Too much regulation or too little? Maybe it’s the wrong question
There’s a lengthy and heated argument going on today about what caused the recession. Not surprisingly, people are inclined to see what fits in with their worldview.
Conservatives and libertarians tend to be on the “it’s the fault of too much regulation” side of the question. Liberals tend to be on the “it’s the fault of too little regulation” side.
Who cares? Well, the blame game is always fun. But the more important reason we should try to understand what happened is that, in trying to design solutions, it helps to know how we got here.
The solution, according to most conservatives? Less regulation. The solution, according to liberals? That’s easy: more, and throw in a lot more government intervention as a whole—why not?
As for me, I’m inclined to believe that in general “less is more,” because of the incomplete state of our knowledge of complex processes. In other words, “first, do no harm.”
I’m not an economist, as I never tire of claiming. But it seems to me that, historically speaking, totally unregulated capitalism is not desirable. The best and clearest example I can think of is the need for child labor laws and other legislation to prevent blatant exploitation of workers.
But most issues are far more complex than that. In the present crisis, let’s take the example of over-leveraging. In 2004 there was a change in the SEC rules that allowed five investment firms to apply leverage ratios that were far more risky than in the past. You can probably guess who these firms were: Bear Stearns, Lehman Brothers, Merrill Lynch, Goldman Sachs, and Morgan Stanley.
Oh-oh.
So the liberals are right—right? Here’s a perfect example of deregulation—and maybe Bushian deregulation at that—that led us into this mess.
But, not so fast. Here’s the larger picture. It began (sacre bleu!) in Europe, of all places:
In 2004, the European Union passed a rule allowing the SEC’s European counterpart to manage the risk both of broker dealers and their investment banking holding companies. In response, the SEC instituted a similar, voluntary program for broker dealers with capital of at least $5 billion, enabling the agency to oversee both the broker dealers and the holding companies.
This alternative approach, which all five broker-dealers that qualified…voluntarily joined, altered the way the SEC measured their capital. Using computerized models, the SEC, under its new Consolidated Supervised Entities [CSE] program, allowed the broker dealers to increase their debt-to-net-capital ratios, sometimes, as in the case of Merrill Lynch, to as high as 40-to-1.
Not only did Europe lead the way, but this rule change was actually an attempt to increase regulation rather than to decrease it. Sound nuts? Well, let’s take a look [emphasis mine]:
[A]ll five of these major investment banks increased their debt-to-equity leverage ratios significantly in the period following their entry into the CSE program. That higher leverage, coupled with a high concentration of their assets in subprime mortgages and related real estate assets, left them exposed and vulnerable when market conditions soured in 2007-2008. For example, at the time of its insolvency, Bear Stearns’ gross leverage ratio had hit 33 to 1, and press reports placed Merrill Lynch’s debt/equity ratio at the time of its merger at 40 to 1.
But does the adoption of this relaxed net capital rule show that the SEC was “captured”? The problem with this simple hypothesis is that the SEC’s adoption of the CSE program in 2004 was not intended to be deregulatory. Rather, the program was intended to compensate for earlier deregulatory efforts by Congress that had left the SEC unable to monitor the overall financial position and risk management practices of the parent companies controlling these investment banks. Still, if the 2004 net capital rule changes were not intended to be deregulatory, they worked out that way in practice. The ironic bottom line is that the SEC unintentionally deregulated by introducing an alternative net capital rule that it could not effectively monitor.
So the new rule was an attempt to regulate more, not less, although it applied the wrong type of regulation. That’s a lot different than the cry of “more” or “less” regulation. But it doesn’t play as well on the news, does it?
My guess is that many of the policies being discussed as causes (or solutions) for the current recession feature similar ironies and/or complex interplays of regulation and deregulation (I may write on others at some future date). But the most dramatic force of all operating here may well be the law of unintended consequences: actions that lead to unplanned results that most people were unable to predict.
The most vital question is: how can we get smarter about all of this? And even if we were to do so, could we ever trust Congress and the SEC to apply that knowledge to benefit of us all?
We get smarter by better understanding human nature, the design of existence, and the resultant limits upon what government can accomplish (i.e. government should “first, do no harm”).
You are EXACTLY EXACTLY correct about unforeseen “Butterfly Effects” resulting from government action. Czech President Vaclav Klaus recently said: “It’s very difficult to make a good law”. He was speaking of the myriad unforeseen “Butterfly Effects” which result from any government action.
That computer models were allowed to be “regulatory tests” is simply horrifying and shows a complete misunderstanding of the nature of computer models.
At least it gives me a great “horrible example” to add to my post on the subject.
(And yes, the use of climate models in climate science is the same mistake.)
I wish I had a better background on such matters, and more insight into this one. From what little I do know, this seems to me a brilliant and provocative post, neo. Thanks.
Dear Neo,
You are correct in your observation “because of the incomplete state of our knowledge of complex processes”. What is not generally understood is that we will NEVER have a better understanding of these processes. Mathematically they are “np-complete”. This means that there is no known solution given any conceivable computer over any conceivable period of time.
The mechanical (very rough) analog is trying to modify a helicopter – in flight.
Many of our financial crises can reasonably be attributed to changing the rules. Sometimes these rule changes were necessary. Other times they were advocated by those seeking a perceived advantage. Examples:
The untoward events of the 1920’s. The creation of the Federal Reserve and a national currency were undoubtedly necessary. However, the people in the financial system were unable to figure out how to operate under the new rules. Can’t blame them. Even Albert Einstein was incapable of solving that problem. Sad experience is a brutal teacher.
After WWII the Bretton Woods Agreement established an international system of stabilizing currencies. It depended upon the only stable economy, the US, being fiscally responsible. It was, essentially, a gold standard. The Vietnam conflict and The Great Society set up conditions where other countries, mainly European, staged a raid on Fort Knox. The dollar was de facto devalued, though not apparent in conventional terms. Gold, at $35 an ounce, was a steal – so it was stolen. Nixon’s only choice was to close the “gold window”, converting de facto to de jure. The resulting disruptions have been incorrectly blamed on President Carter. It wasn’t him. Remember Jerry Ford’s “WIN” buttons? (4 out of 5 capitalized words in a sentence isn’t a record but it must certainly be good for the silver). This is not a defense of Jimmah – the sad sack just became a convenient scapegoat.
The S&L crisis was precipitated by two acts of Congress – the repeal of Regulation Q and the change in depreciation schedules for real property. These were done at the behest of conventional banks for their advantage. Again, the rules were changed with the inevitable unintended consequences.
The causes of the current problems are hotly debated and will be hotly debated for years to come. All the temperate debate I have seen points to changes in the rules.
So, the mechanic says to the heart surgeon “I can replace 16 valves in a V8 in two hours – how come you get 100 times what I get for replacing one?” Surgeon: “Try doing it when it’s running”.
Regards,
Roy
“The most vital question is: how can we get smarter about all of this? ”
The most obvious answer is: No.
Ferdinand Foch used to ask, “De quoi s’agit-il?” or, freely, “What is the essence of the question?”
Is the question about philosophy of regulation, assigning accountability for what turned out to be imprudent changes, or whether you can get general agreement on a politically charged topic about which most people are ignorant of cause and effect in the relevant system and of the historical timeline?
Great and interesting post, Neo, and we have already seen some fine comments, especially Roy Lofquist’s. I expect it will get out of hand when the question gets to blame.
“Unintended consequences” and “dynamic or complex adaptive systems” have been put into play as relevant concepts. We should add the concepts of “prudence” and “foreseeable consequences” as well as “bounded and unbounded games” and “bounded rationality.”
There is an excellent economics website:
http://econlog.econlib.org/
I particularly like Arnold Kling but the other contributors are good too. It also has an astute readership as evidenced in the replies.
Another aspect of attempting to closely regulate is the false sense of safety that it creates. People rely on government to insure their market safety rather than relying on their own careful due diligence. This is true with drugs, foods, financial products and consumer safety in general. Caveat emptor is no longer a primary concept that is instilled in all children.
I think I’m a middle of the roader here. Get Congress out of regulating as they can not be trusted. Be wary of anything they do to get move control… Keep other types and adapt on the basis of these new lessons… Thanks to the administrative law systems congress has already created, they are needed for new rules changes…
I meant, they ‘are not needed’. We can change regulations without Congress passing new laws.
“… how can we get smarter about all of this? And even if we were to do so, could we ever trust Congress and the SEC to apply that knowledge to benefit of us all?”
Answer to the first question is that it’s not about some complex or sophisticated notions concerning “regulation”. It’s about the application of basic regulation gounded in little more than common sense, and in the context of very well established concepts of sound business practice concerning the use of “leverage”, especially in the context of fiduciary duty.
The answer to the second question is that we can’t possibly trust congress to anything when they engage in little more than cross party special interest haggling and bartering, and often, as seemed to be the case with the so-called “stimulus” package, barely debated much of it, and many didn’t even read the bill. Everyone should be outraged at how that far reaching spending bill was railroaded thru congress. There was no good reason for spending beyond 2009 not being taken care of in an incremental fashion and with much greater transparency. The Democrats aren’t acting like democrats, they’re acting like communists, when they have the opportunity.
The actual down turn in economic activity began when gasoline prices reached $4/gallon. It was causing all kinds of problems in the economy and people began cutting back on spending because they needed more money to support their driving habits. (Like driving to work.) But airlines, truckers, grocers, and all kinds of middle men were all hit by the high fuel prices. The downturn in activity had already begun and fuel prices were coming down when the credit crisis hit.
The banking liquidity problem arose when the rumor got out that all the banks and insurance companies held securitized loans that were chock full of defaulting mortgages, car loans, or credit card loans. People began to sell their shares in the financial sector, then the shorts jumped on and the preferred and common stock fell precipitously. In the meantime the mark to market ruling by the SEC and FASB required the financial institutions to write down their securitized loans by 70-80%. All this combined to put the financial institutions at or below their legal working capital requirements. They could not raise new capital because no one would buy their new issue preferred, bonds or common. So, they all began hoarding cash and quit making loans. That was when the credit markets froze up and the Treasury and Fed jumped in. The Treasury and Fed are required to maintain enough money circulating in the financial system so that normal commerce can proceed. They needed to reliquify the system so banks would be in a position to raise capital and make loans available again.
The Treasury and Fed thought they could just buy the “toxic assets” and then the financial companies could attract new capital. But no one knew what a fair and reasonable price for the assets was. The banks didn’t want to sell assets that were probably worth 80 cents on the dollar for 30 cents on the dollar. But the Treasury was afraid that if they paid too much and sustained big losses then the taxpayers would be on the hook. Thus, the injection of liquidity through purchases of preferred shares. A temporary measure at best. The final solution is still in the works.
What might have been a sharp, short recession caused by high fuel prices has been turned into the “worst crisis since the Great Depression.”
The defaulting loans and subsequent losses could have been handled by most banks over a number of years if the loans had not been securitized. There would have been big losses and maybe some bankruptcies but all bfinancial institutions’ capital structures would not have been called into question and it would not have deteriorated into a systemic problem.
Loan securitizations should not have been:
1. Opaque.
2. Composed of loans with poor documentation.
3. Rated based on a formula that assumed real estate prices would always go up by at least 3%/annum.
I think several things will need to be changed. Mortgage brokers must be regulated. Most of the crappy loans were written by brokers who then sold them to Wall Street. There were no rules against it and they made tons of money doing the sub-primes. In the future securitized loans must be carefully structured, documented, and easily examined for the quality of the loans they contain. Also, the SEC may want to set up an ongoing auction market for securitized loans. Finally, the SEC, which has been exposed as a toothless watchdog, must be beefed up and given the tools to do a thorough job of oversight and enforcement of the rules.
Best thread ever? Where are the trolls?
The Federal Reserve was created to get the politicians’ hands off of the Treasury. Not democratic? Exactly!
From Hamilton’s Federalist 9 & 10 on factions through Franklin’s “a republic, if you can keep it” to Alexis de’Toqueville’s warning about the populists raiding the treasury we have been warned.
What do we do? Pray that these guys are as incompetent as they appear to be and hope that the people realize what’s happening before they cause irreparable damage.
I have always been an American Exceptionalist. I ducked under my desk during the atom bomb drills. I flew missions over the Black Sea during the Cuban Missile Crisis. I was ne’er afraid. We would prevail.
Now I ponder the downfall of the great civilizations of the past. I’m nervous. Not for me – for my grandchildren.
It does not matter what exotic derivative instruments were created and how they came to dominate the hedge fund and banking worlds.
I’m a big believer in looking at the foundation. At root, the cause of the financial implosion was the realization that the derivatives were backed by mortgage paper that lacked normal and prudent underwriting standards. Moreover, those practices at Fannie and Freddie filtered into the tier of mortgage lending above sub prime. In effect, the entire system was poisoned to a certain extent, although the lion’s share of it was in the sub prime market. Liberals blaming the bankers and brokers fail to grasp that the incentives were in response to the rules laid down by the government. Methinks that many of those people just do not want to walk this one back all the way.
I’m going to throw another factor into the mix – one that I am surprised that more people do not grasp: energy prices. Starting in 2006 they began rising well in excess of inflation. In 2007 they were leaping ahead. In 2008 they plowed right through all expectations. All sorts of explanations were proffered. Probably all them were true to an extent. However, one must never underestimate the money that was pouring into the hedge funds that were speculating on futures’ contracts for delivery. I knew that bubble would burst before we got to $150 per barrel. Meanwhile, what it did was reverberate all throughout the economy, snapping up gobs of discretionary income, which in turn depressed demand for all manner of goods and services. This was happening parallel to the real estate and housing bubble bursting in California in late 2006, and gathering steam in 2007, from there spreading into the rest of the country.
Our energy policy has been, in my opinion, retarded. We should have been doing more for decades in terms of adding refinery capacity and exploiting our own fossil fuel resources. We should build more nuclear power plants. We should have been striving for more energy efficiency too. Yes, even “alternative” sources, even if those can never replace even a significant portion of the grid. We should have been doing all of those things. Yet, the political will in Congress, both parties, has not been there to get anything done.
I like JimmyJ’s explanation above. Nice job with that.
We should have been doing more for decades in terms of adding refinery capacity and exploiting our own fossil fuel resources … Yet, the political will in Congress, both parties, has not been there to get anything done.
Haven’t Republicans been fairly consistent with wanting to drill and refine and develop nuclear power? I guess a notable exception would be McCain and maybe 3 or 4 ‘liberal’ Republicans like Arlen Specter. I’m just working from memory so correct me if I’m wrong but hasn’t it been the Democrats who have blocked any attempts in that direction? Save the Alaskan tundra, don’t despoil our coasts(except for the Gulf Coast), nuclear plants are too risky, etc.
I seem to remember back when gasoline prices were up that the Republicans were pushing this issue hard. I guess public interest waned when gas got cheap again. Too bad because drilling, refining and building nuclear plants would no doubt mean a lot of jobs and would probably help the economy. Somebody needs to tell the Republicans. They too could play the game of Use The Crisis – if they weren’t such a bunch of dunderheads.
Not every banking system foundered. Canada’s banking system has survived, even prospered in comparison with most other banking system, including that of the United States. Our secret: prudent regulation by a government determined not to let the banks give in to irrational exuberance. In the early 1990s, Canadian banks asked for permission to do large scale mergers and engage in some of the risky leveraged moves that American and European banks had started. The then Canadian finance minister, Paul Martin, told them, simply, no. In accord with the traditionally conservative nature of American society, he had decided the promised rewards, even if they materialized, would not justify the risk. He got it right. Perhaps Canada did not fly as high during the “boom” years, but we avoided the sea of red ink now afflicting the American economy.
Canada’s financial stability also has a lot to do with our refusal to adopt another American fiscal policy that has led to unintended consequences: the tax rule that allows the deduction of mortgage interest. After the Mulroney conservatives got elected in 1984, theyflirted briefly with the idea of copying the American policy, but discovered the government could not afford it. They, and we, dodged a bullet; because American tax policy penalized renters, it created a fairness argument for measures designed to make home ownership available to as many people as possible. The liberal desire for fairness and the conservative impetus to create an “ownership society” converged in a disastrous policy. Where the government could have acted to evaluate and tamp down the real estate bubble and the associated speculation, they encouraged it instead.
There was an article in Germany’s Focus news magazine last Monday describing the real estate speculation and bust in Spain. There are now one million vacant apartments that no one wants or needs, all newly built. What should have been trendy suburban developments are ghost towns. I am no finance or economic expert, but even I can see that in the last dcade common sense took a vacation on both sides of the Atlantic.
Hi –
One of the unjustly ignored schools of economics is the Freiburg School of Ordoliberalism, which basically says that all the economy needs are limits, which are decided by the state depending on the unique conditions and parameters at any given time. (Caveat: I studied in Freiburg…) This school of thought was established in the 1930s as an alternative, basically, to the Keynesian interventionism then thought to be the cat’s meow.
In this case, the role of the state in the economy is to manage the economy’s operating parameters in such a way as to optimize the economy and get it to work as close to its theoretical optimum as possible. Basically, the state prevents the establishment of monopolies or oligopolies in order to ensure that competition works; the idea is to establish and work on an economic order, rather than trying to control processes.
It formed the basis for the German economic recovery after WW2.
The fundamental problem with it is the fact that governments are, generally speaking, so beholden to special interests, aka companies and industries relying on subsidies to survive, to make ordo-liberalist policies that are also make economic sense.
How does such a thing work? I’ll give you an example of Austria: in the 1970s they decided that they wanted to become world experts in diesel motors. The government financed at the technical universities about 10 full professorships and provided cash for scholarships. The result? Austria is indeed one of the world leaders in diesel technology (for instance, all BMW diesels are designed and manufactured in Austria). It doesn’t always work: they also wanted to become the world’s leader in gliders, and that didn’t work out so well.
The decision where they invest for their future is largely apolitical, aimed at where the greatest potential is for economic benefit given Austria’s natural resources, population, etc. Several years ago they rolled the dice again: new professorships for nanotechnology and other new technological directions.
The key here is that the choices are made without taking into account vested academic interests, and the sums are fairly moderate. I can just imagine how this would work in the US: due to pressure from interest groups, it would become highly politicized, and we’d end up becoming experts in victim sociology and advanced manufacturing techniques for buggy whips.
Japan has also used such methods, but they invested very heavily in AI and the whole “Fifth Generation” of programming languages, which resulted in fuzzy logic and the like, but outside of some nice industrial controls and the like failed to really produce. Here the academics got too much money and hence power over research areas.
The lack of a non-politicized ordoliberal framework is one of the problems facing the US.
We will look back at last fall’s attempts to use public money to buy toxic assets as one of the great mistakes of policy. There was no leverage and only problems in attacking the asset side of the equation. The government’s leverage was always on the right hand side of bank balance sheets, in its rule-making ability and rights as the bank supervisor.
See the effect last week of rising expectations that the SEC would adjust Mark-to-Market standards. Another example of unintended consequences: MTM was meant to increase transparency, prudence, and stability; it became an vector for spreading panic, and an engine of doom. We can add inconsistency, as I understand it, in handling both the uptick rule for short selling and the regulation of naked short selling as missed regulatory opportunities.
I will go back out on the limb and assert that the bank balance sheets can recover much faster than anyone expects, as the banks find it possible to reverse loss provisions taken into reserves and banks enjoy very healthy interest rate spreads.
Yesterday, Geithner spoke at the G-20 finance ministers meeting in Horsham. He mentioned work on market-based mechanisms for reducing banks contingent exposures, which I read as dealing with the mountain of derivatives that threaten to come onto the balance sheets. This is a step in the right direction.
He also stated support for increasing global regulation of financial institutions, with emerging economies (I’m reading China and perhaps Brazil here) to be involved in governance. This is a big deal and most likely a step in the wrong direction, toward politicization.
Congress’ logic is “fuzzy”, at best.
All one has to think about is the camel joke. The one about a camel being a horse made by committee. It happens every time.
My problem with today’s congress and administration is the consequences they seek are all intended.
“Regulation” is that process by which elected officials structure law with the bald objective of mandating that the owners/operators of any profitable venture be forced to kick back portions of their profits to the elected representatives who regulate them . These kickbacks are baseline self defense. The corporations or individuals who actively go after advantage soon find themselves at the mercy of government, and ultimately fail faster because of their maneuvering.
It’s almost lamp post time for this congress. Obama is an incompetent boob. Unfortunately for the hacks and corrupt scions of his party, he is also a True Believer in the communist drivel the rest of the party plantation managers have merely paid lip service too in pursuit of their own fiefs.
Darkness rising.
Grackle said, “I guess public interest waned when gas got cheap again. Too bad because drilling, refining and building nuclear plants would no doubt mean a lot of jobs and would probably help the economy. Somebody needs to tell the Republicans. They too could play the game of Use The Crisis – if they weren’t such a bunch of dunderheads.”
I saw a Republican Congressman (didn’t catch his name) on Fox News who said that a group of Republicans is going to propose a stimulus plan that would cost the taxpayers nothing. The idea is to open up the offshore areas and ANWR for drilling. They also want to speed up the approval process for nuclear power plants.
This is a very good idea. It would create new jobs and economic activity without spending taxpayer money. All it requires is Congress getting out of the way.
Even though we need to be moving toward a non-fossil fuel future (Not because of AGW, but because fossil fuels supplies are finite) fossil fuels, particularly oil, are going to play a big role in transportation uses for the next 50 years. We know there are 5 billion barrels of oil in ANWR, 3 billion barrels offshore of Santa Barbara, CA and, if given the green light, those barrels could be hitting our pipelines in 3-4 years. In addition, it is believed that there is upwards of 30 billion barrels to be discovered in the eastern Gulf Coast. And no one knows how much more might be found off the east and west coasts of the U.S. This is a truly big win for the taxpayers. The oil companies pay the government for the lease rights, then a royalty of as much as 15% on each barrel produced. The government then gets taxes from the subsequent gasoline production as well as income taxes on the oil companies’ profits. Then there is all the tax revenue from the good paying jobs that are created by all this drilling and production activity. The government gets all this income without any risk. The oil companies take all the risk. To top it all off we improve our balance of payments with every barrel of oil that we don’t buy from a foreign country. It is all such a no-brainer.
Nuclear power is the only clean energy that can be used to produce electricity at the scales needed to replace “dirty” coal plants. The new nuclear reactors are simpler, safer, and, though expensive, long lasting. Storage of spent fuel is a political football. Yucca Mountain in Nevada is as safe as any place but is blocked by Congress. Now that they have a process for reusing spent fuel, the final waste is so used up it only requires storage for 200 years rather than 10,000 years. Yucca Mountain could store 500 years of that level of waste very safely. Japan, France, and the U.S. Navy have used nuclear power safely for 60 years. As one sage said, “We have taken nuclear power away from the scientists and given it to the lawyers.” That just about sums it up.
The only way any of this is going to come to pass is for the citizens to demand it. Write or call your Congress Critters. Write or call the President. If enough people raise their voices about this we could get some action.
This is the ultimate argument for Conservatism: if it ain’t broke, don’t fix it! You may not even understand how it really works, and you probably don’t understand all the different ways it can go wrong, especially as part of a larger system. The Great Society is a great and tragic example.
As to not understanding how a thing really works, try this: explain how a motor vehicle tire works. By that I mean: explain exactly what forces, where, in the tire resist the weight of the vehicle. I’m not even asking you to consider what happens when the vehicle is rolling.
(I posed this question to a physicist who is now working in software. He came back the next day with the right answer, but added that it would require tensor analysis to describe it quantitatively. So he took about as long as I did, but he can see the math; I can’t quite.)
My congress critter is a dumb social work administrator named Carol Shea Porter who votes strictly along party lines and she would never, ever vote for allowing more fossil fuel use and more nuclear power plants. I am convinced that, in my congressional district, which is now infested with idiots and collectivists from Massachusetts, that it would take damn near a miracle and over 70% of the people demanding that this happen in order for the damn woman to even *consider* voting against her party.
This has all been decided by the people at the top and at the U.N. They want to financially rape this country and lay it low. Sometimes I think it would take a full bore rebellion to drive the moonbat Leftists into the rat holes they come from.
whats missing is the effect of law.. for instance the question neo is posing may be valid if the targets ot the regulations, or not regulations, dont change theri behavior based on that.
so if banks are left to themseves, they will each come up with a different number of how much they have to ahve in reserve.
but if the state declares an arbitrary number, well, then something happens…
the spread between the banks numbers and the states numbers become the advantage that others who follow the state will have, even if for a time.
for instance. if you have three different sized banks with different ratios. one has 50 percent on hand to cover. another has 30 percent… and the third has 40… no regulation sets the amount, and so the company itself suffers or succeeds on it. too high, they can write fewer loans, too low, and they cant cover in a bad moment.
so now the state comes in and says… its ok ot make it 20… now everyone can loan out as if the number SHOULD be 20… for no one can argue otherwise.
in other words, if the states regulation gives you persmission to run ff a cliff, and others start doing so, you HAVE to follow, or be out of the game early.
that is if 50 percent suddenly becomes a 20 percenter. then 30 and 40 have just found themselves losing lots of market share to someone in the recent past wanst even a solid competitor as they had to have much more in reserve.
same with other laws… without the laws, we find a moral stance… and integrate that into our culture… once law starts regulating personal behavior outside of criminal acts, then we start using law to tell us how to behave, and any behavior not codified, is allwoed till it is.
in both cases it becomes a race to the bottom…
tired of rewriting 1 paragraph ten times to get it posted when it has no dirty words, nothing in it thats wrong… then you paraphrase it..
not worth it..
The ban ks will all loan at the new rate, because they would go out of busin ess immediate ely if they did int. they go out of business later if they do play. so its better to do and get your salary, bo nus and then cash out.. T here I sn’t any choice other than to sacr ifice your se lf for not hing thanks to the law, or pl ay the g ame as long as you can.
new method to get around it.. just add spaces to large words… harder to read, but then it makes it through… sigh.
The ban ks will all loan at the new rate, because they would go out of busin ess immediate ely if they did int. they go out of busi ness later if they do play. so its better to do and get your salary, bo nus and then cash out.. T here I sn’t any choice other than to sacr ifice your se lf for not hing thanks to the law, or pl ay the g ame as long as you can.
so the law only ma kes a situa tion plain to the ba nkers… it makes it plain tha t they have to take to earn, rather than buil d to earn, since the state just lega lizes their de struction and they cant turn ar ound and tell shareholders that the sta te says x is ok but we are doi ng y and have lost half our loan bus iness to the other who can set better terms.
so it invert s everything… they move this stuff into long term debt which becomes cheaper which shouldn’t happen… and so like a ma gnet they do this, sell th em off, and play hot potatoes..
why?
what other choice to they have… quit now with nothing, quit later with your parachute… saving the b usiness and run ning it right isn’t even a choice… bec ause they set a figure out of thin air, but that future com pels behave ior.
if you made a law that said its ok for cars to go on red, and people to walk on green.. do you know how ma ny people will get ki lled and blame every thing but the states rules?
This anti nuclear mentality among democrats pretty much proves their energy policies have zero to do with weaning off fossil fuels. They simply can’t stand the prosperity and economic freedom such efficiency is likely to produce.
We unleash the almost boundless energy that powers the stars and have to watch idiot politicians piss it away. That one issue itself should be cause for a revolution.
FredHjr,
My Congress critters are Rick Larsen, Patty Murray, and Maria Cantwell, very liberal dems all. When I first started sending them e-mails I never got an answer or a pat boiler plate form answer. I kept sending their answers back to them with my reasons why I disagreed with their positions. I’m getting more results now. I’m actually getting cogent answers with some thought behind them. I keep sending my disagreements back. They have gotten the idea that I’m not going away. I know their staffs compile e-mail results based on numbers for and against various bills and issues. But when you are persistent they begin to actually read your e-mails.
Don’t know if you remember the letter I sent them about energy back in August 2008, which I posted here on Neo’s blog. That brought a number of replies from them and counters by me. They have been exposed to the ideas. I also sent that e-mail to President Bush. Shortly before he left office I received a nice personal letter thanking me for my ideas and his desire to see such policies put in place. We have to remember that they work for us. If we don’t tell them what we want, they’ll give us what they want.
I’m not a big fan of Glenn Beck, (He’s too much of an ideologue and too emotionally fragile for my tatstes) but he has started a mass popular movement called the 912 Project. Check it out at http://www.the912project.org. I agree with much of what he is trying to do and that is to tell our representatives that they work for us, not the other way around. Chucky Schumer can say the average citizen doesn’t care about pork, but he is absolutely WRONG!! I’m going to support the 912 project as long as it doesn’t become a French Revolution type program. We need to get involved and speak our voices. Commenting here makes us all feel good, but we are preaching to the choir. It is a representative government – our representatives need to hear from us.
Spragge,
Why is it I can’t think of 3 great Canadian companies?
Or even 1?
There might be – but I’m thinking that it’s revenue nowhere matches any of the top 50 companies in the world.
Canada has made herself irrelevant……
….. dependent on America to protect her
….. hoping Ford keeps building plants in Canada.
….. etc.
There.
How do you like the mirror diplomacy in your face????
If you have a glass house don’t throw stones. 🙂
On a more serious note:
1) Thanks for providing a health care system that conservatives can point to and say – see, we shouldn’t do that.
2) Thanks for having a system that doesn’t allow people to speak freely
http://www.marksteyn.com/
3) Thanks for having an education system that is devoid of critical thinking or logical arguments.
🙂
Dude! Awesome !!! Totally !!!!!
Artfldgr, I understand your logic, but in reality it is more complex than you suggest. There are different reserve requirements according to the class of asset you hold, and in any event, not every bank became equally leveraged or exposed, notably J.P. Morgan and I think Wells Fargo.
Opie ridiculously (or not so ridiculously) wrote, “The fundamental problem with it is the fact that governments are, generally speaking, so beholden to special interests, aka companies and industries relying on subsidies to survive”
Do you mean:
1) illegal alien special interest to vote more democrats in
2) The bottom 40% of taxpayers pay no income tax and that with Obama is the bottom 50% of taxpayers – to vote mroe democrats in
3) The enviro nut crowd special interest that has Obama sealing off even more area to drill baby drill?? Let’s be clear – we are all environmentalists and want a great environment for our children (mine are 9 and 12) but the policies of the left are the special interest killing jobs and creating higher energy costs in America
4) The trial lawyer special interest socking it to us on all fronts – health care costs, manufacturing costs, retail costs (see Hugh Hewitt’s site for CPSI ridiculousness that is killing retailers
5) oh. I could go on.
I realize that you have your perspective. And to you it’s valid.
But in reality you are railing against companies as a special interest but liberals will never agree to:
1) a low flat corporate tax (currently the U.S. has the second highest corporate tax rate
2) a flat income tax with the only exemptions being large personal exemptions so that a family of 4 would not pay income tax on income below $36,000 and if the income was $37,000 it’d be a flat tax on the $1,000 over the $36,000
Why would liberals never agree to that???????
It TAKES THEIR POWER AWAY
They want to give give give and as conservatives speak about “PERSONAL RESPONSIBILITY” liberals want to change the argument and create strawmen and bogeymen.
Thanks for doing that and ruining the country.
Dishonesty is yours!
spragge lies?
http://www.canadianbusiness.com/markets/headline_news/article.jsp?content=b0227147A
Or just misinformed 😉
Baklava, you are stirring up trouble unnecessarily. Mr. Spragge has returned, and he is behaving pretty well so far. Don’t give him reasons to misbehave.
And I didn’t see anything particularly upsetting about what Mr. Opie wrote. It was thoughtful and not unbalanced.
Spragge,
I’d feel silly posting as you do if I were you
http://list.canadianbusiness.com/rankings/tech100/2008/q4/performance/Default.aspx?sp2=1&d1=d&sc1=3
Baklava, you are quite correct in pointing out that Canadian banks and the Canadian economy have not proven to be immune from the global economic problems. You are correct to say that Mr. Spragge was silent about these problems.
But to say he was lying is out of bounds, in my opinion. Let’s just say he gave a partial analysis and history. He wouldn’t be the only one who has ever done that around here. I have done it myself.
I’d say his statements were quite bold given the facts….
I did give room for him being misinformed 😉
The Opie comment that I picked out was typical anti-corporate tripe.
Baklava, Canada is a small country in terms of population, with only 33 million habitants, or about half of the U.K. Canadians like Mr. Spragge have complex feelings about the United States. I don’t think those emotions are all negative, in spite of whatever resentment, anger or contempt he might feel.
Oblio,
There are good people that I know that are Canadians.
As I said – he lives in a glass house.
I don’t understand the need to GENERALIZE.
I was doing the mirror so that he could see how it feels.
Identity politics gets people nowhere.
We can surely understand that there are people everywhere who borrowed too much (including in Iceland) and we can surely see that there are rules that liberals and conservatives put in place that were in hind-sight not the best…
Bogeymen are everywhere and they are all conservative bogeymen in Spragge’s eyes.
As I see it – his dishonesty was ILLUMINATED.
Now he needs to go to the library or something.
And Come out without the broad paintbrush
On Opie, maybe you are right to detect attitudes that I don’t sense, but I think it is beyond debate that when governments regulate business, business interests try to influence government policy. They aren’t the only special interests, but I didn’t read Opie as suggesting they were.
I still don’t see the dishonesty in Spragge original comment. If he were more specific, his assertions might be falsifiable.
As it is, he has two points; one about banks in the early 90’s and another about the impact of non-deductability of home mortgage interest from a debate in the 1980’s. How you draw a line from those points to current Canadian bank performance is beyond me–those aren’t the only rules, conditions, and practices that have applied to Canadian banking in the last 25 years, and they certainly aren’t a basis for a comparative analysis of financial systems.
So I don’t see the need to get worked up.
Oblio,
It was specific enough for me.
John wrote, “Canada’s banking system has survived, even prospered”
John also wrote, “but we avoided the sea of red ink now afflicting the American economy.”
You can see by my links….
John lied.
Again
http://www.canadianbusiness.com/markets/headline_news/article.jsp?content=b0227147A
And just to keep the jabs going. 🙂
From Powerline blogspot:
When Canadian Member of Parliament Belinda Stronach, who had denounced a two-tier health care system for Canadians, needed breast cancer surgery herself in 2007, she headed to a California hospital and paid out of pocket.
he he
And which tax breaks do liberals want anyway?
http://drhelen.blogspot.com/2009/03/alex-balwin-supply-side-economist.html
That one???
Or ones for home owners?
Gotta love Dr. Helen 🙂
I think Greenspan’s recent column in the Wall Street Journal makes a valid point, namely that the tremendous inflow of funds from China during the late 90’s and the first half of this decade ended up in the mortgage market, driving down mortgage rates, which naturally caused inflating property values and thus the asset bubble. Obviously there were other factors, but I wonder if we would have had other than the normal mild recession without this tremendous infusion of liquidity.
I’m going to come out and oppose child labor laws.
Here is my point: when such laws were enacted, child labor was already mostly a thing of the past. The one major exception was farm labor, but child farm labor was allowed by the labor laws.
Most people are not going to send their children off to do hard labor. The fact that this was once done suggests necessity, not preference. Starvation is not preferable to hard labor.
oblio…
i know those points.. and have no idea of the real complexity…
what i was speaking more to was the psychology of a number and what it does to people.
want to have a lot of accidents? post a speed sign way to fast for a curve… the people will follow the sign, not their own judgement.
the point of the example was that the one with 50, would suddenly be able to write more loans that 30 and 40 combined!!!! under the new rule amount…
so what happens is psychological.
its not as simple as a regulation or not a regulation..
for certain regulations will have psychological actions in and of themselves… on our ability and faculties to actually judge a situation after the regulation…(we were made to function in a real world with real rules that dont change cause god dont twiddle with atomic forces).
forgetting too much or too little… and go straight to the point that by setting a figure, you also set many people in different categories along argumentative paths with given outcomes!!
and none of those outcomes are the stated intent of the law… they may even be belittled or put down (but one would be surprised how often they are right if one had the memory to do so)
the bank person who would be able to stand up and argue that they shouldnt use the 30 points in reserves to bring it to the level the state has would be out of work… the conservative factors who would want to run the business for the long run, could not win against the young guys who would be arguing that they are not taking advantage of a 30 point spread, and all that businesss….
once this starts… then the beast gets a life of its own, and everyone involved sinks to the level that the state set arbitrarily, because there are enouhg people in any functioning group that are not smart enough to actually work out the solutution, so they feel their way, and then go with that.
an army of people who think the state is right will force the person who says the state is wrong, to comply. so if the state sets an arbitrary number having no bearing on reality (as they dont know operating expenses, financial vehicle mixes, what different lines they are in, etc).
just as i cant reason someone from a position they did not reason themselves into… the competent few would never be able to stand up to the incompetent many who think the state is competent, and will team up to push what they FEEL is right… he cant win, as the people cant understand his point any more than the feminsts did summers point (sorry stuck in my head from last post).
put shortly…
if they state a value, then everyone will use that value
few will try to find out if there is a better value..
and even the few that do, cant go against the many who cant..
Baklava –
Wrong, wrong, wrong, wrong: my point isn’t corporation-bashing, but describes the problem of ordoliberalism where the government provides industrial subsidies not based on merit, but rather due to the specific lobbying efforts of companies who live off these subsidies. I never said that all companies are like this, but rather that it is a problem of implementing ordoliberal policies.
Nothing more, nothing less.
If anybody is ruining Washington, it’s been the Democrats for the last 40 years. If not longer.
Me, I’m anything but liberal: I want the repeal of any and all capital gains taxes to get the economy back on the road, not the pork we got. If you’d have bothered to actually read what I wrote, rather than knee-jerk respond to what you thought I said, and perhaps even read my blog, you’d realize that I’m about as far from being liberal as any other poster here.
Work on the reading recognition skills, okay?