Too Much Deregulation?

Can someone explain this to me please, Deregulation vs Liberalisation? If deregulation means getting rid of regulation, then this fails because we need some regulation, so why not liberalisation. If we deregulate and get rid of all legislation then I would be able to kill people. But regulation says that I cannot. My understanding of Hayek is we need some regulation, allowing us to function, but not too much regulation as too stifle and restrict my activity. But enough regulation to protect private property etc. So is deregulation the wrong word, or is our interpretation of deregulation wrong?

Muirgeo, since you are a proven liar (and general dimwit, like your political cohorts), maybe you should read your own paper of record:

Ex-Officer Faults Mortgage Giants for ‘Orgy’ of Nonprime Loans

Now, go back and sit in the corner, fool.

And what entity has established fractional reserve banking as the norm?

"No, they forced banks to create crappy loans tho, dude. And they continued to support an unsustainable model which was supposedly overseen by the very people you worship. How about you get your facts straight before you opine? And what about the relaxation of lending standards tied to those loans? Think they contributed here? Think they have something to do with nonperforming mortgages and walk-aways?

So, yes, in a way the gov’t did force those loans out there."

Mesa Economy

Mesa your premise has been demolished over and over again.

You are simply flinging crap and hoping it will stick. again go re-read Delongs post at CATO. the problem of all loan defaults was $2 trillion dollars... the derivative / CDO multiplier increased the losses to almost $20 trillion. This can't be just blamed solely on bad loans.

Federal Reserve Board data show that:

More than 84 percent of the subprime mortgages in 2006 were issued by private lending institutions.

Private firms made nearly 83 percent of the subprime loans to low- and moderate-income borrowers that year.


Only one of the top 25 subprime lenders in 2006 was directly subject to the housing law that's being lambasted by conservative critics.

http://www.mcclatchydc.com/251/story/53802.html

Okay, enough:

The government didn't force anyone to buy a crappy loan for $5,000. Did they bro?? But laissez fair policies made it possible to build a get rich quick pyramid scheme doing exactly that.

Posted by: muirgeo | Dec 9, 2008 2:57:00 AM

No, they forced banks to create crappy loans tho, dude. And they continued to support an unsustainable model which was supposedly overseen by the very people you worship. How about you get your facts straight before you opine? And what about the relaxation of lending standards tied to those loans? Think they contributed here? Think they have something to do with nonperforming mortgages and walk-aways?

So, yes, in a way the gov’t did force those loans out there.

Loans and lending practices are fundamentally risk evaluations, and there were clearly many bad decisions made, along with some incredibly poor risk management at the large IBs, not to mention various rules & regs which forced fire sale liquidations of non-liquid assets. The failure of risk assessment and pass-thru-pricing of that risk is the primary element in this puzzle, but the incentive to create the loans was government-driven (and partially explains the poor risk pricing).

Your third-grade, pseudo-populist accusation of evil financiers conspiring to pocket cash (some did) and screw everyone else in the midst of a global margin call is largely untrue and vacuously oversimplified.

Further, the deregulation canard is really getting old.

Muirgeo, it is the Methinks of the world who will save us, not you. You are wholly unqualified to pass judgment on any of the participants and events in this mess. You fundamentally misunderstand markets and incentives, and have learned absolutely nothing here.

Your failure to process any of the recent economic events, confirming prescient moral hazard and regulatory danger discussions on this very blog, solidifies our belief that you are a sub par, imperceptive, intellectually bankrupt simpleton, as is your reflexive, regulation-zealous ideology.

[By the way, Methinks is correct in her analysis, not you. But thank you for the CATO link.]

rigid ideology

A slur on philosophical/moral consistency.

The kind of slur made by those who dispense with morality as it suits them.

"...Would you lend to me if If I didn't have sufficient collateral if you knew some one was going to offer you $5,000 for my loan shortly after you made it? Of course you would." "...But laissez fair policies made it possible to build a get rich quick pyramid scheme doing exactly that." - Mierduck

Your quotes go right to the heart of libertarianism being dangerous to people who expect the government to protect them from their own stupidity.

Those "pyramid schemes" you're decrying were only possible because those involved knew that the political class had their backs.

BTW: You've never explained why pyramid schemes that only succeed by preying on the ignorant are evil, while the Supreme Pyramid Scheme enacted by St. Franklin of Roosevelt (which only succeeds by brute force) is good.

"Bro, change the word accept to the words 'apply for' and hit the core of the problem."

Vidyohs,

Thanks for the edit. The question phrased as you wrote it is more accurate to the point I was making. The question in either form is (of course) still unanswered by Mierduck.

grrr, no effect on market signals?

George, I read that article several weeks ago. I found it very informative and I recommend it to all.

The question remains; what does it all mean in the context of how the market works.

It is assumed that people are motivated by self interest.

It should also be pointed out that just because someone is a success in the market does not mean they comprehend the functioning of the market. Likely they are simply motivated and have an eye for market signals.

Next question:

What were those signals and why did they exist?

Does the regulatory regime have no affect on market signals?

What about the expansion of credit by the FED?

Certainly the FED has a significant impact on market signals, as has the mortgage giants created by the government.

Further for George

You miss the mark in supposing that I was complaining about absolutism in my earlier remarks. I was taking on the sleazy use of language (hallmark of the left), in using term like "deregulation", "laissez faire", "unregulated", and such, under a regime that saw a 60% increase in regulatory budgets and in reference to the most highly regulated sector of our economy.

The whole thing illustrates my point that the failure of existing regulation always, ALWAYS, excites the left, the pundits, the demagogues in D.C. to propose additional regulations and power to politicians and NEVER any calls for examination for any fault in the previous regulatory regime.

I have no shame cause I have an no rigid ideology. - Muirdiot

You have no shame because you have no brain. You aren't worth a conversation. Unfortunately, the professors aren't erasing your garbage as they promised and you're degrading this blog once again.

"I've debated conservative Republicanism and now I've debated libertarians and found you all have in common a flawed ability for objectivity blocked by ideologies leaking like dikes needing to be packed."

Well that's clearly an objective sentiment. Ladies and gentlemen, I give you irony.

What many liberals seem to argue is to regulate industries so that they never fail and bail them out when they do fail so they never do. This provides a can't lose proposition. Its like fannie and freddie when they made money they kept the profits but when there are losses they given to the tax payers. Regulation always follows the private gains public losses...

Businesses love government regulation when it benefits them. It blocks competition and makes it easier for business to make money..

Methinks,

It doesn't matter what I think per say but the fact is many experts are out their giving the opinion the OTC derivatives, CDO's and other complex financial products are the reason for the current financial class. You tried to shout me down for talking about things I didn't understand. You tried to belittle me and the fact is I was right and you were wrong.




You can't answer my questions above either.

Go to Cato here; http://www.cato-unbound.org/issues/what-happene...>

and read the experts analysis of what happened. 2 are clearly covering for their libertarianism and 2 are making sensible arguments that fit with reality. I've not claimed to be an expert but only that among the experts it's pretty clear who is being honest and who has a silly ideology to prop up with balsa wood.

I'm proud of what I do for a living. People who work on Wall Street defrauding people out of their money, destroying lives and economies should be embarrassed (should be in jail in some cases) for what they've done.

And here is one former worker in the system honest enough to admit to it's failings.

I have no shame cause I have an no rigid ideology. I have a fluid view of reality based on the facts and practical real world considerations. You are an extremist who believes rigidly what you believe with little evidence to support your position and an inability to be honest with yourself and carefully consider the real word as it is. I've debated creationist, I've debated global warming "skeptics", I've debated conservative Republicanism and now I've debated libertarians and found you all have in common a flawed ability for objectivity blocked by ideologies leaking like dikes needing to be packed.

This blog goes round and round because the same failed concepts are brought up over and over. I'm simply here to present a different interpretation of things. That makes some uncomfortable but isn't that what good debate is all about?

Posted by: muirgeo | Dec 9, 2008 “The author nor anyone at the Cafe can point to any of the thousands of pages of regulation as the cause for people buying massive amounts of complex opaque financial products based on incredibly risky loans turned into Frankenstein products that no one knew the value of.”

Do yourself a big favor download the following document and read it carefully.

http://www.bis.org/publ/bcbs107b.pdf
<br>
If your supreme regulators trusted blindly the credit rating agencies… why should not the rest of the world do so?

I didn't think you could. And brotio and cpurick come up with replies that border on embarrassing... No in fact they are embarrassing.

You should be embarrassed, Muirdiot.

I see this blog is going around and around in the same circles with the halfwit troll running his boring cycle of spouting strong opinions rooted in complete ignorance until he wears everyone out on one thread and moves on with exactly the same song to another.

Lack of regulations or lack of security clearances?

Besides some financial scientists having gone raving mad as I see it this crisis was unwillingly and unwittingly fabricated by the financial regulators. Not only did they introduce minimum capital requirements for banks based on their own subjective interpretation of what risk means without giving sufficient thought on how that would affect the whole system but they also empowered some few credit rating agencies to be the official guides on risks which, as we have seen, was a magnificent act of pure madness.

Let me here ask the question that perhaps best helps to place the whole issue of the credit rating agencies in its real perspective. Since these agencies were been given so immense powers that if misused could turn them into dangerous weapons of mass destruction capable of inflicting big sufferings on humanity… should then the individual credit raters have to undergo a security clearance? Of course I do not imply any planned wrong doings, that I swear, but I guess you have to agree with me that this is at least great stuff for nail-biting movies.

Sam Grove wrote: "it seems that you think that there are some people who comprehend market functioning so well, and are so removed from their own subjective concerns, that they can actually make the market perform to some objectively determined ideal, and all the while, resist the influence of the market actors that they are regulating."

Well said Sam, well said! Omniscience does not exist in this world and while worldly beneficence seems to be evidenced from time to time, it is newsworthy in its pure form due to its rarity. As you suggest Sam, it is folly to think that both of these are generally possessed by whatever regulatory czars governments might empower.

"Mierduck,

Please cite the specific deregulation that forced consumers to accept interest-only loans.

Posted by: brotio | Dec 8, 2008 7:18:49 PM"

Bro, change the word accept to the words "apply for" and hit the core of the problem.

The word accept in this context carries implications that suggest some sort of coercion or heavy persuasion, and mere advertising doesn't qualify for either.

muirduck nor anyone else still can't get around the truth in the simple equations: a mortgage never made is a mortgage that can never be foreclosed on; and, a loan never sought is a loan that can never be manipulated.

Individual thumbsucking socialist enculturated deadbeats are the problem not the victims.

Muirgeo,

"Any failure in a system with even one regulation must be the fault of the regulation?"

What is happening does not constitute a "failure". The market is adjusting to reality - exactly what it is supposed to do. Regulation can create a false sense of security, but it cannot maintain it forever. A is A.

Muirgeo, you use a lot of loaded words and ad hominem.

The standard rational claim is that industry and markets need to operate under fair, good and consistent rules and regulations

Why is the claim rational? Shouldn't that read: "the standard claim"? Rational is an assessment you stick in here to suggest that other claims aren't rational.

Libertarians do not deny the need for fair and consistent rules. We just disagree on what those are. Libertarians claim we only need rules that apply equally to all. Rules against fraud and aggression.

As for regulation, we have seen that the tendency is for rules to increase and that any problems that are observed are claimed to be due to inadequate regulation rather than due to previous regulation. (That's how we got all those "horrendous regulations" in the first place.)

You have made just that claim many times, no matter how extensively a market sector is already regulated.

Witness the claims of electricity market "deregulation" which supposedly occurred in California and the subsequent claims that the free market didn't work. All in complete denial of reality.

But you guys are claiming markets can not fail unless they are completely free.

I don't claim that at all. My position is that the claim of market failure is an inappropriate label to use in evaluating market events. Such a claim supposes perfectibility, which supposes a perfect state, which is necessarily a subjective assessment by imperfect beings.

As you haven't bothered yourself to comprehend the supreme complexity of market functioning, or the functioning of all-important incentives in market activities, I won't attempt to once again explain it, but it seems that you think that there are some people who comprehend market functioning so well, and are so removed from their own subjective concerns, that they can actually make the market perform to some objectively determined ideal, and all the while, resist the influence of the market actors that they are regulating.

The reason I reject regulatory regimes is that there is, in fact, a slippery slope.

Business and government, when they venture too close to each other, will find that the incentives that arise will bring them ever closer together until their interests become completely aligned against the interest of the people.

Voting may have its purview, but you place excessive faith in its ability to supercede the incentives that spring up when politicians and businessmen begin the dance of influence.

No one is claiming industry needs to be under complete control of regulatory authorities.

You are mistaken, there are many that think that industry needs to be under the control of the state. And if we remove the word "totally", you are likely among them.

If you're dumb enough to want an interest-only loan, then I'll be more than happy to give you one - if you have sufficient collateral.

Posted by: brotio

I was about to reply I'd take your loan... then I read the last part about sufficient collateral.

But in the real world lenders lent even without sufficient collateral. Why.

Would you lend to me if If I didn't have sufficient collateral if you knew some one was going to offer you $5,000 for my loan shortly after you made it?

Of course you would. Before regulations were thrown out the window did people offer $5,000 dollars to take over high risk crappy loans. No of course they didn't. And that's why you were initially only going to make a loan to me if I had good collateral... because you were thinking of proper set up old fashioned well regulated markets... you were thinking of the way things happened pre-de-regulation.

The government didn't force anyone to buy a crappy loan for $5,000. Did they bro?? But laissez fair policies made it possible to build a get rich quick pyramid scheme doing exactly that.

OTC derivatives and CDO's had a multiplier effect that made $2 trillion dollars of bad loans devalue $20 trillion dollars of good money.




It's all very sad. And you're trying to justify it because you have a belief you don't want to abandon. It's hard to abandon our core beliefs when the rest of our lives are piled on top of them.

See Brad Delong;

http://www.cato-unbound.org/2008/12/08/j-bradford-delong/liquidity-default-risk/

"... and is indeed a dangerous ideology for those of us who inhabit the real world." - Mierduck

Substitute "Leftard world" for "real world", and you've finally said something accurate.

Libertarianism is indeed dangerous for those who believe that they are entitled to the fruits of another's labors, and/or insist that government protect them from their own stupidity. If you're dumb enough to want an interest-only loan, then I'll be more than happy to give you one - if you have sufficient collateral.

Here's the thinking: If an industry isn't totally under the control of the state, then it is either unregulated or insufficiently regulated.

It's so much simpler to control the debate by placing the threshold control where it best suits your argument.

ll that matters is the desire to control others.

Posted by: Sam Grove

And here Sam you turn logic completely on its head. You try to suit us with you irrational position. No one is claiming industry needs to be under complete control of regulatory authorities. But you guys are claiming markets can not fail unless they are completely free. You guys are the ones arguing for completeness. You guys are the ones arguing for an extreme position of no regulations. That's simply NUTS! Any failure in a system with even one regulation must be the fault of the regulation? The standard rational claim is that industry and markets need to operate under fair, good and consistent rules and regulations.

The reality of it is that you guys deny any possibility of a claim of market failure if even the tiniest of regulations exist. That's just silly. So don't try to push your silly position onto those of us who are arguing pragmatically from a reality based position.

I completely agree there's a lot of horrid ridiculous regulation that needs to be abolished. I completely agree that the government waste tons of money. But I also realize none of these governmental problems is close to a prime cause of the current financial collapse.

The libertarian movement needs to abandon it's extremist fairy-tale position and belief in non-existent free markets and come to the table to demand and help create lean and useful and reasonable regulation to improve market fairness, market competitiveness, liberty and efficiency. As it currently stands the libertarian position has nothing of value to add to the real world debate and is indeed a dangerous ideology for those of us who inhabit the real world.

Muirgeo,

I can't name a specific regulation -

Posted by: Randy

I didn't think you could. And brotio and cpurick come up with replies that border on embarrassing... No in fact they are embarrassing.

And Sam Fannie and Freddie had nothing to do with Bear Stearn, Lehman or AIG's business decisions. 75% of subprime oans were made outside of Freddie and Fannie. Interest rates are are response to decreased trade regulations and increased trade deficits. But you get a lollipop for having a reply that at least required consideration.

http://www.thomaspalley.com/?p=94#more-94

"Name the regulation that FORCED lenders to make interest only loans. Name the regulation that forced lending institutions to join with investment institutions against their will. Name the regulation that forced rating agencies to rate Triple BBB piles of dog crap triple AAA. Name the regulation that causes Bear Stearns to heavily invest in OTC derivatives or name the regulation that caused AIG to hold trillions of dollars "worth" of CDO's?

Answer that and you win the debate."

Strawman. Regulation does not have to "force" bad decisions -- it only has to create a moral hazard. (Then the stupid libs will blame market players for simply obeying the signals sent by the regulations.)

We know what drives business activity, the opportunity for profit.

What created the opportunity for profit in these derivatives?

Wouldn't have anything to do with Fannie Mae, Freddie Mac, and artificially low interest rates set by the FED, would it?

TW wrote "Barney Frank" and "blowhard" in the same sentence. Homophobe! :p

Mierduck,

Please cite the specific deregulation that forced consumers to accept interest-only loans.

Muirgeo,

I can't name a specific regulation - maybe the professionals here can. What I see is more a case of overregulation in general creating a false sense of security. In an unregulated environment people would be far more risk averse and/or knowledgeable about what they are buying. A policy of "let the buyer beware" has the advantage of producing wary buyers.

Anyone...

Name the regulation that FORCED lenders to make interest only loans. Name the regulation that forced lending institutions to join with investment institutions against their will. Name the regulation that forced rating agencies to rate Triple BBB piles of dog crap triple AAA. Name the regulation that causes Bear Stearns to heavily invest in OTC derivatives or name the regulation that caused AIG to hold trillions of dollars "worth" of CDO's?

Answer that and you win the debate.

"'Specifically, the U.S. economy has not been free since before the New Deal of the 1930s.'

and

'Free markets have done much better than governments at providing safety, fairness, economic security, and environmental sustainability.'

Free markets don't exist but they've done better? It's really tiring that this sort of stuff passes for some sort of intellectual argument."

Posted by: muirgeo | Dec 8, 2008 4:52:32 PM

Check your premesises.

(1) To say that the US does not have a free market is not that same as saying there are no free markets.


(2) You've confused the market (common usage, meaning an aggregate market, or all markets put together) with a market (at the micro level, if you will). See point one.


(3)Aside: You've consistently noted that "free-markets have never existed" and you continue to blame them for many of society's ills. It's really tiring that this sort of stuff passes for some sort of intellectual argument.

George Muir,

How could the market fail to regulate itself? It is regulated by the discipline of profit and loss, and never without it.

If something is keeping buyers and sellers apart, it isn't the market, for it is nothing but buyers and sellers. How, by themselves, could they not come together, and, "regulators," not keep them apart?

And how is it that political power transforms otherwise foolish sinners into sages and saints?

The belief in "regulation" over the market, that freedom corrupts and power sanctifies, is faith in fascism, or, in the words of an old socialist, that "The state is God."

So what do we actually get from the gods that we couldn't get from ordinary men, besides brazen falsehood beyond the powers of ordinary men?

While individuals cannot ignore the bottom line, and the market fail to correct itself, the state doesn't go bankrupt, it goes to war, and first upon its own best citizens, and rivals, the free market leaders of the economic life of the nation.

America today is like Germany in the Thirties. For scapegoating greedy capitalists rather than greedy Jews is simply fascism with a liberal face, and, the call for more "regulation," for more faith in the "the god that failed."

Deregulation, like regulation, CAN enhance or diminish wealth creation opportunities.

Henderson's observations and the evidentiary metrics he offers are at odds however with muirgeo's assertion that "The current mess is a result of deregulation and under regulation."

"Specifically, the U.S. economy has not been free since before the New Deal of the 1930s."

and

"Free markets have done much better than governments at providing safety, fairness, economic security, and environmental sustainability."

Free markets don't exist but they've done better? It's really tiring that this sort of stuff passes for some sort of intellectual argument.

There is good regulation, bad regulation, under-regulation and over-regulation. The current mess is a result of deregulation and under regulation.

The author nor anyone at the Cafe can point to any of the thousands of pages of regulation as the cause for people buying massive amounts of complex opaque financial products based on incredibly risky loans turned into Frankenstein products that no one knew the value of. The deregulation and changes in rules that allowed this to happen was everything the Wall Steet world wanted and they entered into these products on their own accord and brought along the rest of the country who trusted them.

Henderson does a great job detailing the recent regulatory landscape, and successfully makes the case that the US financial sector in 2008 is more regulated than ever.

Repeating myself, I'm still increasingly disappointed that nobody wants to address the potential role that Federal deficits played in the crash. Given that they constitute by far the biggest single item in the US financial sector, any analysis of the 2008 events ignoring them will look, to me, like three blind men examining an elephant.

Here's the thinking: If an industry isn't totally under the control of the state, then it is either unregulated or insufficiently regulated.

It's so much simpler to control the debate by placing the threshold control where it best suits your argument.

If an industry has problems, never blame the regulatory regime under which it operates, no matter how onerous, the problem is always insufficient regulation.

This springs from the view of the left that all important industry should be operated by collective control.

The facts are irrelevant. All that matters is the desire to control others.

"And the three overriding facts are: (1) we have not had a period of light regulation, (2) deregulation didn't fail, and (3) regulation makes things worse."

But journalists never let facts get in the way of a good story, particularly when blowhards like Barney Frank stand up and mindlessly blame deregulation for all the evils in our economy. It's far easier to play a politician's soundbyte than it is to do real research.