deregulation and the current credit crisis

So existing consumer advocates groups are okay, but when an identical group is proposed that contradicts your opinion they are immediately corrupt before they even exist? Your above assumptions are so biased I don't even think a logical reply would matter. Personally, as a consumer, I'd gladly pay for Med*. I already pay morningstar and my health is much more important to me. Heck, I already pay for the government agencies, too (through taxes). Basic economics suggest that my subscription to med* would be less than I am currently paying the gov't in taxes.

I won't bother with the hairless apes *opinion*, and I have lost count of how many times I have answered your "NO laws and regulations" question. I'd be interested to see a poll on how many here think we nothing more than hairless apes.

That is indeed the problem. We over-react and spend a bunch of money. Then we eventually realize we over-reacted and so we over-correct in the opposite way. If extended equilibrium almost never occurs, why are you content with the current system?

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"kastnna" wrote

I am curious: When is the last time you feel we had a meltdown like that we have had for the past year? It would be helpful if you listed all the meltdowns and rated them relatively.

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Listen guys, I know my ideas are radical and I don't expect to sway the masses.

But I didn't come up with these thoughts overnight. I actually didn't come up with them at all. They're the theories of the economists that laid the groundwork for our modern economy and capitalism itself (namely Adam Smith, Thomas Jefferson, Ludwig Von Mises, Frederick Hayek and Murray Rothbard).

I believe, we all mean well. That is, we are all trying to do what we think is right to improve this country. You make a certain set of reasonable assumptions that leads you to a conclusion. I also make a set of reasonable assumptions that leads me to a different conclusion. We disagree in the assumptions which leads us to disagree in the conclusion.

My belief is simple: if you're sick and you've repeatedly tried one medicine and it doesn't work, it's time to try a new medicine. Some are so hopefull that the medicine will eventually work, they would accept death rather than a potentially risky change in treatement. I'm not one of those people. To each his own.

Thanks for the fun chat, but I don't think this is adding anything to the group any longer. Peace, I'm out!

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You would not be able to perform due diligence in many cases without regulations. For example, what accounting standard due company filings have to conform to? (That's a regulation). In fact, what do companies have to file? (That's a regulation, too).

Now your comment is not apples-to-apples. The government is not providing free hotdogs, or in this case it is not providing free ratings of financial services. Regulations are not a replacement for ratings, but they provide a disincentive for financial companies and representatives to cheat, presumably a bigger disincentive than just losing some business. As such they may provide a quality floor, but not a rating.

First, you snipped the part where I pointed out that low level consumer stuff was not what I was talking about. I was specific in referring to situations that could be catastrophic to the consumer. Second, most of these things are regulated to some degree (cameras may need a UL listing, toys can't have lead paint or be dangerous to the age group they're marketed to, consumer protection laws abound), software being a notable exception.

-Will

william dot trice at ngc dot com

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The medical analogy was, perhaps, not the best one. I did not, however, mean to say that regulation of the medical field was inadequate. I don't know whether or not that is true. I'm fairly certain, though, that there are incompetent doctors because of irresponsible oversight. The same is true in this economic instance and that regulation in and of itself would not have eliminated today's economic woes because the overseers were just as irresponsible as everyone else.

I'll stick my neck out here and suggest that one of the reasons there is a lack of competence in the medical field is not just because of lack of oversight, but because so many in our society are irresponsibly leading unhealthy lives, thereby placing too much demand on the medical system. Our economic woes have been caused, in large part, by individuals (and businesses) displaying a lack of care in personal finance, thus causing too much demand for credit.

Elizabeth Richardson who apologizes for the delay in this response, but she was out of town doing her part to stimulate the economy

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On behalf of USA, we appreciate it.

I too was out for a while, practicing what I preach - In bad times turn off the TV, don't read the paper and avoid the water cooler. And if that's impractical (for example, you are a financial consultant), get out of town. I chose Paris for a week, and returned calm, relaxed, and better able to deal with the high levels of emotion now present. This weekend I plan to turn on the phone machine, snuggle up with a cooler of adult beverages and watch South Carolina lay the wood to Kentucky.

-HW "Skip" Weldon Columbia, SC

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Sorry guys. I tried, but the activist in me just won't let this go yet.

For the umpteenth time, I'm not against all regulation. And again, in my opinion, the companies would voluntarily provide accounting standards to entice investors/consumers. If competing companies were having trouble getting investors to buy due to concern that the companies are not financially sound, it only makes sense that a financially sound company would VOLUNTARILY offer up financials to entice investors. The other company would then have to do the same, or risk losing potential investors to their competitors. That's economics of a competitve market 101.

Perhaps I should have broken my comments into two separate paragraphs. I apologize. My point was that you earlier questioned why there is not currently a Med* and then cited its lack of existance as evidence that my theory was incorrect. I was simply replying that your conclusion is flawed. There is not currently a Med* because the government already provides a viable alternative (there's little need for ratings because quality is mandated by regulation). The government is stepping in to handle what an entreprenuer could handle privately and statistically more efficiently. The same would be true with my hotdog example. If the government gave out free hotdogs, Nathan's hotdogs wouldn't exist (they would have trouble selling hotdogs when the government gives them away for free)[assuming all hotdogs are equal]. Nathan's hotdogs exist becuase the gov't doesn't interfere. Med* doesn't exist becuase the government does.

I apologize for the snip. It wasn't malicious. You stated, "With the lack of these, must I become an expert, or hire an expert (and how would I determine that this was indeed an expert), in EVERY field for EVERY consumer decision I make?" That's a direct contradiction to "I was specific in referring to situations that could be catastrophic to the consumer". So which is it? I assumed your most recent statement was reflective of your opinion. If so, it reinforces my point that there would only be a small number of catastrophic arenas in which increased due diligence is necessary.

Underwriters Labratories (UL) is a perfect example to reinforce my point. They are not gov't mandated or regulated. They are voluntary to make customers more at ease and producers voluntarily hold to their standards to keep up with the competition. Companies like UL are exactly the response I would expect in the wake of deregulation. Med* is the UL of the medical arena.

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Sorry guys. I tried, but the activist in me just won't let this go yet.

For the umpteenth time, I'm not against all regulation. And again, in my opinion, the companies would voluntarily provide accounting standards to entice investors/consumers. If competing companies were having trouble getting investors to buy due to concern that the companies are not financially sound, it only makes sense that a financially sound company would VOLUNTARILY offer up financials to entice investors. The other company would then have to do the same, or risk losing potential investors to their competitors. That's economics of a competitve market 101.

Perhaps I should have broken my comments into two separate paragraphs. I apologize. My point was that you earlier questioned why there is not currently a Med* and then cited its lack of existance as evidence that my theory was incorrect. I was simply replying that your conclusion is flawed. There is not currently a Med* because the government already provides a viable alternative (there's little need for ratings because quality is mandated by regulation). The government is stepping in to handle what an entreprenuer could handle privately and statistically more efficiently. The same would be true with my hotdog example. If the government gave out free hotdogs, Nathan's hotdogs wouldn't exist (they would have trouble selling hotdogs when the government gives them away for free)[assuming all hotdogs are equal]. Nathan's hotdogs exist becuase the gov't doesn't interfere. Med* doesn't exist becuase the government does.

I apologize for the snip. It wasn't malicious. You stated, "With the lack of these, must I become an expert, or hire an expert (and how would I determine that this was indeed an expert), in EVERY field for EVERY consumer decision I make?" That's a direct contradiction to "I was specific in referring to situations that could be catastrophic to the consumer". So which is it? I assumed your most recent statement was reflective of your opinion. If so, it reinforces my point that there would only be a small number of catastrophic arenas in which increased due diligence is necessary.

Underwriters Labratories (UL) is a perfect example to reinforce my point. They are not gov't mandated or regulated. They are voluntary to make customers more at ease and producers voluntarily hold to their standards to keep up with the competition. Companies like UL are exactly the response I would expect in the wake of deregulation. Med* is the UL of the medical arena.

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Kastna, I am more likely to agree with your minimalist view of regulation, than with those who are seeking increased regulation. However, your above statement that quality medical care exists because it is mandated by regulation is complete balderdash. I have lived in small towns for over 40 years. The further you get from a metropolitan area, the lower the quality of medical care. That is a fact in the several states I've lived, so it is not a state-specific phenomenon. The good doctors collect in larger areas because of economies of scale in the acquisition of state of the art medical equipment, because that's where the teaching hospitals exist, because they can be closer to higher quality education for their children, etc. Cities may also attract poorer quality physicians near poor neighborhoods, it is true, but cities offer its residents the opportunity to seek out the best, too.

Not everyone can be the best. This is as true of doctors as it is with lawyers and financial planners (and accountants and architects and . . .). No amount of regulation can control how good you are in your chosen profession and, unfortunately, the regulators weed out only the most egregious incompetency.

Elizabeth Richardson

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Even that didn't seem to work on this latest fiasco. Heard a Harvard Bus Prof on NPR actually use the word "incompetent" referring to both the Wall St pros and their regulators. He also mentioned a totally unregulated market worth $60T (yes, a T) that works like insurance on big financial packages, but is called a "swap" so it isn't regulated like insurance. Apparently it is so complicated nobody really knows what it means, but it exists. Can anybody give me an inkling what that is about?

I agree, we all can't be above average, but somebody should have been smart enough to see beyond his/her greed or paycheck.

Chip

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That would be true only for the IPO. There is little additional incentive (can I say "marginal" incentive?) to provide this information to the secondary market which is where most of us buy our shares.

My point was to both ends of the spectrum, I apologize for the confusion. I was agreeing with you that regulation is not necessary to prevent you from getting a crappy camera, or even crappy financial advice. Regulation may be necessary to prevent someone from selling you a camera that has a high probability of catching fire when plugged in for recharge, or to prevent someone from selling you catastrophic financial advice. Must I have an electrical engineering degree in order to buy a camera and ensure that it will not violently explode when I press the shutter release? Do you believe that the regulations concerning your fiduciary duties to your clients should be dropped?

It is true that the UL standards are voluntary. That's why I said a camera "may require" a UL listing. However, OSHA requires items used in the workplace to be certified to UL standards (not quite the same as a UL listing as of last year apparently, my mistake). That's a regulation. I think. But perhaps the analogy is once again straying too far from the financial arena.

-Will

william dot trice at ngc dot com

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"Elizabeth Richardson" wrote

Studies have determined that, while per capita medical spending is higher in metropolitan areas, the overall health of those cared for is no different. Specifically, the greater number of providers in metro areas translates to overprescription of inefficacious services, wasting resources and money.

Repeal of Glass-Steagall in 1999 was dumb. But it will likely take a calamity like today's occurring every 50 years or so for the next few generations to be wise souls.

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Are you sure that's true? Note that the repeal of it via Graham-Leach-Bliley allowed the creation of JPMorgan Chase, Bank of America and Citigroup in their current incarnations - these are the same companies which have been taking over other failed companies like ML, Countrywide, etc. It might be possible that had GLB not happened, those latter companies might not have failed, but that's hard to demonstrate, especially when some of the failures were straight i-banks like Lehman and BS.

It's not obvious that the repeal of Glass Steagall is what allowed those bank conglomerates to be so strong - but it's also not clear that the creation of them, in and of itself, has led to great danger or failures.

If you're looking for specific events on which to hang more of the blame, think about the expansion of the subprime market (especially Fannie and Freddie's participation therein). Think, too, about the effects of Mark-to-Market, which allowed i-banks to mark *up* prices of assets to absurd levels during the bull market for crappola (and thus book massive profits and pay their executives even more absurd bonuses), and which is now forcing them to mark those same assets down - but with the loss of liquidity, the new marks are at least as bad as the old ones.

Note that TARP gives the the SEC authority to suspend FAS157 (the mark-to-market rules) for any issuer if they determine that doing so is "necessary or appropriate in the public interest and is consistent with the protection of investors." And TARP also orders the SEC to conduct a study on M2M considering the effects of it on balance sheets, impacts on bank failures in 2008, etc. etc and requires that report to be submitted to Congress in 90 days (starting a few days ago). That report should make for some fascinating reading. (Secs. 132, 133).

Meanwhile, the next shoes to drop will be the upcoming settlement of CDSs - in particular, Lehman's this friday.

Are you sure that these takeovers are better than their not having failed at all? Nor I am the least bit happy that now banking is becoming concentrated in the hands of a few corporations, with Citigroup's hands in particular to be said to be particularly unclean. Sandy Weill of Citi was a huge backer of the repeal of Glass Steagall. Now we have the former CEO of Goldman Sachs running the banking system. I am uninspired. Paulson might do okay, but it is staggering that he cared so little about the appearance of a conflict of interest. Ethics will return to this country, including recognition of what keeps our economy safe. But this is a hard lesson.

A review of the history of Glass Steagall, in particular why back in the 1930s it was designed to build firewalls between between investment and commercial banks and insurance companies, is what convinces me that its repeal was an enormous mistake. Its repeal allowed and/or promoted massive leveraging via the packaging and re-selling of subprime mortgages into nonsensical packages, supported by those only experienced with numerology and aiming for a quick buck for their companies.

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There's another point here that I think often goes unnoticed: When governments set out to enforce minimum standards, those minima often become de facto maxima.

In other words, the plus side of requiring everyone who practices medicine to meet particular requirements is that you can go to anyone with an MD degree and be sure that that person has met those standards (in the absence of fraud, of course). On the other hand, there is little incentive to compete based on higher standards--especially in the presence of third-party payers--because for such competition to be worthwhile for the doctors, they have to charge more for their higher credentials. And in a regime where most people think that anyone who meets the standards is interchangeable with anyone else, such competition is hard to manage.

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He was referring to credit default swap (CDS) agreements. The original intent of the CDS market was to allow a lender to "insure" a debt instrument from loss by transferring the risk of default to another party. So for example an investment firm might buy a mortgage-backed security for income. The MBS might pay 6%. Perhaps the investment company wants to mitigate the risk that the MBS positions will default so they turn to another party, maybe an insurance company like AIG, and pay them 2% to insure the MBS against default. If the MBS defaults, AIG makes the investment company whole and receives the MBS in return to try to wring whatever value out of the MBS that they can. Kinda like car insurance, when Allstate totals your car they might tow it off and sell it for scrap to at least get some money out of it.

Part of today's problems came about when CDS contracts started to be used for shorting companies. So for example, if I wanted to bet against Citigroup I could buy a CDS against one of their bonds, without even owning that bond. If Citi gets in trouble, I could sell the CDS for a profit. If Citi gets in so much trouble that it defaults on the bond I bought the CDS against, the CDS seller must pay me as if I owned the bond, and I go out on the market and buy the distressed bond at a steep discount to give to the CDS seller. I heard on NPR that some 80% of CDS activity was this type of shorting.

-Will

william dot trice at ngc dot com

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On Oct 13, 8:49 am, snipped-for-privacy@aol.com wrote: > I think part of the problem is that the government pressured lenders

I wonder whether a clarification here might be appropriate. The article you cited ultimately concludes speculators (not non-Asian minorities) took advantage of loosened standards to gamble and then went broke. From the article's conclusion:

"The hypothesis that currently seems to best fit with the evidence suggests that housing speculators were taking out many loans with the hope of a quick and profitable turnover. These housing speculators did not much care about the terms of their mortgages because they didn?t expect to be making payments for very long. But it is clear why they would prefer adjustable-rate mortgages. The hypothesis also is consistent with speculators often lying about their income on their loan applications and taking out teaser rates so they would qualify for larger loans, so they could make a bigger bet on housing."

Just saying your sentence above, I am sure unintentionally, seems to assign blame to those who wanted more non-Asian minorities to qualify to own a home. I do not think this is reasonable.

The SAT is criticized because it predicts not too badly freshman year GPA but nothing else of use; not final GPA, nnor class standing, nor dollars earned subsequently, etc.

Is there such criticism? I have not noticed any complaining about a police or fire person not being able to do her job because of physical weakness.

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I would if I saw one assigned the heavy lifting jobs. But I do not see any women assigned these jobs, with good reason.

Obviously no fire department would risk a lawsuit, never mind another's life, by assigning the heavy lift jobs to someone not qualified.

You email me some citations showing there is a serious problem with women firefighters and police, and then we can talk, albeit in private, since this off-topic jabberwocky by the previous poster has no place here.

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It is documented in the article I cited and in a current story in the New York Times:

Flawed American DreamsNew York Times | October 18, 2008 | David Streitfeld and GretchenMorgenson SAN ANTONIO ? A grandson of Mexican immigrants and this city?s first Hispanic mayor, Henry G. Cisneros has spent years trying to make the dream of homeownership come true for low-income families.

As the Clinton administration?s top housing official in the mid-1990s, Mr. Cisneros loosened mortgage restrictions so first-time buyers could qualify for loans they could never get before.

Then, capitalizing on a housing expansion he helped unleash, he joined the boards of a major builder, KB Home, and the largest mortgage lender in the nation, Countrywide Financial ? two companies that rode the housing boom, drawing criticism along the way for abusive business practices.

...

Homeownership has deep roots in the American soul. But until recently getting a mortgage was a challenge for low-income families. Many of these families were minorities, which naturally made the subject of special interest to Mr. Cisneros, who, in 1993, became the first Hispanic head of the Department of Housing and Urban Development.

He had President Clinton?s ear, an easy charisma, and a determination to increase a homeownership rate that had been stagnant for nearly three decades.

Thus was born the National Homeownership Strategy, which promoted ownership as patriotic and an easy win for all. ?We were trying to be creative,? Mr. Cisneros recalls.

Under Mr. Cisneros, there were small and big changes at HUD, an agency that greased the mortgage wheel for first-time buyers by insuring billions of dollars in loans. Families no longer had to prove that their incomes would remain stable for five years; three years sufficed.

And in another change championed by the mortgage industry, lenders were allowed to hire their own appraisers rather than rely on a government-selected panel. This saved borrowers money but opened the door for inflated appraisals.

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