs_Up]

But selling stuff that doesn't do what you claim is fraud, isn't it? And this crisis is proof that it's very possible in fettered capitalism as well. The difference is that those responsible get away with it. This should really have been handled the same way as the enron scandal was handled.

Allowing the government to regulate pharmaceuticals doesn't automatically make them any safer either. It's just a transfer of responsibility from the seller to the government. The seller no longer has to care what he sells as long as it's approved by the government. And the government seldom takes responsibility either so now there is no one to blame when something does go wrong. This also opens a pandoras box allowing for pharmaceutical special interests to influence the regulations to their benefit.

I also think people underestimate the ability of the market to set certain standards. Things such as licenses for different professions (doctors, teachers etc.) was originally an invention of the marketplace. People don't want surgery without proof that the surgeon knows what he's doing. I think we will be a lot better of if all regulatory businesses are competitive rather than monopolized.

I think the problem is that people are looking for the perfect regulations. In order for that to happen the regulators would have to be all-knowing and non-corruptable, which just isn't the case. Regulators are humans as well, and they regulate in their own self-interest, not in the best interest of society. The notion of good politics is an illusion. Once you allow government regulations it never stops. The beurocracy and corruption just keep on growing until you end up with a crisis like today.

[zook]

But selling stuff that doesn't do what you claim is fraud, isn't it? And this crisis is proof that it's very possible in fettered capitalism as well. The difference is that those responsible get away with it. This should really have been handled the same way as the enron scandal was handled.

Sure it's fraud and it's possible even with regulations in place, but not the right regulations. I agree that people and businesses need to be punished and thanks to market forces many will be. Unfortunately, thanks to the gov't, many won't be, or not to the full extent of their mistakes.

I also think people underestimate the ability of the market to set certain standards. Things such as licenses for different professions (doctors, teachers etc.) was originally an invention of the marketplace. People don't want surgery without proof that the surgeon knows what he's doing. I think we will be a lot better of if all regulatory businesses are competitive rather than monopolized.

Aren't S&P, Moody's and other credit ratings agencies competitive? The ones that gave AAA ratings to junk mortgage vehicles and derivatives?

I think we'll have to agree to disagree about the power of the market to self-regulate and the supreme evil of gov't but I enjoy reading your opinions.

[2_Thumbs_Up]

Aren't S&P, Moody's and other credit ratings agencies competitive? The ones that gave AAA ratings to junk mortgage vehicles and derivatives?

I don't think it's very competetive when they aren't allowed to fail. The fear of failing is what's supposed to keep them in check. I also don't see why there is any reason to believe the government would have handled the regulation/rating any better. I think the magnitude of mistakes and potential for corruption increase when you add the force of law.

But the thing I really wanted to bring about was our monetary system and fractional reserve banking. Because I think that's the underlying problem to a lot of issues today. This video explains fractional reserve banking very well and I suggest you take a look at it.

Money as debt (first 15 minutes or so):
http://www.youtube.com/watch?v=vVkFb26u9g8

Found another video I haven't seen before that is probably more accurate but less entertaining:
http://www.youtube.com/watch?v=LHraTPUbsgg

Take the videos for what they are worth though. They are on the conspiracy side of things and I disagree with a lot of the details, especially the proposed solution. But the explanation of fractional reserve banking is pretty accurate, and I think that is one of the bigger problems today.

[zook]

I watched the first one and meh. Of course money is debt... it's a promise to provide goods or services. Banks and gov't can create money "out of thin air" because we continue to produce more goods and services every year. We're able to do this because we haven't tapped out the earth's natural resources yet, the working population is increasing and manufacturers and service providers continually improve efficiency. Eventually it will become a bigger problem when natural resources start running out but we're already starting to address that by developing renewable energy.

I agree that the US is too deep in debt and it will lead to higher inflation at some point, but I don't think fractional reserve banking is necessarily the problem. When people pay back their loans after they get paid for creating goods or providing services, that money the bank "created out of thin air" is now real and not an issue. Am I missing something?

Re: S&P, Moody's and the other credit ratings agencies... one, I'm not sure they have enough financial interest in providing accurate ratings that they would actually fail because of some bad ones. Do you know how they work, specifically? Two, I can't believe it was only a lack of moral hazard that caused them to rate those junk mortgages so highly. That was some incredible hubris if they knew how bad they were and just assumed the gov't would bail everybody out. I think it was more likely a combination of poor understanding and too much greed, both of which are market failures.

[BankItDrew]

[off-topic]
The next super-power nation will offer something to the world that no other nation can provide. This has always been accomplished through developing technology, or creating new efficient ways of doing things.

One day, our main sources of energy that humans use, will become non existent because things like fossil fuels are a finite resource. I predict that the first nation to be able to harness the energy of the sun at a high rate of efficiency - will emerge as a very powerful one.

The human species must accomplish this feat eventually, if we wish to survive.

[2_Thumbs_Up]

I watched the first one and meh. Of course money is debt... it's a promise to provide goods or services. Banks and gov't can create money "out of thin air" because we continue to produce more goods and services every year. We're able to do this because we haven't tapped out the earth's natural resources yet, the working population is increasing and manufacturers and service providers continually improve efficiency. Eventually it will become a bigger problem when natural resources start running out but we're already starting to address that by developing renewable energy.

I agree that the US is too deep in debt and it will lead to higher inflation at some point, but I don't think fractional reserve banking is necessarily the problem. When people pay back their loans after they get paid for creating goods or providing services, that money the bank "created out of thin air" is now real and not an issue. Am I missing something?

It wasn't so much the perpetual debt part that I wanted to highlight. That part is false as I understand it. It's that private banks create a lot more money than the government does. Most people don't realize this.

Fractional Reserve Banking:

Intuitively most people know that banks use fractional reserves. No one expects that banks keep all their money as reserves. But most haven't thought through what this actually means.

All banks keep a fraction of their money as reserves. The fraction is called Cash Reserve Ratio (CRR). The CRR varies in different countries and with different kind of loans. In my example the CRR will be 10% but many times it's much lower than that.

Lets take an example. In the example we assume there is only one bank, and that the money lent out always gets redeposited by someone else. The CRR is 10%.

Someone makes a deposit of $20.000 at the bank. This means that the bank is allowed to lend up to $18.000 of this money. Person A takes a loan of this sum and buys a car from Person B, who deposits this money at the bank again. There is no way for the bank to know that this is the same money that was deposited earlier. This means that the bank's assets now increase by $18.000 and can lend another 0.9 * $18.000 = $16.200 of this money. The cycle repeats itself and more and more money is created.

In the long run the above example will look something like this:

A. New Deposit at the bank
B. New Loan given by the bank (90% of new deposit)
C. Remaining reserves at the bank for each new loan (10% of new deposit)
D. Total Deposits

Nr A..........B..........C..........D
1 $20.000 $18.000 $2.000 $20.000
2 $18.000 $16.200 $1.800 $38.000
3 $16.200 $14.580 $1.620 $54.200
4 $14.580 $13.122 $1.458 $68.780
5 $13.122 $11.810 $1.312 $81.902
6 $11.810 $10.629 $1.181 $93.712
7 $10.629 $9.566 $1.063 $104.341
8 $9.566 $8.609 $957 $113.907
9 $8.609 $7.748 $861 $122.516
10 $7.748 $6.974 $774 $130.264
11 $6.974 $6.276 $698 $137.238
12 $6.276 $5.649 $627 $143.514

From the original deposit of only $20.000 there is now a total of $143.514 in existence. All of the above depositors are able to use their money at any time.

How much money is the bank able to create if the cycle continues? The answer is given by this equation:

X=Bank created money
D=Original deposit
C=CRR

X = D*(1-C)/C
X=$20.000*(1-0.1)/0.1 = $180.000

So, with a CRR of 10% banks are theoretically able to create $180.000 from an original deposit of only $20.000, assuming that someone deposits the money again after it's been lent out, which is the common thing to do when you recieve a bigger sum of money. Many times the money doesn't even leave the banking system (someone loans money, makes a bank transfer to someone else and the bank can lend from that deposit as well).

The question then is, has the bank in the above example created $180.000 of wealth? Of course not. All they have created is inflation. The purchasing power of the newly created money is taken from all the money already in existence. No one should have the ability to dilute the purchasing power of other people's money.

The austrian school of economics explains that fractional reserve banking is the reason for the business cycle (and a central bank exacerbates it). When banks expand credit the supply of savings increase and causes the price (interest rates) to go down. But the expansion of the money supply doesn't represent real savings, and thus a lot of investments unbacked by savings will take place. At some point this has to reveal itself and all the malinvestments that took place during the boom needs to be liquidated.

[zook]

I appreciate the lesson. But with full reserve banking, and thus a stable money supply, wouldn't we have deflation as long as economies keep growing?

So it seems that fractional reserve banking is incredibly inflationary. But since the creation of the Federal Reserve, the US economy has grown at a rate above inflation and our standard-of-living has increased by a number of measures. So where are the effects?

[2_Thumbs_Up]

I appreciate the lesson. But with full reserve banking, and thus a stable money supply, wouldn't we have deflation as long as economies keep growing?

Sure, but I think "deflation is bad" is a myth. I think that argument gained popularity after the great depression. The saying was that as long as the government could've avoided the deflation then we wouldn't have had the depression. But if you think it was the over-consumption of the twenties that caused the great depression then the argument is void. If over-consumption is the problem, then under-consumption is the solution. It obviously did cause some disturbances during the great depression but it was the sudden transition that was the problem. We actually had a general decrease in all prices for most of the 19th century and it didn't seem to cause too much harm then.

It also depends on how you define inflation/deflation. Austrians define it as an increase/decrease in the money supply, not an increase/decrease in prices. Inflation cause price increases but is not equivalent to it. I think that definition makes much more sense because the word "inflate" obviously refers to a volume of some sort. Prices just go up or down. The money supply expand or contract.

With that definition inflation is nothing more than a redistribution of wealth. Real wealth is unchanged by an increase in the money supply. The problem is that newly created money has to be spent into the economy from specific points. The early recievers of the newly created money will experience an increased purchasing power since the prices hasn't had time to adjust. The late recievers will experience a decreased purchasing power since prices will increase before they see any of the new money.

Who are the early recievers today:
Banks
Government
Borrowers (the more you can borrow the more you gain)

Who are the late recievers:
Savers
Low-income workers (especially if you are unable to borrow)

The inflation tax is increadibly regressive. I think most of the poverty in the developed world is because of our monetary system.

[zook]

Intuitively, deflation seems bad b/c it reduces the incentive for investment and encourages hoarding. If your money's going to be worth more in a couple of weeks, why buy or invest in something today? Also intuitively, moderate inflation and low multiple fractional banking seem good. There has to be money available to borrow to encourage new businesses and innovation. It seems like there should be no problem with inflation that stays below the rate of economic growth. I'm not convinced that's what we've had recently though, because they gov't changed the measure of inflation to take out a bunch of stuff that should count. As for the idea that monetary supply growth rate = inflation, shouldn't it be monetary supply growth rate minus economic growth rate = inflation?

[2_Thumbs_Up]

Intuitively, deflation seems bad b/c it reduces the incentive for investment and encourages hoarding. If your money's going to be worth more in a couple of weeks, why buy or invest in something today? Also intuitively, moderate inflation and low multiple fractional banking seem good. There has to be money available to borrow to encourage new businesses and innovation. It seems like there should be no problem with inflation that stays below the rate of economic growth. I'm not convinced that's what we've had recently though, because they gov't changed the measure of inflation to take out a bunch of stuff that should count.

I think banking should work in such a way that there is a clear distinction between demand deposits and time deposits. Banks serve mainly two purposes, safe-keeping of money and a meeting-place for borrowers and lenders. These two purposes can't be met at the same time. You can't safe-keep and invest your money simultaneously. If you want to safe-keep your money then you should expect to pay a small fee for the storage. If you want to lend it out to someone then you can't expect to withdraw it while it is borrowed. So banks would have two sources of income, storage fee and difference in interest rates between borrowing and lending.

On deflation:
The goal of an economy is to eliminate scarcity. With that in mind I think it's only natural to expect that prices fall as goods become less scarce.

Investment comes from savings. If you want to stimulate economic growth then you should stimulate saving, not consumption as the government tries to do. Hoarding as you said is just another word for saving.

The way it works is that savings by definition is future consumption. If I want a car and I can afford one today, then the only reason I wouldn't buy it, is if I think I can buy a car and something more in the future. A decreased demand of present consumption corresponds to an increased demand of future consumption. If I decide to not buy the car I will save the money, most likely I will do it at a bank. The supply of savings increase and entrepreneurs can borrow more. But since the demand for present consumption has decreased it won't be profitable for anyone to borrow the money to immediatly produce more consumption goods. Instead, the money will be used to produce the machinery that is neccessary to satisfy the increased future demand of consumption. The end result would be a more long term allocation of resources.

It's actually circular logic to say that decreasing prices prohibits economic growth. Lets assume we have an economy with no growth and no inflation. Prices will be completely constant. The ONLY way prices can actually fall is if the economy starts growing. It's the growth that causes prices to fall. The causality can't work both ways. The statement "economic growth causes price falls which prohibits economic growth" obviously isn't true. Growth can't prohibit growth.

As for the idea that monetary supply growth rate = inflation, shouldn't it be monetary supply growth rate minus economic growth rate = inflation?

Even if the money supply expands less than the rate of economic growth, it's still an expansion. Prices would fall moderately but since there is new money being created the early recievers will benifit on the cost of the late recievers just as before.

[mcatdog]

Good discussion you two, keep posting links, I'm learning a lot.

Here's one of the episodes of Free to Choose by Milton Friedman. Starting at 9:00 Friedman talks about how the Interstate Commerce Commission was set up to regulate the railroads but ended up making train travel worse. He says that consumer advocacy groups are the ones who are usually behind the creation of a new agency, but once that's done, they move on to the next cause and don't pay too much attention to how the agency actually develops. The only people with the motivation to give their undivided attention to the ICC were the railroad companies themselves. The ICC ended up being packed with company men, and of course they produced regulations that just made it hard for new competitors to enter the market.

I think a similar thing happened with the SEC. The big firms on Wall Street are the people with the greatest interest in what the SEC does so it was inevitable that SEC regulations would sometimes have more to do with what's best for Freddie Mac or whoever than what's best for the public.[/url]

[zook]

2_Thumbs: I don't have the background in Keynesian economics that you do in Austrian economics, but as I said in my last post, it just seems intuitive that modest inflation would lead to more economic growth than modest deflation. The former encourages consumption and investment, the latter encourages savings. I'm not saying that deflation would prohibit growth (you're right, that would make no sense) just that it doesn't maximize growth.

And you haven't convinced me that there's anything wrong with an increase in monetary supply as long as the rate is below that of economic growth. Wealth is created when economies grow so there should be no problem expanding the monetary supply. Yes, bankers make more money, but they can offer depositors higher rates as well. This thread is my first exposure to the Austrian school, but I was glad to find a few of my ideas fleshed out in this article defending Fractional Reserve Banking, written by an economist of the Austrian school:

http://mises.org/journals/scholar/salin.pdf

mcat: That was a funny movie. I don't know how much influence the SEC had over the trading of mortgage-backed securities... do you? I think that clearly the investment banks that created and traded them deserve a large share of the blame. As do the ratings agencies that gave them AAA ratings. The question is whether the failures of these companies are an argument for more (and better) regulation or less?

[zook]

mcat: That was a funny movie. I don't know how much influence the SEC had over the trading of mortgage-backed securities... do you?

Ok, I think this article from today's NYT answers the question for credit default swaps at least, with the answer being none.

http://www.nytimes.com/2008/10/19/opinion/19cox.html

[2_Thumbs_Up]

2_Thumbs: I don't have the background in Keynesian economics that you do in Austrian economics, but as I said in my last post, it just seems intuitive that modest inflation would lead to more economic growth than modest deflation. The former encourages consumption and investment, the latter encourages savings. I'm not saying that deflation would prohibit growth (you're right, that would make no sense) just that it doesn't maximize growth.

This pdf is probably the most clear-cut explanation of the austrian view of economic growth I've seen (written by Peter Schiff's father actually, didn't realize that until now):

http://freedom-school.com/money/how-...nomy-grows.pdf

And you haven't convinced me that there's anything wrong with an increase in monetary supply as long as the rate is below that of economic growth. Wealth is created when economies grow so there should be no problem expanding the monetary supply. Yes, bankers make more money, but they can offer depositors higher rates as well. This thread is my first exposure to the Austrian school, but I was glad to find a few of my ideas fleshed out in this article defending Fractional Reserve Banking, written by an economist of the Austrian school:

http://mises.org/journals/scholar/salin.pdf

Yeah, fractional reserve banking is one of few subjects that are heavily debated even within the austrian school. The general consensus seem to be against it nowadays, but certainly not everyone though. I've followed and been involved in a lot of debates on the subject on a swedish forum. I don't really see a need for an expanding money supply and I also think one of the bigger benifits with full reserves would be that the banking system wouldn't be so horribly intertwined.

[wufwugy]

hmm looks like irwin schiff is one of those 'we dont hafta pay income tax' guys

does anybody have any examples of those guys actually winning in court?

[2_Thumbs_Up]

hmm looks like irwin schiff is one of those 'we dont hafta pay income tax' guys

does anybody have any examples of those guys actually winning in court?

He's in prison for tax evasion.

[mcatdog]

mcat: That was a funny movie. I don't know how much influence the SEC had over the trading of mortgage-backed securities... do you? I think that clearly the investment banks that created and traded them deserve a large share of the blame. As do the ratings agencies that gave them AAA ratings. The question is whether the failures of these companies are an argument for more (and better) regulation or less?

That's kind of my point. Some of the activities that took place may have been beyond the scope of the SEC, but most of them the SEC had the authority to regulate, but simply chose not to. Probably because they didn't want to step on the toes of the big investment banks.

For example, here's an article where an SEC official says the SEC allowed five of the biggest firms to bend the rules and leverage themselves more than other firms were allowed to do. Regardless of whether this particular allegation is true, I think it's natural for the biggest firms to find a way to game the system and hire expensive lobbyists and get regulatory agencies to do what the firms want, just like the railroad companies did in the Milton Friedman video. The irony in this case is that the investment firms were probably excited that they got the government to give them all an unfair advantage, but in fact they were just setting themselves up to go broke.

I just don't think it's realistic to say, well there needs to be "better" regulation that works the way zook wants it to, because zook isn't going to be there to oversee the SEC. Once this crisis blows over, we're all going to stop paying attention to the SEC for the most part, but you can be sure that Goldman Sachs and Fannie and Freddie will still be there with their lobbyists making sure the SEC does what they want.

[mcatdog]

By the way I'm not some conspiracy theorist who thinks investment banks are actually pulling the strings of the SEC, I'm sure the people who work for the SEC are for the most part public servants who genuinely want to do the right thing. But when the biggest banks and brokerages are spending huge amounts of money on lobbying the SEC then it's easy for those well-intentioned public servants to get bamboozled, as happened here.

[Silly String]

I just wanted to say thanks to the contributors to this thread. I am getting some good reads out of it and didn't want to be a lurker anymore. An extra big thanks to 2_Thumbs & zook. Keep the discussion going.

[zook]

That's kind of my point. Some of the activities that took place may have been beyond the scope of the SEC, but most of them the SEC had the authority to regulate, but simply chose not to. Probably because they didn't want to step on the toes of the big investment banks.

For example, here's an article where an SEC official says the SEC allowed five of the biggest firms to bend the rules and leverage themselves more than other firms were allowed to do. Regardless of whether this particular allegation is true, I think it's natural for the biggest firms to find a way to game the system and hire expensive lobbyists and get regulatory agencies to do what the firms want, just like the railroad companies did in the Milton Friedman video. The irony in this case is that the investment firms were probably excited that they got the government to give them all an unfair advantage, but in fact they were just setting themselves up to go broke.

I just don't think it's realistic to say, well there needs to be "better" regulation that works the way zook wants it to, because zook isn't going to be there to oversee the SEC. Once this crisis blows over, we're all going to stop paying attention to the SEC for the most part, but you can be sure that Goldman Sachs and Fannie and Freddie will still be there with their lobbyists making sure the SEC does what they want.

Are you arguing for less regulation? It seems that if the regulations we had in place weren't effective then we need to improve them, not get rid of them. The 40:1 rule change put in place in 2004 is clearly bad, but if instead there were no rules about debt leveraging don't you think the big 5 still would have been overleveraged? I think the NYT article I linked a few posts up shows the danger of having no rules in place pretty clearly.

I do think that gov't is part of the problem, but mainly when it tries to clean up these messes by throwing a bunch of money at people and institutions that made the mess in the first place. That creates moral hazard and effectively eliminates the free market's ability to deter risk-taking. The problem is that if these companies completely failed it would effect so many innocent people with money invested in them. That's the issue I can't figure out how to deal with.

[2_Thumbs_Up]

How are you going to incentivize government regulators? How many of them do you think were fired for the horrible job they did that allowed this mess? Most of them probably gained powers after this lousy performance.

[zook]

How are you going to incentivize government regulators?

Don't you think they're bitter that they're not making as much money as the fatcats they're regulating? Seems like they have plenty of incentive to take them down

[wufwugy]

http://www.washington.edu/insight/financialcrisis/

second vid down easily the best thing ive come across about this situation. as it should be since it's a live forum with qualified professors. first part is good, but the best is the QnA which starts about half way

[Silly String]

Regulation isn't the answer, transparency is. Unfortunately figuring out how to create & maintain transparency in the complicated investment vehicles that are mostly to blame for this situation with minimal regulation is the hard part.