As I was writing the last post it occurred to me that if the Obama Administration’s extremely expansive view of regulation is allowed to stand, we’re probably going to see a lot more moves by businesses, particularly the largest businesses, to encourage federal agencies to, well, see things their way. Not that they’ve been reluctant to do that. It’s called “regulatory capture”. The SEC and FCC have been controlled by the industries they were supposed to regulate for decades and corruption and regulatory capture of the the Minerals Management Service which was supposed to control the oil companies was one of the factors that allowed the Gulf Oil spill of a few years back.
You think you’ve seen suborning of federal agencies? You ain’t seen nothing yet.
Federal regulations are not only a great way of underwriting your business model, they’re an even better way of beating down upstart competitors or organizations that might object to your business model. Why compete when you get the federal government to act as your bully boy?
“The SEC and FCC have been controlled by the industries they were supposed to regulate for decades…”
In the case of the railroads, over a hundred years. With a slightly different can’t (and I know it won’t get any sympathy), but Dodd – Frank is a classic case of regulatory burden freezing out the little guy. Citi, Goldman, KKR or CD & Rice don’t view DF expense of compliance as an existential threat, but my firm does. Who would you rather have conducting the PE activity, a firm specializing in manufacturing companies with untapped potential and trying to take them from $15 to $30 MM in operating profit through building management capability, reinvestment,and growth, or mega deals when financial engineering is a significant component.
In answer to your question which I presume to be rhetorical the federal government will always prefer the “mega deal”. Big Government prefers to do business with Big Business. It keeps your metaphorical desk tidy. Your virtual Rolodex can be much smaller.
That’s just one of the reasons that the federal government bailed out the big banks but forced thousands of community banks into liquidation.
For years, we were assured that the repeal of Glass-Steagall would usher in a world of prosperity for all. Somebody forgot to mention that world had an expiration date of ten years, and would a decade or more to pay off.
Dodd-Frank is the direct result of this failure, and it will be around for a long time. I would suggest the next time you are told something is not a good idea that you listen. When something works for over 50 years, you should think long and hard before you throw it onto the trash heap.
Some of us have long memories, and we are laughing at the dumb asses. You thought you were so fucking smart 15 years ago, but now the whole bunch of you are crying like little girls.
Yes, rhetorical. And just some grousing. It’s just another reason I prefer to limit the size and potential mischief of government. I know how the story ends.
TB
I must have missed the assurances of prosperity for all, or have you mounted the Michael Reynolds Memorial Chair for straw men arguments? IMO the more proximate cause of the housing crisis was easy credit (to the point of being subprime) from the Fed and government encouragement of housing for all. Dodd Frank is just a bald faced exculpatory act by its namesakes to wash the blood from their hands for encouraging un creditworthy home borrowing. And no one is surprised by that.
@Drew
Sorry for the long memory, but I remember the asshole Republicans led by Sen Graham. Glass-Steagall was holding back progress. Well, you got progress. Enjoy Dodd-Frank. Thank the Republican assholes.
You were claiming it was due to the CRA. What happened to that? Reality kinda got in the way of that dumb ass shit? And, here I am. The same old broken record.
Let’s go over this real slow. Fed issues gov’t backed currency. G-S keeps investors from direct access to that currency. This was done for a reason. When G-S was removed, investors had easy access to that currency. A financial crisis built upon a bubble was inevitable.
The bubble manifested in housing because the government was pushing housing and financing it, but a bubble was going to manifest somewhere. This is what you do not get, but you have been wrong so often it is getting sad.
And now, it turns out that all the people you thought were on your side have used you and tossed you aside like a pair of dirty underwear. Warren Buffett, Jamie Dimon, Bill Gates, Wall Street, and Big Business have all turned out to not be the friends you thought they were. Or, were you the one brilliant Republican who knew that Republicans were being used?
As for @michael reynolds, I would suggest you play with him if you like. He plays for an audience, and he wants to be liked. I do not care about being liked.
Nowadays words are being stretched beyond all use. The opposite of “conservative” is not “liberal”. It is “radical”. Today both our conservatives and our liberals are radicals.
The difference between a radical and a conservative (in the old usage of the word) is that a radical says “I don’t see the use of X. Get rid of it!” while a conservative says “I don’t see the use of X. Let’s keep it.”
TB
Your memory may be long, but it is also faulty. Of course people remember Gramm. But do you remember who signed the bill? It’s not a party issue. More importantly, GS is really irrelevant to the crisis. It’s practical importance, the Section 20 restrictions, had faded by the 70s if not earlier. Commercial banks had been allowed to syndicate mortgages and MBS’s for quite some time. Further, in the list of major institutions brought to their knees were a number not even subject to the key GS regulatory safeguards. Those include Merrill, Lehman, Bear, AIG, Fannie and Freddie. You do remember those names, right?? You would be better to cite bank financing of I-Banks at large leverage.
No, this was a product of easy credit through and through. CRA, its brother, subprime in general, cheap fed funding and the social engineering notion that borrowers not creditworthy to support a mortgage should own a home…….with a mortgage they couldn’t service. It wouldn’t be the first time a time financed asset was “over financed.”
The balance of your response is more of an incoherent rant going off in random directions than anything else. I don’t what has gotten into you but saying obvious things like we have a fractional reserve banking system or informationless things like current stock prices reflect future stock prices, all while declaring some heroic indifference, makes you sound like a crank who mistakes USA Today finance for substantial finance acumen.
As for Reynolds, unlike you, I don’t have a degree in psychology so won’t speculate on his potential neuroses. I do know I generally like to read his stuff until he comments on business, finance, management etc – as he shares with a certain commenter only dime store understanding – or until he drives into a ditch with his hatred of Republicans and all things are racial diatribes.
@Drew
President Clinton signed the bill, and his administration also refused to regulate the CDS’s as commodity futures. When I get into it with the Left, I trash their side. You will not find any of them come riding to my rescue. They will let you rip me apart, but of course, you will do the same when I am defending your industry or the Bush tax cuts.
Glass-Steagall was the solution to the Investment banks easily drawing government backed currency from the Fed. It allowed a fractional reserve lending system with fiat money, but it kept the financial system from eventually creating a bubble and collapsing. This was the lesson of the Stock Market crashes and Banking collapses.
It worked because it was difficult for the Wall Street Investors to get at low interest currency through the Fed, and it was difficult for politicians to give away low interest currency through the Fed. The wall blocks traffic both ways. The best that the government could do was through regulation, but they cannot regulate an institution into insolvency.
All of the big name commercial banks were and are taking trash onto their books, but more importantly, they are a conduit for investments from commercial banks into investment banks. This is a method to move currency similar to how money laundering works, but it is legal. It also creates credit through leveraging. This the reason for fractional reserve lending.
Housing and mortgages was not necessarily destined to become the bubble of the inevitable financial collapse. Had the Dot Com stock bubble occurred a few years later, it probably could have been the bubble phenomenon.
There is little in mortgages that was created after G-S was repealed. Most of these things had been occurring for years with no problems. For the people who do not understand mortgage products, here is a breakdown (difference in bold):
A Prime Borrower has (1) the down payment, (2) the ability to pay the monthly note, and (3) a high credit rating/score.
A Sub-Prime Borrower has (1) the down payment, (2) the ability to pay the monthly note, and (3) a low credit rating/score.
An Alt-A Borrower has (1) the down payment, (2) unknown ability to pay the monthly note, and (3) a high credit rating/score. (This is only one type of Alt-A borrower.)
These all have legitimate reasons for existing. There is nothing wrong with sub-prime. It is a borrower who has had problems in the past, and Alt-A (no doc, liar’s loan) is used for independent contractors without steady revenue. They may have seasonal work.
Sub-prime and Alt-A borrowers must pay a higher interest rate. There are more exotic mortgage products that were developed post-G-S, and these have even higher interest rates due to the extremely high risk.
The problem with Prime Borrowers is that there are a limited number of them, and once all of them have borrowed their limit, they cannot borrow anymore. In order for the financial industry to grow, they need new customers, and the next place to look is sub-prime. Nobody needs to push them into this.
This is how free-market capitalism works. In a free-market when an investor (possible a smart PE investor) sees an opportunity, they figure out a way to make a profit. Regulators keep banks from making bad loans because investors would make as many risky loans as possible. Republicans would have us believe that investors want to make as few risky loans as possible, but regulators push banks to make as many as possible. Are you really that stupid?
I have already seen some acknowledgement that G-S is needed, and it is coming from investors. It is not very loud, but it is there. What replaces Dodd-Frank will not be word-for-word G-S, but it will be something similar. When the voices become loud enough, you will join in.
What I say does not make any sense to you because you need somebody to feed you pablum. You and others claimed for months/years that the mortgage crisis was created because the CRA forced banks to make bad mortgages, and this taught banks how to make money making bad mortgages.
As that dumb ass shit began to collapse, you all started throwing other crap into the mix. Now you want to include the GSE’s, but you do not include any mechanism other than the pouty face of Sen. Dodd and Rep. Frank. The only reason any of your latest dumb ass shit works is because I provide the mechanism.
I often think that you are just hustling the idiots with the shit you shoveling, but apparently, you actually believe this shit. The financial industry pays hundreds of millions of dollars or more putting out crap to persuade the public and politicians that they are doing the Lord’s Work. You must know that they are just trying to make a buck. It is what you do in free-market capitalism.
Having been around a lot of people, I tend to know how to read them. It is difficult in an online setting, but it is not impossible. I also know hustlers, and whether they are on the street corner or Wall Street, all hustles work the same way.
As for the financial industry and mortgages specifically, I got wind of a problem back in 2005, and I started looking into it. I was trying to determine where the weaknesses were and how to exploit them. I studied and learned about housing, lending, mortgages, and the financial industry, but a little storm came along.
Trying to build a division at my company, rebuild a house, rebuild my wife’s business, take care of personal matters, keep on top of the housing problem, and build the funds needed to exploit the problem eventually proved to be too much. By the time I learned what I needed, I had spent the funds, and it turned out any shorts would have been lost.
You know that I am not getting my knowledge from political websites. I am not whining about “liar’s loans” and the Bush tax cuts. You do not like what I have to say, but when you have enough sense, you keep your mouth shut and wait. I have been nice about the CRA, but I was, am, and will be right about what I said.
I have been saying the same things now for the past six years, and they continue to be correct. It is getting rather dull and boring. If you are such an expert, please make correct predictions. I am still awaiting the ramifications of Obamacare.