[PassedOut]

luke warm, on 2012-April-20, 15:45, said:

i'd join you, but they wouldn't notice me either... i already boycott yacht builders, firms that sell gold (not the stocks, just the bullion), and blood diamond importers... as far as i can tell, it hasn't hurt them

Same here. Same result.
And no problem with those who don't join the boycott...

[mike777]

On the one hand too big to fail is a real problem on the other hand people forget there are tens of thousands of pages of regulations that these guys work with.

That is the main reason the CEO is a lawyer, not a banker or investment guy....


Clearly Congress has alot of appetite for publicity but no interest in real oversight.

[Winstonm]

mike777, on 2012-April-20, 18:29, said:

On the one hand too big to fail is a real problem on the other hand people forget there are tens of thousands of pages of regulations that these guys work with.

That is the main reason the CEO is a lawyer, not a banker or investment guy....


Clearly Congress has alot of appetite for publicity but no interest in real oversight.

One bit of regulation was lacking, though. Bill Clinton, with urging from Robert Rubin, signed into law the Commodity Futures Modernization Act, which allowed banks to gamble with insurance with no oversight, and which set the course for The Great Recession. From our friends at Widipedia:

Quote

The Commodity Futures Modernization Act of 2000 (CFMA) is United States federal legislation that officially ensured the deregulation of financial products known as over-the-counter derivatives. It was signed into law on December 21, 2000 by President Bill Clinton. It clarified the law so that most over-the-counter (OTC) derivatives transactions between “sophisticated parties” would not be regulated as “futures” under the Commodity Exchange Act of 1936 (CEA) or as “securities” under the federal securities laws. Instead, the major dealers of those products (banks and securities firms) would continue to have their dealings in OTC derivatives supervised by their federal regulators under general “safety and soundness” standards. The Commodity Futures Trading Commission's (CFTC) desire to have “Functional regulation” of the market was also rejected. Instead, the CFTC would continue to do “entity-based supervision of OTC derivatives dealers.” [1] These derivatives, especially the credit default swap, would be at the heart of the financial crisis of 2008 and the subsequent Great Recession.

[mike777]

Actually from what I read in the literature there is still a lot of ongoing debate on what caused the recession. I think the best answer is we dont know and we dont know how to stop another one.


YOu seem to feel we just need more central govt regulation and you know what that regulation should say, to stop them.

[PassedOut]

Interesting opinion piece in the Post yesterday about negative advertising: Turned off from politics? That’s exactly what the politicians want.

Quote

[T]he real effect of negative advertising is to energize and solidify support among your ideological base while turning everyone else off to the other candidate, the campaign and the entire electoral process. Negative advertising isn’t about changing minds; it’s about altering the composition of the voter pool on Election Day by turning moderate voters into non-voters.

This is particularly true in low-turnout elections such as primaries and midterm contests. But it is even true these days in high-turnout elections.

Peter Hart, the dean of American political pollsters, notes that President George W. Bush won Ohio in 2004 by boosting voter turnout among conservatives in exurban and rural areas. If turnout in those areas had been the same as in the rest of the state, Bush would have lost Ohio and the election. And a key to the strategy was massive amounts of negative advertising.

Similarly, in 2008, Barack Obama was able to use negative advertising to move the traditionally Republican states of North Carolina and Virginia into the Democratic column, increasing turnout of reliably liberal voters around Charlotte and in Northern Virginia while dampening enthusiasm for the GOP candidate, Sen. John McCain, everywhere else.

Energizing the base has another important advantage: It increases campaign contributions from both small donors and rich zealots. That money can be plowed back into yet more negative advertising along with sophisticated get-out-the-vote efforts on Election Day. This self-reinforcing cycle creates a strong incentive for politicians to abandon the center and move permanently to the ideological extreme. You do not energize the base through moderation and compromise.

There's probably some truth in this analysis (though I had no idea that American pollsters even had a dean).

But it seems to me that this strategy contains the seeds of its own destruction: If either party gets too extreme, independent voters will be motivated to reject its candidates. I'm thinking that Ted Nugent, for example, would not be a wise vice-presidential choice for Mitt Romney.

And in the unlikely case that both parties get too extreme, folks will be strongly motivated to support a third party that adopts a middle course.

[kenberg]

Mike, I am at least somewhat in your corner although I might phrase it slightlly differently. Maybe some mistakes are known, others will be uncovered. And it is in our own self-interest to keep an open mind on these matters.

I can't help thinking that one of the problems was that some very smart people thought that they were even smarter. They weren't.

[mike777]

kenberg, on 2012-April-21, 10:43, said:

Mike, I am at least somewhat in your corner although I might phrase it slightlly differently. Maybe some mistakes are known, others will be uncovered. And it is in our own self-interest to keep an open mind on these matters.

I can't help thinking that one of the problems was that some very smart people thought that they were even smarter. They weren't.

This maybe true but lets assume that is what causes a recession....I dont see a way to stop it in the future. Lets not assume if we have just one more piece of regulation that will stop recessions.

At some point we must say we cannot and do not want to take risk out.....and having risk means there will be pain.

This seems to be the real argument...reduce risk, make life more safe through more regulation by government.

I am not saying get rid of all regulation or government, just accept there are limits. What the limits "should be" or if there should be any limits seems to be the debate.

[PassedOut]

mike777, on 2012-April-21, 11:51, said:

I am not saying get rid of all regulation or government, just accept there are limits. What the limits "should be" or if there should be any limits seems to be the debate.

In my opinion, the main limit should be this one: If a company is too big to fail, it is too big, period. Teddy Roosevelt would know what was needed.

[Winstonm]

name='mike777' timestamp='1335030696' post='632289']

Quote

This maybe true but lets assume that is what causes a recession....I dont see a way to stop it in the future. Lets not assume if we have just one more piece of regulation that will stop recessions.

At some point we must say we cannot and do not want to take risk out.....and having risk means there will be pain.

This seems to be the real argument...reduce risk, make life more safe through more regulation by government.

I am not saying get rid of all regulation or government, just accept there are limits. What the limits "should be" or if there should be any limits seems to be the debate.

This was not simply "a recession". This was a debt crisis. It mirrored the Great Depression. To compare The Great Recession to other recessions is disingenuous. This was not a normal business cycle recession. The parallels between 1920s and 2000s are compelling evidence that the cause was likely the same thing.

See this article for congressional testimony about the similarities between 1920s and 2007.

[Cthulhu D]

mike777, on 2012-April-21, 11:51, said:

This maybe true but lets assume that is what causes a recession....I dont see a way to stop it in the future. Lets not assume if we have just one more piece of regulation that will stop recessions.

At some point we must say we cannot and do not want to take risk out.....and having risk means there will be pain.

This seems to be the real argument...reduce risk, make life more safe through more regulation by government.

I am not saying get rid of all regulation or government, just accept there are limits. What the limits "should be" or if there should be any limits seems to be the debate.

Not sure what your argument is. Either you accept that regulation can be productive, and therefore there is an efficient regulation level X (indeed there might be several such points depending on exactly how the graph of outcomes against regulation looks), or you don't.

I think you accept that regulation has a purpose, and that no regulation is not an efficient level of regulation. If you do, then the more regulation crowd are saying that we have less regulation than the optimal regulation level of X. No-one really knows what X is, we have to look at our peers and try and work out if they are doing it better than we are. In the case of the US, I think it's fairly clear which side of the scale we are on.

As preventative measures rather than post facto solutions are clearly better with the economy, I think that the case that the US banking industry was (and is) insufficiently regulated is clear cut. The first step to fixing that would be to fire everyone who has accepted any sort of remuneration from a private sector entity to work for the public sector regulators. This is a disturbing practice and ensures that the balance of regulation is tilted towards the private sector.

Indeed, the very fact this practice is permitted is hilarious and shows that US government regulation is insufficient.

[Winstonm]

Glass-Steagall was introduced post-Great Depression to separate investment banks from banks that took deposits. That it was repealed is a contributing factor to growth of TBTF banks such as Citi and Bank of America. The Federal Reserve allowed banks like Lehman Brothers and Bear Stearns to use leverage to reckless proportions. The Commondity Futures Modernization Act placed the new financial products like MBS and CDS off-limits to regulatory oversight either by the Commodity exchange or the SEC.

Which banks and groups floundered with the collapse of housing? TBTF banks like Citi and Bank of America, banks who used exhorbitant leverage like Bear Stearns and Lehman Brothers, and companies who underwrote de facto insurance products called credit default swaps without being required to hold any capital reserve for potential losses, namely AIG.

Adam Smith wrote that (papaphrasing) the governing mechanism of capitalism was local competition, not that all regulation was bad or that any government interference was intolerable - these latter misguided ideas are hallmarks of the ideology followed by Phil Gramm and Alan Greenspan.

To see anyone continue to espouse the same failed ideology to me is head-spinningly annoying. We all develop a narrative explanation - but some derive that narrative from the data, whereas others begin with narrative and ignore, discount or cherry pick data to fit the belief.

Of the two groups, I side with the more objective use of data to determine narrative as the side more likely to be correct or closer to correct.

[kenberg]

About X, the ideal level of regulation. First I think that we need to get to the purpose of regulation. Obviously we would like to avoid another meltdown, but is that all? I am inclined toward PassedOut's view that too big to fail implies too big to exist. This heads we win, tails you get to bail us out philosophy breeds serious cynicism and resentment.

As for regulators coming from the industry being regulated, I wouldn't scotch it completely. Their deep knowledge of how things actually work can be very helpful and I like to think that at least some of them actually want to do right by the country. But obviously there can be both self-interest and blind spots. Some proper mix of personnel sounds right to me.

Perhaps an early canary in the coal mine was Long Term Capitol Management. See http://en.wikipedia....ital_Management

Quote

LTCM was founded in 1994 by John Meriwether, the former vice-chairman and head of bond trading at Salomon Brothers. Board of directors members included Myron Scholes and Robert C. Merton, who shared the 1997 Nobel Memorial Prize in Economic Sciences for a "new method to determine the value of derivatives".^[4] Initially successful with annualized returns of over 40% (after fees) in its first years, in 1998 it lost $4.6 billion in less than four months following the Russian financial crisis requiring financial intervention by the Federal Reserve Bank, and the fund closed in early 2000.

The way I recall this: They were using advanced mathe matics, eg the Black-Scoles equation, to make a lot of money, The math was fine. It says that if A is true then you can make a lot of money be doing B. The math is less clear about what happens if A is not true. They found out. And got bailed out at our expense. It really is out of the question to think that most investors will have a deep grasp of the Black-Scholes equation including its limitations and dangers. This seems to bear a family resemblance to what happened in 2008. A lot of smart people were making a lot of money, using a model that told them they could make a lot of money as long as certain assumptions held true. Oops.

Maybe regulation has to be aimed at: You are not allowed to walk close to the edge unless you are doing it entirely with your own money. Or at least you cannot do it in such a way that we have to come rescue you if it doesn't work out. Canoe across the Pacific if you wish, but don't expect a rescue if the sharks are circling.

[mike777]

Yesterday 60 minutes tv show had a great segment on Lehman Brothers.

http://www.cbsnews.c...ain;cbsCarousel


Winston argued for even more and more regulations. I suggested we have plenty on the books now, just enforce what we have now. We see time after time that we cannot even enforce many of the laws and regulations we already have.

In Lehman's case the FED and SEC had offices on the main floors at Lehman. They got to see everything the last 6 months in real time.

[PassedOut]

mike777, on 2012-April-23, 06:53, said:

In Lehman's case the FED and SEC had offices on the main floors at Lehman. They got to see everything the last 6 months in real time.

I can say from experience that having offices on the main floors is not the same as seeing everything. But this claim conveniently shields the crooks at Lehman's from prosecution, at least so far. Kind of reminds me of the way tobacco companies used the warnings on cigarette packs to shield themselves from liability for damages.

[Winstonm]

mike777, on 2012-April-23, 06:53, said:

Yesterday 60 minutes tv show had a great segment on Lehman Brothers.

http://www.cbsnews.c...ain;cbsCarousel


Winston argued for even more and more regulations. I suggested we have plenty on the books now, just enforce what we have now. We see time after time that we cannot even enforce many of the laws and regulations we already have.

In Lehman's case the FED and SEC had offices on the main floors at Lehman. They got to see everything the last 6 months in real time.

Let's be clear - I argued for restoring the regulations that had been in place since the 1930s that were legislated after the Great Depression and kept a repeat from occuring until they were overturned - seems a reasonable idea - and I argued that credit default swaps should be regulated as an insurance product instead of a devivative or financial product, because they act as a insurance product. And I argued for restoring some sort of sanity to the leverage banks are allowed to use. I don't think these are too burdensome to accomplish.

I do agree with Mike that there are too many regulations, but most of them are wasteful and misguided while turning a blind eye to the regulation that needs to be in place.

Btw, I agree that enforcing what is there now is a good idea, but if the Federal Reserve elects not to do their regulatory job - as Greenspan did with regulation of mortgage brokers - then law is required to force the Fed or another agency to do so.

[Cthulhu D]

kenberg, on 2012-April-23, 06:25, said:

About X, the ideal level of regulation. First I think that we need to get to the purpose of regulation. Obviously we would like to avoid another meltdown, but is that all? I am inclined toward PassedOut's view that too big to fail implies too big to exist. This heads we win, tails you get to bail us out philosophy breeds serious cynicism and resentment.

I agree, the reality is that the Government is always going to have to backstop in places, unless we're okay with letting people die on the street. We're not, so it's a given that the government needs considerable oversight of whatever it is backing. This is why companies shouldn't be able to have pension funds tied to the success and/or control of the company (General Motors) or have employees buy their own shares (Enron) as their retirement fund.

Quote

As for regulators coming from the industry being regulated, I wouldn't scotch it completely. Their deep knowledge of how things actually work can be very helpful and I like to think that at least some of them actually want to do right by the country. But obviously there can be both self-interest and blind spots. Some proper mix of personnel sounds right to me.

I think it's fine to take people from the sector being regulated - indeed would be difficult to operate otherwise. I do think it is improper to say to someone "Hey, I'll give you 800 grand if you take the job where you have oversight of me" - Goldman Sachs for example pays ex-partners large bonuses to take public sector regulatory jobs. Given than their salary is likely smaller than the bonus, who is really employing them? Goldman Sachs or the US Government? Conflict of interest anyone?

It doesn't work anywhere. It's why auditing of publicly listed companies is busted as it stands and is just dumb practice.

Quote

The way I recall this: They were using advanced mathe matics, eg the Black-Scoles equation, to make a lot of money, The math was fine. It says that if A is true then you can make a lot of money be doing B. The math is less clear about what happens if A is not true. They found out. And got bailed out at our expense. It really is out of the question to think that most investors will have a deep grasp of the Black-Scholes equation including its limitations and dangers. This seems to bear a family resemblance to what happened in 2008. A lot of smart people were making a lot of money, using a model that told them they could make a lot of money as long as certain assumptions held true. Oops.

Yes, this is the root of the reason regulation exists. Markets are efficient if two things hold true:

A) There is comprehensive availability of information and complete transparency to the purchaser
B) the purchaser makes 100% rational judgements 100% of the time.

Neither of these things are actually true. The entire existing of marketing as a discipline is predicated on that. Given that markets are not efficient we much regulate, and one of the things we should regulate against is people taking to much risk as we underpin them with the social security net.

[mike777]

Neither of these things are actually true. The entire existing of marketing as a discipline is predicated on that. Given that markets are not efficient we much regulate, and one of the things we should regulate against is people taking to much risk as we underpin them with the social security net







and you think you are smart enough to solve this........

let me back up and ask you to frame the question......and you think you are smart enough......

[Cthulhu D]

mike777, on 2012-April-23, 23:24, said:

and you think you are smart enough to solve this........

let me back up and ask you to frame the question......and you think you are smart enough......

Sorry, I do not understand what you are asking. Three concerns:

[sarcasm]

• You appear to be posing a question, but there are no question marks. Did you intend to ask me a question? If so, consider the use of punctuation.
  
• There are "......." everywhere. An ellipsis is used to indicate the omission of words, but as you are not quoting a source, I am not clear what you are omitting. Can you please try again with the question intact? I guess you could mean to use them as a full stop, but that doesn't make sense either? Is it a dramatic pause? If so... why?
  
• Finally, you appear to have a non functional shift key. I recommend that you either use the Caps Lock key or get a new keyboard to capitalise your sentences.

[/sarcasm]


I think you are trying to say that because no one individual (in this case, me specifically) is smart enough to recognise the sum of all regulation required globally for all fields of human enterprise, we should not regulate at all. This is obviously absurd. I cannot get a bunch of kids to get rings of "outcome focused; shared responsibility; risk appropriate; responsive to change and cycles; impact sensitive; and clear and consistent" then don a lycra suit and shout "BY YOUR POWERS COMBINED, I AM CAPTAIN EFFECTIVE REGULATION." It's ridiculous that you even suggest that I might be suggesting that.

I think it's indisputable we need oversight to ensure the efficient operation of markets. Once you accept that regulation is required for the proper functioning of the state for the benefits of all it's people, then all that's left is arguing about the correct regulations. Some stuff is completely obvious too, can you suggest even one reason why it would be a bad idea to prevent government officials from taking a huge sum of money from the private sector organisation they regulate? I have a name for that and it is 'Bribery' but maybe you disagree.

I'm also pretty sure that bribery is so obviously dumb I cannot see even one single argument against it. Damn, and here I thought I was smart.

Additionally, I think it is pretty clear that as the state is going to have to pay for people's old age if they themselves can not, it's just as clear that people's wages should be garnished and forcibly saved for their retirement to prevent them putting it all on black in the casino. Conversely the company they work for should not be able to control it either, and DEFINITELY not invest it in shares in themselves.

[Winstonm]

The tax and spend Dems are at it again - led by St. Ronnie?


Source: St. Louis Fed, Series GCEC1

[y66]

Quote

Richard G. Lugar, one of the Senate’s longest-serving members, a collegial moderate who personified a gentler political era, was turned out of office on Tuesday, ending a career that had spanned the terms of half a dozen presidents and had seen broad shifts in the culture of Washington.

Quote

“We are experiencing deep political divisions in our society right now,“ Mr. Lugar said, as tears welled in the eyes of the family members lined up behind him. “These divisions have stalemated progress in critical areas. But these divisions are not insurmountable, and I believe that people of good will regardless of party can work together for the benefit of our country.“

I remember passing this guy on the road last August an hour or so after he voted to raise the debt ceiling to end the so-called debt crisis. He was in his Prius. He appeared to be in a very good mood.

Edit: He was definitely one of the good guys.