Wall Street reforms

[furt]

I will say right at the outset that I am not the most financially astute person in the world; so I might be completely wrong in how I read these stories. Most of the stuff that I can follow on the issue are opinion pieces. (http://www.bloomberg.com/apps/news?pid=20601039&sid=aDi3gjYfB0h0) But, as I understand it, the Administration's plan (http://www.financialstability.gov/docs/regs/FinalReport_web.pdf) for financial-regulation reform is set to go about offically declaring that some financial institutions “Tier 1 financial holding companies.” The administration denies it, but I keep reading that this will be the "too big to fail" list.

Supposedly, the idea is that the list of who is on the list will remain secret. But does anyone really believe that will remain the case for long? With billions at stake, and given that most of the top government fiancial people are usually once-and-future Wall Street types?

Can one of the more fincially astute Dopes tell me why we can't just

1) Break up all the superbig firms
2) Put regulation in place so that nobody ever gets "too big to fail" again.
3) Step the fuck back and let the market take care of the rest, and if some banks fail, so be it. Pour encourager les autres.

My assumption is that pols of both parties are more-or-less bought off by said superbig firms. But maybe I'm wrong. Anyone?

[Dick Dastardly]

I will say right at the outset that I am not the most financially astute person in the world; so I might be completely wrong in how I read these stories. Most of the stuff that I can follow on the issue are opinion pieces. (http://www.bloomberg.com/apps/news?pid=20601039&sid=aDi3gjYfB0h0) But, as I understand it, the Administration's plan (http://www.financialstability.gov/docs/regs/FinalReport_web.pdf) for financial-regulation reform is set to go about offically declaring that some financial institutions “Tier 1 financial holding companies.” The administration denies it, but I keep reading that this will be the "too big to fail" list.

Supposedly, the idea is that the list of who is on the list will remain secret. But does anyone really believe that will remain the case for long? With billions at stake, and given that most of the top government fiancial people are usually once-and-future Wall Street types?

Can one of the more fincially astute Dopes tell me why we can't just

1) Break up all the superbig firms
2) Put regulation in place so that nobody ever gets "too big to fail" again.
3) Step the fuck back and let the market take care of the rest, and if some banks fail, so be it. Pour encourager les autres.

My assumption is that pols of both parties are more-or-less bought off by said superbig firms. But maybe I'm wrong. Anyone?

1. Because the banks own congress. They're completely bought and paid for.

2. See 1.

3. See 1.

[gonzomax]

There have been over 100 bank failures this year. That on course aids consolidation. When the huge bank failures occurred we allowed Bank of America and other enormous banks to buy them up with TARP money. Our policies have made bigger and more dangerous banks. The banks are in charge.

[Sage Rat]

Why is it bad for a company to be too big to fail? Big companies (on average) can accomplish more, with less overhead, and are more stable. So long as there is competition, big companies are good.

Fixing them or helping them collapse in a controlled manner is just something that will happen periodically. Fewer companies to fix is easier to deal with. Having one company collapse is no different than having 100 companies collapse if they both own, cumulatively, the same market share, except that it's easier to deal with a single company. The market had to shrink by X% because everyone pulled their money from the market. X% of all companies, hence, had to close their doors. Losing that X% is too much to allow regardless of whether it's a single company or a hundred.

[Dick Dastardly]

Why is it bad for a company to be too big to fail? Big companies (on average) can accomplish more, with less overhead, and are more stable. So long as there is competition, big companies are good.

Fixing them or helping them collapse in a controlled manner is just something that will happen periodically. Fewer companies to fix is easier to deal with. Having one company collapse is no different than having 100 companies collapse if they both own, cumulatively, the same market share, except that it's easier to deal with a single company. The market had to shrink by X% because everyone pulled their money from the market. X% of all companies, hence, had to close their doors. Losing that X% is too much to allow regardless of whether it's a single company or a hundred.

It's bad because you have to bail them out. It also allows them to take on as much risk as they want because they know they're backstopped by the government, obviously something we don't want. You can save the financial system easily and the bankrupt banks just go through the FDIC process. The Bush/Obama method is to save the financial system but also save the big banks. There are currently about two honest brokers on the Obama team dealing with the meltdown, Paul Volcker and Elizabeth Warren. Both are in favor of putting firms like Citi and BOA through a sort of FDIC process, wipe out bond and shareholders, convert debt to equity and sell the cleaned-up bank to new investors type thing. With firms like Citi also split off their brokerage operations from the basic commercial banking operation too. But this isn't going to be done, these firms are now bigger than they were before the meltdown. Add the fact that they're now seen as guaranteed any bailout and look like they're going to avoid any effective re-regulation and you have disasters waiting to happen. Volcker and Warren are the only ones calling for this, the rest of the people dealing with this are all members of the Wall Street/Fed/Treasury revolving door club.

[msmith537]

It's not simply a matter of preventing banks from becoming "too big to fail". If thousands of small banks fail because of the same crappy business practices, it's just as bad.

Reinstating the Glass-Steagall act might be a good place to start. The intent of the act was to prevent banks from becomming "too big to fail" by restricting what businesses they could enter into and preventing conflicts of interest.

The problem isn't so much that banks are too big to fail. The problem is that they engaged in shady business practices that caused them to fail.

[furt]

Why is it bad for a company to be too big to fail? Big companies (on average) can accomplish more, with less overhead, and are more stable. So long as there is competition, big companies are good.Average gots nothing to do with it. Failing companies by definition are NOT accomplishing anything or being stable. But the danger is that it can be so big that it poses risk to everyone else. Sort of like having that huge tree limb hanging over your house. It's totally fine -- until it crashes through your roof. Sometimes it's best to prune in advance. Better for the house, and often even better for the tree.

Fixing them or helping them collapse in a controlled manner is just something that will happen periodically.I have no problem with helping them collapse in a controlled manner. That has not been the approach of the last three administrations (at least, probably more).

Having one company collapse is no different than having 100 companies collapse if they both own, cumulatively, the same market share, except that it's easier to deal with a single company.100 companies are unlikely to all collapse at once. One or two will, in fact, be collapsing all the time, and new ones taking their place. As an aggregate, they will be quicker to react to changing conditions, whether good or bad. You won't to "deal with" at all. They die, and someone else rises up.

[Sage Rat]

100 companies are unlikely to all collapse at once. One or two will, in fact, be collapsing all the time, and new ones taking their place. As an aggregate, they will be quicker to react to changing conditions, whether good or bad. You won't to "deal with" at all. They die, and someone else rises up.
So that's the reason why a whole bunch of tiny companies died off as the market shrunk and the big companies were able to eat them and expand?

The opposite happening in the real world as you posited would happen rather puts a lie to your estimation.

[TheMadHun]

3) Step the fuck back and let the market take care of the rest, and if some banks fail, so be it. No, we still need things like FDIC to keep banks open for the public. But they can fail for stockholders, in the sense that they must be bought or restructured at their expense and not the depositors'.

No market has ever controlled itself.

My own take on it is that the biggest problem is the wheeler dealer gambler, as opposed to the investor. They both are gambling, but the former is reckless, gambling more than he can spare. Lehman Bros had overextended "leveraged" by 80 times their net worth. So a 1% sneeze would topple them.

We recognize speed in our tax structure already, giving leeway to long term gains.
What we need is more tax on super-short gains. And also losses. Buy at $20 and sell the next day at $19 or $21, that means you didn't buy as a long term investment, so the tax should be imposed right on the spot, a sales tax. Keep the stock a bit longer and the tax goes away until your normal income tax return.

[Voyager]

Reinstating the Glass-Steagall act might be a good place to start. The intent of the act was to prevent banks from becomming "too big to fail" by restricting what businesses they could enter into and preventing conflicts of interest.

That's an excellent idea, since it seemed to work for decades - and things fell apart fairly soon after it was repealed.

The problem isn't so much that banks are too big to fail. The problem is that they engaged in shady business practices that caused them to fail.
No, the scary thing is that the crash happened because of perfectly understandable non-shady practices. The excesses happened because anyone who didn't do them would get clobbered by investors for not making the profits the banks taking the risks did. That's why regulation is needed, because the market will encourage the bad practices, since it works in the short run.

[Voyager]

Why is it bad for a company to be too big to fail? Big companies (on average) can accomplish more, with less overhead, and are more stable. So long as there is competition, big companies are good.


That was the theory behind the rise of the conglomerates in the '70s. It turns out that growth usually involves expanding into new sectors, which the CEO does not know about and which divides the time of the top managers. Companies that are too big in too many areas are unstable. Companies too big in one area become monopolies, which as you say are bad.

[gonzomax]

Really big corporations have many layers of management. They become slower to react and are less efficient. That is why ,for instance, IBM went outside to get a home computer made. They saw a new market coming and knew if they did the development inside they would miss the market. It just costs more and takes longer.
Big business seeks to eliminate competition. In Maine 71 percent of health insurance is sold by one company, Well-point. They can do what they want. They will buy up every company they can.
By swallowing up competitors they can set prices and downgrade innovation. We all have cable by huge conglomerates. Our cable is far slower than most industrialized countries. The cable companies have the power to say take it or leave it. In Dearborn Hgts. we can get 3 different providers. When you check them out, there is no reason to change. They offer the same packages at almost exactly the same price. It is not worth the trouble to change. They all go up every year. That is the American business model.
The Financial companies have gotten their way with the destruction of regulation. It allowed them to invent risky new financial instruments. They were crazy enough to risk the banks themselves as they went along their greedy ways. They lost . We paid. They got incredibly wealthy.

[furt]

Reinstating the Glass-Steagall act might be a good place to start. The intent of the act was to prevent banks from becoming "too big to fail" by restricting what businesses they could enter into and preventing conflicts of interest.Knowing only what I read on Wikepedia, this sounds like a good idea. Is anyone proposing it?

No, we still need things like FDIC to keep banks open for the public. But they can fail for stockholders, in the sense that they must be bought or restructured at their expense and not the depositors'.Agreed. I was kind of assuming the FDIC in my let-them-fail.


Anyone else? Scylla?

[gonzomax]

Banks are back to their old habits. The brokers are gambling away with wild investments. Now, they know we will fix the mess and they will walk away rich. If we don't prosecute a few of them we are screwed. They are back to big time bonuses and salaries.
We should have nationalized a bank or 2 and cleaned them out. Then took care of the mortgages. Banks don't want to deal with them. They are becoming solvent by jacking up credit card rates, refusing credit to people with any troubles and jacking up banking costs. They are allowing us to save them and make them rich. They are laughing at us all the way to the tax shelter.

[Honesty]

Our system is kind of contrived. I wish there was a National Bank that'll completely bypass the whole banking quagmire without bailouts. Let the government handle it.

[gonzomax]

You knew Paulson would not do it, but,when Obama came in he should have nationalized a failing bank or two. Instead the Wall Streeters got their way and the failing banks were given to other banks making them bigger and more powerful. It is difficult for politicians to face down big bankers. The bankers learned one lesson. If they did something to imperil the economy and made a ton of money doing it, we would not prosecute them but instead make them whole again. They laugh at us .
We have not reformed. It is time to do it. It will be tough because the bankers own congress and the senate. Some pols know that we have to prevent another disaster from happening. They will battle their conscience and the practical fact of money driving the politics. It will take guts and that is sorely lacking.

[LonghornDave]

That's an excellent idea, since it seemed to work for decades - and things fell apart fairly soon after it was repealed.

Yea, things really worked great for banks in the late '80s.

[LonghornDave]

There have been over 100 bank failures this year. That on course aids consolidation. When the huge bank failures occurred we allowed Bank of America and other enormous banks to buy them up with TARP money. Our policies have made bigger and more dangerous banks. The banks are in charge.

Actually, there have been 98 bank failures this year. Almost all of them have been acquired by very small banks. I can't think of any off the top of my head that were acquired by large banks. The closest I can think of was BBVA Compass acquiring Guaranty Bank. BBVA Compass was, of course, not a TARP receipient. Any more untruths you want to throw out there?

[gonzomax]

http://www.contrarianprofits.com/articles/250bn-bank-rescue-will-encourage-acquisitions-not-lending/7451 TARP has allowed banks to buy other failing banks and financial institutions. They also allowed non banking financial institutions to buy up a bank and qualify for TARP funds. It was grand theft by the wealthy and powerful.

[LonghornDave]

http://www.contrarianprofits.com/articles/250bn-bank-rescue-will-encourage-acquisitions-not-lending/7451 TARP has allowed banks to buy other failing banks and financial institutions. They also allowed non banking financial institutions to buy up a bank and qualify for TARP funds. It was grand theft by the wealthy and powerful.

Please point out a single case of a big bank that has received TARP funds that has acquired a failed bank in 2009 using those TARP funds.

[Trom]

Please point out a single case of a big bank that has received TARP funds that has acquired a failed bank in 2009 using those TARP funds.

Why does the size of the TARP recipient buying the failed bank matter?

Here are banks that received TARP money and have then gone on to assume failed banks:

Failed Bank (FB): Corus - IL
TARP-Receiving "Assuming Institution" (TRAI): MB Financial -IL

FB: Warren Bank -OH
TRAI: Huntington Bank - OH

FB: Irwin Union Bank - KY
TRAI: First Financial Service Corp - KY

FB: Vantus Bank - IA
TRAI: Great Southern - MO

FB: InBank - IL
TRAI: MB Financial - IL

FB: Bradford Bank - MD
TRAI: M&T Bank - NY

FB: First Coweta Bank - GA
TRAI: United Bank - GA

FB: ebank - GA
TRAI: Stearns Bank - MN

FB: Dwelling House Savings and Loan - PA
TRAI: PNC - PA

FB: Community Nat. Bank of Sarasota - FL
TRAI: Stearns Bank - MN

FB: First State Bank - FL
TRAI: Stearns Bank - MN

FB: Peoples Community - OH
TRAI: First Financial - OH

FB: Founders Bank - IL
TRAI: PrivateBank - IL

FB: Mirae Bank - CA
TRAI: Wilshire - CA

FB: Horizon Bank - MN
TRAI: Stearns Bank - MN

FB: Southern Community - GA
TRAI: United Community - GA

FB: Strategic Capital - IL
TRAI: Midlands States - IL

FB: America West - UT
TRAI: Cache Valley - UT

FB: TeamBank - KS
TRAI: Great Southern - GA

FB: Heritage Community - IL
TRAI: MB Financial - IL

FB: County Bank - CA
TRAI: Westamerica - CA

FB: First Bank Financial Services - GA
TRAI: Regions Bank - AL

FB: First Centennial - CA
TRAI: First California - CA

FB: Bank of Clark County - WA
TRAI: Umpqua - OR

Sources:
http://www.fdic.gov/bank/individual/failed/banklist.html
http://bailout.propublica.org/main/list/index

I suspect you will counter that we can't say for sure that the actual TARP money was involved in the purchase of the failed institutions. I would agree with that, not even Elizabeth Warren of the Congressional Oversight panel can account (http://newsday.today.com/2009/08/12/elizabeth-warren-cant-account-for-half-of-the-tarp-funds/) for where exactly the TARP funds went.

The ridiculous part of all this, in my eyes, is that the FDIC is giving banks that needed TARP bailouts due to their own negligence even MORE assets to control. How does this make sense?

(Sorry for the long post...couldn't figure out a better way to format.)

[LonghornDave]

Why does the size of the TARP recipient buying the failed bank matter?

It matters because what I was responding to was the following.

we allowed Bank of America and other enormous banks to buy them up with TARP money.

The ridiculous part of all this, in my eyes, is that the FDIC is giving banks that needed TARP bailouts due to their own negligence even MORE assets to control. How does this make sense?

It makes sense when you consider the fact that the vast majority of the banks that received TARP funds were in good financial condition and felt pressured to take funds. You had to be either in good financial condiition or be one of the "too big to fail" banks in order to receive TARP funds.

[Trom]

It makes sense when you consider the fact that the vast majority of the banks that received TARP funds were in good financial condition and felt pressured to take funds. You had to be either in good financial condiition or be one of the "too big to fail" banks in order to receive TARP funds.

I guess I'm just cynical. I still believe that nobody knows what is actually out there in "Legacy Asset Land." As such, that tilts my opinion towards the belief that many "healthy" banks are far from it.

Yes, the Capital Purchase Program was sold as a program that would stimulate lending by financially sound institutions. By what method would the good institutions be sorted from the bad? The entire process was opaque. The State of Alabama's letter (http://s.wsj.net/public/resources/documents/WSJ_Bailout-letter-12-03-08.pdf) (pdf) to the House Financial Services Committee seems to be representative of at least some of mess. Banks submitted an application that went through to the FDIC, the Office of Thrift Supervision, the Office of the Comptroller of the Currency, and the Federal Reserve. Lastly, it went to the Treasury for the stamp of approval. They claimed to have an objective process, yet in OneUnited's case (http://www.boston.com/business/articles/2009/09/19/ethics_inquiry_for_lawmaker_linked_to_oneunited/), for some reason, Maxine Water's and Barney Frank's opinions and interests were inserted into the completely objective determination method. OneUnited has since missed their dividend payment payable to the US Government. Given that 34 of the companies in "good financial condition" that received TARP money also last month missed their dividend payments...
(http://www.usatoday.com/money/industries/banking/2009-10-07-banks-tarp-dividends_N.htm?csp=34)
Like I said, I've grown cynical. I have little faith that the process by which the US Government allocated capital was carried in a fair or proper manner.

Anyway, back to the other topic...

A review of investor presentations and conference calls by executives of some two dozen banks around the country found that few cited lending as a priority. An overwhelming majority saw the bailout program as a no-strings-attached windfall that could be used to pay down debt, acquire other businesses or invest for the future.

http://www.nytimes.com/2009/01/18/business/18bank.html?pagewanted=1&_r=1

:mad: :(

[Voyager]

Yea, things really worked great for banks in the late '80s.

Are you implying that happened from a surfeit of regulation?
Glass-Steagall was not relevant to that type of deregulation, of course.
It's really very simple. If an increase in risk increases returns, in the short term, some one will do it. Since they are now outcompeting a bank taking less risk, there is a very strong incentive for them to match the risk, or else see their stock price go down. Repeat until there is one card too many on the house, and the whole thing collapses. Maybe a very small number of those responsible will face a penalty, if they go past risk to fraud, but for the most part the managers who caused the collapse retire with the millions they made from the high profit days.

Any reason why this isn't the way it happens? Or do you think (like Greenspan) the old Invisible Hand will take care of everything?

[MOIDALIZE]

Excellent Bill Moyers' interview with Simon Johnson, formerly of the IMF, and Rep. Marcy Kaptur (D-Ohio), regarding the banks.

http://www.pbs.org/moyers/journal/10092009/watch.html

[Voyager]

http://www.contrarianprofits.com/articles/250bn-bank-rescue-will-encourage-acquisitions-not-lending/7451 TARP has allowed banks to buy other failing banks and financial institutions. They also allowed non banking financial institutions to buy up a bank and qualify for TARP funds. It was grand theft by the wealthy and powerful.

Are you aware that before TARP when a bank failed the FDIC took it over, cleaned it up, and sold it to another bank? Would you rather the customers of the bank have to move, or that there is a bidding war for the loans? Failing banks getting bought by other banks is the only sensible strategy.

[Voyager]

I

It makes sense when you consider the fact that the vast majority of the banks that received TARP funds were in good financial condition and felt pressured to take funds. You had to be either in good financial condiition or be one of the "too big to fail" banks in order to receive TARP funds.

The reason they were pressured to take funds was so that taking TARP money wasn't a mark of Cain, causing investors to run even further from the banks. I'm not saying it was a good idea, but it wasn't totally random.

[Dick Dastardly]

Yea, things really worked great for banks in the late '80s.

Because Reagan deregulated the Savings and Loans firms. The fact is that the Depression-era legislation worked magnificently and every time it's been compromised it's caused enormous consequences, yet there sre still people who for some looney tune reason still think that regulating the financial industry is a bad thing.

[gonzomax]

Are you aware that before TARP when a bank failed the FDIC took it over, cleaned it up, and sold it to another bank? Would you rather the customers of the bank have to move, or that there is a bidding war for the loans? Failing banks getting bought by other banks is the only sensible strategy.

The sensible strategy would be to nationalize them. They were thieves before and now they are bigger thieves. We opened the treasury up to people who destroyed the finances of the whole fucking globe. But now they will do right? How can you believe that? We know what they are. The bankers are already back to their risky behavior and they are also suppressing loans. They are jacking the rates up on credit cards and are hitting customers for all kinds of charges. can you explain how that will help the general economy out? They feel no responsibility for the havoc they caused . We have to prosecute a bunch of them or just give up and admit we like being robbed.

[LonghornDave]

Are you implying that happened from a surfeit of regulation?
Glass-Steagall was not relevant to that type of deregulation, of course.
It's really very simple. If an increase in risk increases returns, in the short term, some one will do it. Since they are now outcompeting a bank taking less risk, there is a very strong incentive for them to match the risk, or else see their stock price go down. Repeat until there is one card too many on the house, and the whole thing collapses. Maybe a very small number of those responsible will face a penalty, if they go past risk to fraud, but for the most part the managers who caused the collapse retire with the millions they made from the high profit days.

Any reason why this isn't the way it happens? Or do you think (like Greenspan) the old Invisible Hand will take care of everything?

Did you just make up an argument in your head? You said things went along fine for decades. My obvious statement back was that it didn't go fine for decades since there was a major banking collapse in the late '80s and early '90s. There was no opinion or implication give in my post.

I'll expand now though. The primary cause for both the banking problem in the '80s and the one now was lending too much money in the real estate market. That is the primary cause for both collapses. Neither was primarily driven by de-regulation in my opinion.

[LonghornDave]

The reason they were pressured to take funds was so that taking TARP money wasn't a mark of Cain, causing investors to run even further from the banks. I'm not saying it was a good idea, but it wasn't totally random.

I completely understand that and nowhere did I imply that it was a random. It just bothers me when uninformed people act like every bank that received TARP money was bailed out since that isn't even close to accurate. There are banks that were forced to take the money and at the first chance of being allowed to pay it back they did, with dividends and buying back warrants. That was only a few months later. It bothers me when people say that company was bailed out.

[LonghornDave]

Because Reagan deregulated the Savings and Loans firms. The fact is that the Depression-era legislation worked magnificently and every time it's been compromised it's caused enormous consequences, yet there sre still people who for some looney tune reason still think that regulating the financial industry is a bad thing.

First of all, any de-regulation would have been passed by a democratically controlled congress. Second, solely blaming de-regulation is a sound bite reason not a correct one. If you don't think it had anything to do with a complete collapse in the real estate market then I don't know what to tell you.

[Trom]

I completely understand that and nowhere did I imply that it was a random. It just bothers me when uninformed people act like every bank that received TARP money was bailed out since that isn't even close to accurate. There are banks that were forced to take the money and at the first chance of being allowed to pay it back they did, with dividends and buying back warrants. That was only a few months later. It bothers me when people say that company was bailed out.

LonghornDave, do you have any thoughts on my post regarding the muddied and opaque process by which banks were deemed worthy or unworthy of receiving TARP money?

[LonghornDave]

The bankers are already back to their risky behavior and they are also suppressing loans.

Why don't you re-read this and think if it makes any sense what-so-ever. So the banks are back to their risky behavior (presumedly over-lending) while at the same time not lending enough? That's good solid reasoning, congratulations.

[MOIDALIZE]

First of all, any de-regulation would have been passed by a democratically controlled congress. Second, solely blaming de-regulation is a sound bite reason not a correct one. If you don't think it had anything to do with a complete collapse in the real estate market then I don't know what to tell you.


If not for deregulation, we wouldn't have seen these enormous bets on housing. The collapse of the real estate market didn't suddenly make these bets into a bad idea; it was a bad idea regardless. Blaming the collapse of the real estate market is like getting caught robbing a bank and arguing that it would have worked out fine if not for those pesky police.

There's nothing good about a company like Goldman Sachs being able to reorganize themselves as a bank holding company and gaining access to the Fed's lending window (or whatever the hell they did after they almost collapsed; who can keep track?).

[LonghornDave]

LonghornDave, do you have any thoughts on my post regarding the muddied and opaque process by which banks were deemed worthy or unworthy of receiving TARP money?

I agree with you that it was politicized for certain banks. Considering the fact that it was supposed to be a plan to inject money into healthy banks, I agree that some banks probably should not have passed that litmus test. I recall reading about several instances where one bank was passed over despite a worse off bank in the same geographic region receiving funds.

Obviously a big part of the problem is the fact that there is crazy regulation governing commercial banks and thrifts (collectively, "banks"). One bank may be regulated by the OTS and another by the OCC. One bank is locally regulated while another is federally regulated. Since the first round of approval was by the direct regulator and that was different depending on how you were chartered, it wasn't a level playing field.

That is why it makes sense to have a single regulator of banks and a single type of charter. I believe that the OCC would be the best considering everything the OTS touches seems to fall apart.

[LonghornDave]

If not for deregulation, we wouldn't have seen these enormous bets on housing. The collapse of the real estate market didn't suddenly make these bets into a bad idea; it was a bad idea regardless. Blaming the collapse of the real estate market is like getting caught robbing a bank and arguing that it would have worked out fine if not for those pesky police.

Whereas I think that there were plenty of banks that lent consistent advance rates using qualified appraisers that have been absolutely hammered because of a massive decline in collateral value.

Let me ask you, did banks screw up by lending to natural gas companies over the past several years because now there are a rash of troubled loans and bankruptcies in that sector? I tend to think that natural gas reserve based loans have proven to be a very safe loan and the lending methodologies didn't really change despite the run up in prices. Now, however, banks are loaded with classified loans and chargeoffs and loan loss reserves on those types of loans. I believe it is because of a massive collapse in prices. What de-regulation are you going to blame it on?

There's nothing good about a company like Goldman Sachs being able to reorganize themselves as a bank holding company and gaining access to the Fed's lending window (or whatever the hell they did after they almost collapsed; who can keep track?).

Please see the following topic which addresses this and many other misconceptions about Goldman Sachs: Goldman Sachs was not bailed out (http://boards.straightdope.com/sdmb/showthread.php?t=525435)

[Trom]

If not for deregulation, we wouldn't have seen these enormous bets on housing. The collapse of the real estate market didn't suddenly make these bets into a bad idea; it was a bad idea regardless. Blaming the collapse of the real estate market is like getting caught robbing a bank and arguing that it would have worked out fine if not for those pesky police.

There's nothing good about a company like Goldman Sachs being able to reorganize themselves as a bank holding company and gaining access to the Fed's lending window (or whatever the hell they did after they almost collapsed; who can keep track?).

In order to do away with the criticism that they were engaging in practices unfitting of a bank holding company with US taxpayers' backing, Goldman has now become a financial holding company (http://www.businessinsider.com/goldman-sachs-changes-its-status-to-financial-holding-company-2009-8) with the implicit backing of taxpayers.

[MOIDALIZE]

Whereas I think that there were plenty of banks that lent consistent advance rates using qualified appraisers that have been absolutely hammered because of a massive decline in collateral value.

Let me ask you, did banks screw up by lending to natural gas companies over the past several years because now there are a rash of troubled loans and bankruptcies in that sector? I tend to think that natural gas reserve based loans have proven to be a very safe loan and the lending methodologies didn't really change despite the run up in prices. Now, however, banks are loaded with classified loans and chargeoffs and loan loss reserves on those types of loans. I believe it is because of a massive collapse in prices. What de-regulation are you going to blame it on?



I have no idea whether these natural gas company loans were a mistake. Were these loans as preposterously over-leveraged as the mortgage loans? Were they sliced and diced and repackaged into arcane securities that nobody knew the true value of? Did the parties making the loans receive large bonuses for acheiving short term gains? Were the losses ultimately thrust onto the taxpayer? Just pointing out loans made to a distressed sector of the economy doesn't tell me anything about the manner of the investments made and whether they made sense.

Please see the following topic which addresses this and many other misconceptions about Goldman Sachs: Goldman Sachs was not bailed out (http://boards.straightdope.com/sdmb/showthread.php?t=525435)

Yeah, I remember this thread. I seem to recall your obstinancy as well. Your narrow, personal definition of what a "bailout" is doesn't make it a misconception.

[LonghornDave]

In order to do away with the criticism that they were engaging in practices unfitting of a bank holding company with US taxpayers' backing, Goldman has now become a financial holding company (http://www.businessinsider.com/goldman-sachs-changes-its-status-to-financial-holding-company-2009-8) with the implicit backing of taxpayers.

For informational purposes, here is the text from their 10K, which was filed on 1/27/09 announcing their intention.

Activities

The BHC Act generally restricts us from engaging in business activities other than the business of banking and certain closely related activities. However, the BHC Act also grants a new bank holding company, such as Group Inc., two years from the date the entity becomes a bank holding company to comply with the restrictions on its activities imposed by the BHC Act with respect to any activities that it was engaged in when it became a bank holding company. We expect that this “grandfather” right will allow us to continue to conduct our business substantially as we have in the past until at least September 22, 2010. In addition, under the BHC Act, we can apply to the Federal Reserve Board for up to three one-year extensions.

Under the U.S. Gramm-Leach-Bliley Act of 1999 (GLB Act), an eligible bank holding company may elect to become a “financial holding company.” Financial holding companies may engage in a broader range of financial and related activities than are permissible for bank holding companies as long as they continue to meet the eligibility requirements for financial holding companies. These activities include underwriting, dealing and making markets in securities, insurance underwriting and making merchant banking investments in nonfinancial companies. In addition, the GLB Act also allows a company that was not a bank holding company and becomes a financial holding company after November 12, 1999 to continue to engage in certain commodities activities that are otherwise impermissible for bank holding companies if the company was engaged in any of these activities in the United States as of September 30, 1997 and if the assets held pursuant to these activities do not equal 5% or more of the consolidated assets of the bank holding company.

We intend to apply to elect to become a financial holding company under the GLB Act as soon as practicable. Our ability to achieve and maintain financial holding company status is dependent on a number of factors, including our U.S. depository institution subsidiaries continuing to qualify as “well capitalized” as described under “— Prompt Corrective Action” below. We do not believe that any activities that are material to our current or currently proposed business would be impermissible activities for us as a financial holding company.

As a bank holding company, Group Inc. is required to obtain prior Federal Reserve Board approval before directly or indirectly acquiring more than 5% of any class of voting shares of any unaffiliated depository institution. In addition, as a bank holding company, we may generally engage in banking and other financial activities abroad, including investing in and owning non-U.S. banks, if those activities and investments do not exceed certain limits and, in some cases, if we have obtained the prior approval of the Federal Reserve Board.

I did not see a filing that they had actually changed their status to a Financial Holding Company.

[LonghornDave]

I have no idea whether these natural gas company loans were a mistake. Were these loans as preposterously over-leveraged as the mortgage loans? Were they sliced and diced and repackaged into arcane securities that nobody knew the true value of? Did the parties making the loans receive large bonuses for acheiving short term gains? Were the losses ultimately thrust onto the taxpayer? Just pointing out loans made to a distressed sector of the economy doesn't tell me anything about the manner of the investments made and whether they made sense.

You're missing the point that I was trying to make. It was that the collapse of a sector will usually result in problems for capital providers to that sector despite the other circumstances surrounding the situation. I specifically chose natural gas because it is known amongst commercial bankers as a type of loan that you don't lose money on because of the conservative lending methodologies. Despite this, a 70% drop in collateral value has resulted in a tremendous number of bad loans. That doesn't mean the banks did anything wrong, it is just something that happened.

I fully realize that there were all sorts of additional problems in real estate lending both in the '80s and in the 2000s. That doesn't mean that everyone was engaging in bad practices. There were plenty of banks that were hit hard and even some that have failed because the entire sector blew up. In that way, your previous analogy fails as many banks weren't trying to "rob a bank". They were trying to engage in sound, established lending practices and were caught in the complete collapse of the real estate industry.



Yeah, I remember this thread. I seem to recall your obstinancy as well. Your narrow, personal definition of what a "bailout" is doesn't make it a misconception.

You are free to come up with whatever definition you want to use. Further, I don't think I particularly slam-dunk won the debate that they weren't "bailed out". As you stated, people have different definitions. However, an honest reader would have to at least admit that there were plenty of misconceptions and outright untruths stated about Goldman Sachs that I corrected aside from the overall question of whether they were "bailed out".

[gonzomax]

Why don't you re-read this and think if it makes any sense what-so-ever. So the banks are back to their risky behavior (presumedly over-lending) while at the same time not lending enough? That's good solid reasoning, congratulations.

Not the lending . The economy tanked due to the financial instruments the bankers dreamed up. They not only sold dangerous mortgages, but sold insurance that they would not go bad. It is way beyond bad mortgages. . Then credit default swaps and other financial creations exacerbated the damage they had already caused.
Naked short selling is alive and well. But now they have new superfast computers main lined to the market that buy and sell stocks and commodities at lightning speed. They are still creating enormous wealth without making a product. They are still skimming billions . They know we have to save them when it blows up.

[LonghornDave]

Not the lending . The economy tanked due to the financial instruments the bankers dreamed up. They not only sold dangerous mortgages, but sold insurance that they would not go bad. It is way beyond bad mortgages. . Then credit default swaps and other financial creations exacerbated the damage they had already caused.
Naked short selling is alive and well. But now they have new superfast computers main lined to the market that buy and sell stocks and commodities at lightning speed. They are still creating enormous wealth without making a product. They are still skimming billions . They know we have to save them when it blows up.

What do you think a "dangerous mortgage" is if not lending? There are credit default swaps on all sorts of credits; why are the ones that have something to do with real estate and banking the ones that are the toxic assets? There are all sorts of collateralized debt obligations; why are the problematic ones related to real estate? Could it possibly be that the root cause is the aggressive lending in real estate and the collapse of the real estate market? Could it also possibly be nonsensical to now criticize banks for being too conservative in lending?

Also, what the hell does naked short selling have to do with any of this?

[Voyager]

The sensible strategy would be to nationalize them. They were thieves before and now they are bigger thieves. We opened the treasury up to people who destroyed the finances of the whole fucking globe. But now they will do right? How can you believe that? We know what they are. The bankers are already back to their risky behavior and they are also suppressing loans. They are jacking the rates up on credit cards and are hitting customers for all kinds of charges. can you explain how that will help the general economy out? They feel no responsibility for the havoc they caused . We have to prosecute a bunch of them or just give up and admit we like being robbed.
The small banks which are failing are not the ones responsible for the disaster. Some may have been overly aggressive, but a lot got caught in the real estate bust. I assume you don't want to nationalize all the banks. Nationalizing some would have government both regulating and competing against local banks, which is not a good idea.
Nationalizing the giant banks which had to be bailed out is a different story. I'm not sure if it would have been a good idea or not.

[Voyager]

Did you just make up an argument in your head? You said things went along fine for decades. My obvious statement back was that it didn't go fine for decades since there was a major banking collapse in the late '80s and early '90s. There was no opinion or implication give in my post.

since the banks initially affected back then were totally disjointed from the investment banks which were the primary source of the problem now, I didn't quite get the comment.

I'll expand now though. The primary cause for both the banking problem in the '80s and the one now was lending too much money in the real estate market. That is the primary cause for both collapses. Neither was primarily driven by de-regulation in my opinion.
Just saying real estate hardly covers it. The '80s problem was commercial real estate and big and risky projects, not residential real estate. Do you have a cite from a reputable economist saying that this crash was not a result of deregulation, which allowed the banks to take on riskier projects without adequate reserves?

This crash resulted from the disassociation of risk from mortgage writing, with the natural desire to increase the risk you are not going to have to bear. I agree that it wasn't due technically to deregulation, since this was never regulated, but definitely due to the refusal to regulate. Summers, who opposed regulating derivatives, bears some of the blame also. The big difference is that the '80s problem was confined to individual banks (though lots of them) while the recent one spread through the entire infrastructure, which is why it got so much worse.

[Voyager]

I completely understand that and nowhere did I imply that it was a random. It just bothers me when uninformed people act like every bank that received TARP money was bailed out since that isn't even close to accurate. There are banks that were forced to take the money and at the first chance of being allowed to pay it back they did, with dividends and buying back warrants. That was only a few months later. It bothers me when people say that company was bailed out.

I figured you knew that, but it wasn't clear that gonzomax did, so my add on was in support of your response to him.

[Voyager]

First of all, any de-regulation would have been passed by a democratically controlled congress. Second, solely blaming de-regulation is a sound bite reason not a correct one. If you don't think it had anything to do with a complete collapse in the real estate market then I don't know what to tell you.

I don't think anyone is actually saying deregulation (or lack of regulation) is the only cause. The bubble was inflated in no small part due to the Fed keeping interest rates low, which was to prop up the Bush administration. But don't you think pumping mortgage money into the market through the unregulated instruments and excessive leverage contributed to the rise in prices, which made the collapse worse?

[gonzomax]

A very few were forced to take TARP. They could have stashed it and could have given it back by now. That is not a real problem.

[gonzomax]

The small banks which are failing are not the ones responsible for the disaster. Some may have been overly aggressive, but a lot got caught in the real estate bust. I assume you don't want to nationalize all the banks. Nationalizing some would have government both regulating and competing against local banks, which is not a good idea.
Nationalizing the giant banks which had to be bailed out is a different story. I'm not sure if it would have been a good idea or not.

No . We could have nationalized a couple failing banks. Then they would have been involved in rewriting mortgages and actually doing good. That would have been the dreaded "competition" that corporations hate so much.
The banks are back to looting. If we had a couple actually working to improve conditions we wouldn't be on our way to another crash. I am pro competition. It lowers prices and improves quality. It kills the incredible arrogance of the Harvard MBAs that destroyed the economy.

[Dick Dastardly]

First of all, any de-regulation would have been passed by a democratically controlled congress. Second, solely blaming de-regulation is a sound bite reason not a correct one. If you don't think it had anything to do with a complete collapse in the real estate market then I don't know what to tell you.


“This bill is the most important legislation for financial institutions in the last 50 years. It provides a long-term solution for troubled thrift institutions. ... All in all, I think we hit the jackpot”.

Ronald Reagan in 1982, as he signed the Garn-St. Germain Depository Institutions Act.
---------------------------------------------------------------------------------------------------------------------

Reagan lifted all restrictions on S and Ls making loans but left their government backing in place. It was part of his agenda to let the market handle the existing problems that S and Ls faced. In a few years they ended up cosing a ouple of hundred billion in eventual bailouts. The final payment that the US government has to make to cover the S and L debt is due in 2013. We didn't even get the last fuckup paid off before they went and fucked things up again.

[Dick Dastardly]

Please see the following topic which addresses this and many other misconceptions about Goldman Sachs: Goldman Sachs was not bailed out (http://boards.straightdope.com/sdmb/showthread.php?t=525435)

I wouldn't be pointing to that thread as evidence that you know what you're talking about.

[gonzomax]

What do you think a "dangerous mortgage" is if not lending? There are credit default swaps on all sorts of credits; why are the ones that have something to do with real estate and banking the ones that are the toxic assets? There are all sorts of collateralized debt obligations; why are the problematic ones related to real estate? Could it possibly be that the root cause is the aggressive lending in real estate and the collapse of the real estate market? Could it also possibly be nonsensical to now criticize banks for being too conservative in lending?

Also, what the hell does naked short selling have to do with any of this?

Because the banking Modernization Act broke down the barriers between banks and financial institutions. The bankers were able to risk the entire institution in their speculations.
The mortgages were the start of the problem. But just the start. They chopped up the mortgages into papers which they sold throughout the world. Then they sold insurance on them with the ides that mortgage defaults would not happen. Saying bad mortgages were the problem is inadequate. They multiplied the risk many times with the creation of packaging them and then selling insurance. banker were responsible for the bad writing of mortgages. But we could have survived that with redoing mortgages and instituting regulation to prevent it recurring. But they did not stop there. they multiplied the exposure many ,many times .

[gonzomax]

What do you think a "dangerous mortgage" is if not lending? There are credit default swaps on all sorts of credits; why are the ones that have something to do with real estate and banking the ones that are the toxic assets? There are all sorts of collateralized debt obligations; why are the problematic ones related to real estate? Could it possibly be that the root cause is the aggressive lending in real estate and the collapse of the real estate market? Could it also possibly be nonsensical to now criticize banks for being too conservative in lending?

Also, what the hell does naked short selling have to do with any of this?

Because the banking Modernization Act broke down the barriers between banks and financial institutions. The bankers were able to risk the entire institution in their speculations.
The mortgages were the start of the problem. But just the start. They chopped up the mortgages into papers which they sold throughout the world. Then they sold insurance on them (credit default swaps) with the ides that mortgage defaults would not happen. Saying bad mortgages were the problem is inadequate. They multiplied the risk many times with the creation of packaging them and then selling insurance. banker were responsible for the bad writing of mortgages. But we could have survived that with redoing mortgages and instituting regulation to prevent it recurring. But they did not stop there. they multiplied the exposure many ,many times .

[gonzomax]

http://rawstory.com/2009/10/goldman-sachs-2009-bonuses-to-double-2008s-23-billion-could-buy-115-million-iphones-or-send-460000-to-harvard/ They are back to their old ways. They had no intention of fixing what was wrong.

[LonghornDave]

since the banks initially affected back then were totally disjointed from the investment banks which were the primary source of the problem now, I didn't quite get the comment.

It was more of a sarcastic throw-away comment. Also, I don't think it is correct to say that investment banks are the primary source now. I think your follow-on, which is quoted below, is a much more accurate statement albeit not complete.

Just saying real estate hardly covers it. The '80s problem was commercial real estate and big and risky projects, not residential real estate. Do you have a cite from a reputable economist saying that this crash was not a result of deregulation, which allowed the banks to take on riskier projects without adequate reserves?

Certainly saying just real estate doesn't cover it. As you imply, it is overly broad. However, when coming up with a primary reason, you necessarily have to be very broad when discussing something as complicated as an entire banking system collapsing. A correct explanation would state that there were many causes. Now clearly I would think any reasonable person would agree with that, therefore, I think you asking me to find someone that states "it was not a result of deregulation" is silly as I don't believe deregulation had nothing to do with it. I simply don't think it was the primary cause. Also, the problem with talking about deregulation is that people will take the term and apply it to something it is not. For example, if the regulation was never there in the first place, people here seem to blame deregulation. Further, if a legislative act is attempting to update regulation to an ever changing market, people here call that deregulation.

I don't have an economist to quote at hand right now, but I do have the FDIC's own opinion (http://www.fdic.gov/bank/historical/history/3_85.pdf) on the matter. As you can imagine, it is not a simple soundbite of "Reagan sucks!!!" or "Deregulations!!!!!!" like you get from the majority of posters here. Here are a few select quotes.

The rise in the number of bank failures in the 1980s had no single cause or short list of causes. Rather, it resulted from a concurrence of various forces working together to produce a decade of banking crises. First, broad national forces—economic, financial, legislative, and regulatory—established the preconditions for the increased number of bank failures. Second, a series of severe regional and sectoral recessions hit banks in a number of banking markets and led to a majority of the failures. Third, some of the banks in these markets assumed excessive risks and were insufficiently restrained by supervisory authorities, with the result that they failed in disproportionate numbers.

Differences among the states in failure rates and in the presence or absence of factors associated with failures illustrate the conclusion that the rise in the number of bank failures cannot be ascribed to any single cause.

For example, the particularly high incidence of failures in Texas reflected the rapid rise and subsequent collapse in oil prices, the commercial real estate boom and bust, the effects of the agricultural recession, the large number of new banks chartered in the state during the 1980s, and state prohibitions against branching. (The high proportion of bank failures in Texas also reflected supervisory developments. As noted below, declines in the number and frequency of on-site examinations in the 1983–86 period were particularly pronounced in Texas; earlier identification of troubled banks might have prevented some failures.)

Although the interplay of broad economic, legislative, and regulatory forces helped make the environment for banking increasingly demanding, the more immediate cause of bank failures was a series of regional and sectoral recessions. ... These failures accounted for 71 percent of the assets of failed banks over the period. Although all four ofthe recessions associated with bank failures were partly shaped by their own distinct circumstances, certain common elements were present:

1. Each followed a period of rapid expansion; in most cases, cyclical forces were accentuated by external factors.

2. In all four recessions, speculative activity was evident. Expert opinion often
gave support to overly optimistic expectations.

3. In all four cases there were wide swings in real estate activity, and these contributed to the severity of the regional recessions.

4. Commercial real estate markets in particular deserve attention because boom and bust activity in these markets was one of the main causes of losses at both failed and surviving banks.

Overbuilding occurred in many markets, and when the bubble burst, real estate values collapsed. (The downturn was aggravated by the Tax Reform Act of 1986, which removed tax breaks for real estate investment and caused a reduction in after-tax returns on such investment.) At many financial institutions loan quality deteriorated significantly, and the deterioration caused serious problems. As discussed in detail below, banks that failed in the 1980s had higher ratios of commercial real estate loans to total assets than surviving banks. Failing banks also had higher ratios of commercial real estate loans to total real estate loans,of real estate charge-offs to total charge-offs, and of nonperforming real estate assets to total nonperforming assets.

Now did deregulation contribute to this, certainly. As has been mentioned on this thread, overlending in commercial real estate was partially as a result of thrifts being allowed to compete in that sector. I think this is a big portion of the problem. My opinion though is that this is certainly not the only reason for the problem and, further, not the primary reason. That's simply my opinion though. This board seems to believe primarily that the problem was due solely to deregulation. Here's a final quote from the FDIC that I find worth posting.

The preceding discussion points to a variety of factors—economic, financial, legislative, regulatory, supervisory, managerial—that contributed to bank failures during the 1980s. Not all observers subscribe to a multiple-cause interpretation of bank-failure history or to the particular set of multiple causes described in this study. Some place particular emphasis on one or two specific causes that they believe were especially influential. For example, bank regulators tend to place heavy weight on deficiencies in bank management. Bankers tend to blame government policy and adverse changes in the economy. Journalists point to cases of malfeasance. Academic writers have placed special emphasis on the financial incentives facing bank owners and managers.

This crash resulted from the disassociation of risk from mortgage writing, with the natural desire to increase the risk you are not going to have to bear. I agree that it wasn't due technically to deregulation, since this was never regulated, but definitely due to the refusal to regulate. Summers, who opposed regulating derivatives, bears some of the blame also. The big difference is that the '80s problem was confined to individual banks (though lots of them) while the recent one spread through the entire infrastructure, which is why it got so much worse.

I agree with much of this although I think that you ignore many other factors such as money moving to real estate following the dot com crash and 911 and a long period of low interest rates. Further, you do not place enough blame on the writers of the mortgages whether they be banks, mortgage brokers, or what have you. Finally, plenty of small banks (those most common to fail) will keep the assets on their books so it is not a disassociation of risk for them.

[LonghornDave]

I don't think anyone is actually saying deregulation (or lack of regulation) is the only cause. The bubble was inflated in no small part due to the Fed keeping interest rates low, which was to prop up the Bush administration. But don't you think pumping mortgage money into the market through the unregulated instruments and excessive leverage contributed to the rise in prices, which made the collapse worse?

I think plenty of people here think that deregulation is the end-all-be-all cause of the problem. Long and drawn out reasons don't seem to be very popular among extreme partisans. Everything else you say here, I agree with.

[LonghornDave]

A very few were forced to take TARP. They could have stashed it and could have given it back by now. That is not a real problem.

Sure, very few were forced. However, many others then felt pressured to take it as receiving TARP was, for a time, considered a sign that you were a stable financial institution. Also, bear in mind that of the TARP money that went to banks (disregarding to auto companies and AIG and other non-banks), many of the larger amounts went to banks that were forced such as JPMorgan.

[LonghornDave]

“This bill is the most important legislation for financial institutions in the last 50 years. It provides a long-term solution for troubled thrift institutions. ... All in all, I think we hit the jackpot”.

Ronald Reagan in 1982, as he signed the Garn-St. Germain Depository Institutions Act.
---------------------------------------------------------------------------------------------------------------------

Reagan lifted all restrictions on S and Ls making loans but left their government backing in place. It was part of his agenda to let the market handle the existing problems that S and Ls faced. In a few years they ended up cosing a ouple of hundred billion in eventual bailouts. The final payment that the US government has to make to cover the S and L debt is due in 2013. We didn't even get the last fuckup paid off before they went and fucked things up again.

So is it seriously your contention that Ronald Reagan somehow singlehandidly forced deregulation of the thrifts despite a Congress controlled by the Democrats.

[LonghornDave]

I wouldn't be pointing to that thread as evidence that you know what you're talking about.

If you have something to say then I welcome you to respond in that thread.

[Voyager]

Certainly saying just real estate doesn't cover it. As you imply, it is overly broad. However, when coming up with a primary reason, you necessarily have to be very broad when discussing something as complicated as an entire banking system collapsing. A correct explanation would state that there were many causes. Now clearly I would think any reasonable person would agree with that, therefore, I think you asking me to find someone that states "it was not a result of deregulation" is silly as I don't believe deregulation had nothing to do with it. I simply don't think it was the primary cause. Also, the problem with talking about deregulation is that people will take the term and apply it to something it is not. For example, if the regulation was never there in the first place, people here seem to blame deregulation. Further, if a legislative act is attempting to update regulation to an ever changing market, people here call that deregulation.

I don't have an economist to quote at hand right now, but I do have the FDIC's own opinion (http://www.fdic.gov/bank/historical/history/3_85.pdf) on the matter. As you can imagine, it is not a simple soundbite of "Reagan sucks!!!" or "Deregulations!!!!!!" like you get from the majority of posters here. Here are a few select quotes.


From page 9 (their numbering, not Acrobat's numbering:
Banking legislation also played a large role in the bank-failure experience of the 1980s and early 1990s.9 This legislation was largely shaped by two broad factors: widespread recognition that banking statutes should be modernized and adapted to new marketplace realities, and the need to respond to the outbreak of bank and thrift failures. In the early 1980s the focus was on the attempt to modernize, and congressional activity was dominated by actions to deregulate the product and service powers of thrifts and to a lesser extent of banks
These deregulatory actions were generally unaccompanied by actions to restrict the increased risk taking they made possible, and so they contributed to bank and thrift failures.
As the number of failures mounted, the legislative emphasis then shifted to recapitalizing the depleted deposit insurance funds and providing regulators with stronger tools, while at the same time restricting their discretion. As a group, the various legislative actions addressed a variety of issues, but only the provisions most relevant to the increased number of
bank failures are discussed here.


Bolding mine.

Now, obviously deregulation by itself never caused any crash. As your selections mention, it was the recession, and the extra risk taken to improve returns, that did it. Clearly in good times deregulation seems both unnecessary and harmful to profits and innovation, which it is. But regulation becomes very useful in preventing the cases where a company takes excessive risks and the assumptions underlying them go away, either through a couple of bad bets or from a change in economic conditions. If every company always made prudent investments, and limited risks properly, regulation would be totally unnecessary. However, as I said earlier in this thread, that never happens, and it is not because the CEOs are crooks. The market only determines what level of risk is excessive when there is a disaster. For those companies where the damage is inherently limited, that is fine, since investors and management get hurt (and workers also, but that is what unemployment is for.) Segments where the damage spreads further, like banking, need regulation.

So, the recession, for instance, was the direct cause since if there were no recession there would be no failure in many cases. But I still maintain that deregulation was the root cause, since setting up a system which assumes no recession is silly.



I agree with much of this although I think that you ignore many other factors such as money moving to real estate following the dot com crash and 911 and a long period of low interest rates. Further, you do not place enough blame on the writers of the mortgages whether they be banks, mortgage brokers, or what have you. Finally, plenty of small banks (those most common to fail) will keep the assets on their books so it is not a disassociation of risk for them.

I had already mentioned low interest rates. I certainly agree with you on the culpability of mortgage writers (and it is refreshing to hear you blame them and not the uneducated borrowers) but they were incented, by the market, to push subprimes, since there was a big demand for high yielding instruments which the rating agencies claimed had very little risk. Without a rule saying that the couldn't sell those mortgages, they had every reason to sell them. There was a bit more fraud in this sector, but it appeared that selling no documentation mortgages was perfectly legal.
Deregulation only makes sense when there is no legitimate reason for players to do things which will get the system into trouble.

[Voyager]

Let me give an example of the problems of deregulation, which might make things clearer. Consider the regulation called speed limits. In most roads I drive on they get violated when conditions permit, though usually by a relatively small margin. Let's consider deregulating speed limits.

Many, if not most, of the driving population would not change their speed significantly. However some set would consider the decrease in travel time they get from speeding (and maybe a thrill factor) worth the risk of doing so. How fast is too fast? It is impossible to tell until an unexpected event causes a high speed crash. If we can guarantee that only the speeder gets injured, it might be considered ok, (but see motorcycle helmet controversy) but in reality the speeder might hurt others in the crash, either in his car or outside of it, and the crash cleanup might slow up traffic.
Are these negatives directly due to deregulation? Of course not, the proximate cause was the wet spot or sun in the eyes or texting or whatever. But given that it should be known that eliminating the speed limit would allow this behavior, it has to be called the actual cause, since the hazards I mentioned are always with us. Of course setting a speed limit at any speed will not prevent crashes, but it does limit them.
So, I don't think it is unreasonable to call deregulation the actual cause of many of the problems we saw.

[LonghornDave]

Now, obviously deregulation by itself never caused any crash. As your selections mention, it was the recession, and the extra risk taken to improve returns, that did it. Clearly in good times deregulation seems both unnecessary and harmful to profits and innovation, which it is. But regulation becomes very useful in preventing the cases where a company takes excessive risks and the assumptions underlying them go away, either through a couple of bad bets or from a change in economic conditions. If every company always made prudent investments, and limited risks properly, regulation would be totally unnecessary. However, as I said earlier in this thread, that never happens, and it is not because the CEOs are crooks. The market only determines what level of risk is excessive when there is a disaster. For those companies where the damage is inherently limited, that is fine, since investors and management get hurt (and workers also, but that is what unemployment is for.) Segments where the damage spreads further, like banking, need regulation.

So, the recession, for instance, was the direct cause since if there were no recession there would be no failure in many cases. But I still maintain that deregulation was the root cause, since setting up a system which assumes no recession is silly.

Correct me if I'm wrong but isn't the primary deregulatory move that you are blaming the '80s banking crises on the ability for thrifts to make more commercial loans? What if the problem was a residential rather than commercial real estate bubble? Wouldn't the crises have been even worse? Perhaps the regulatory framework that created thrifts in the first place is the real problem. I mean it seems like they are pretty overrepresented in the current banking crises as well.




I had already mentioned low interest rates. I certainly agree with you on the culpability of mortgage writers (and it is refreshing to hear you blame them and not the uneducated borrowers) but they were incented, by the market, to push subprimes, since there was a big demand for high yielding instruments which the rating agencies claimed had very little risk. Without a rule saying that the couldn't sell those mortgages, they had every reason to sell them. There was a bit more fraud in this sector, but it appeared that selling no documentation mortgages was perfectly legal.
Deregulation only makes sense when there is no legitimate reason for players to do things which will get the system into trouble.

Sorry, but I also blame the borrowers. They should have known they couldn't afford the houses. I blame them just as I would blame someone who goes bankrupt because they spend all of their money gambling (not too uncommon to see someone cash a paycheck at a casino).

[LonghornDave]

Let me give an example of the problems of deregulation, which might make things clearer. Consider the regulation called speed limits. In most roads I drive on they get violated when conditions permit, though usually by a relatively small margin. Let's consider deregulating speed limits.

Many, if not most, of the driving population would not change their speed significantly. However some set would consider the decrease in travel time they get from speeding (and maybe a thrill factor) worth the risk of doing so. How fast is too fast? It is impossible to tell until an unexpected event causes a high speed crash. If we can guarantee that only the speeder gets injured, it might be considered ok, (but see motorcycle helmet controversy) but in reality the speeder might hurt others in the crash, either in his car or outside of it, and the crash cleanup might slow up traffic.
Are these negatives directly due to deregulation? Of course not, the proximate cause was the wet spot or sun in the eyes or texting or whatever. But given that it should be known that eliminating the speed limit would allow this behavior, it has to be called the actual cause, since the hazards I mentioned are always with us. Of course setting a speed limit at any speed will not prevent crashes, but it does limit them.
So, I don't think it is unreasonable to call deregulation the actual cause of many of the problems we saw.

I don't have any problem against regulation that makes sense. I do have a problem with people blaming deregulation for anything and everything. For example, with the current crises, I certainly believe that a lack of proper regulation was one of the problems. I don't see deregulation as a very big problem though; I don't think the regulations were ever there in the first place. I also think there were several other problems many years in the making that helped cause the crises including certain improper regulations. Deregulating certain things and regulating others could have significantly lessoned the crises.

[Dick Dastardly]

If you have something to say then I welcome you to respond in that thread.

I think the thread speaks for itself.

[Dick Dastardly]

So is it seriously your contention that Ronald Reagan somehow singlehandidly forced deregulation of the thrifts despite a Congress controlled by the Democrats.

He was the driving force behind it. He wanted to let the market dig the S and Ls out of their hole. That was back in the day when congress worked fairly bipartisanly and Reagan had just won a landslide for his conservative agenda, so he got what he wanted.

[Dick Dastardly]

I don't have any problem against regulation that makes sense. I do have a problem with people blaming deregulation for anything and everything. For example, with the current crises, I certainly believe that a lack of proper regulation was one of the problems. I don't see deregulation as a very big problem though; I don't think the regulations were ever there in the first place. I also think there were several other problems many years in the making that helped cause the crises including certain improper regulations. Deregulating certain things and regulating others could have significantly lessoned the crises.

The regulations were all there in the first place. There were regulations that controlled mortgage lending that were literally chansawed at a press conference. There were regulations that controlled bond ratings agencies until they were allowed to self-regulate, and that's how garbage securities made up of deregulated million dollar mortgages to unemployed drug dealers were given AAA ratings. There was legislation that prevented predatory lending until the Bush administration actually blocked the Attorney Generals of all 50 states from enforcing them. There was regulation on bank capital requirements and debt:asset ratios till 2005 when the biggest banks and investment houses got the SEC to no longer enforce them. Almost all of this happened from 2003 onwards, and caused a huge boom in bad lending which then fed into securities markets and the wider financial system. The canary in the coalmine, although a relatively small part of the overall dollar number of bad loans, was subprime debt. The poorest people, people who were previously known as "renters" and who'd only taken the mortgages because deregulated mortgage lenders were giving them two or three year teaser rates that were cheaper than lending and were told "you can just refinance in two/three years when the real rate kicks in", defaulted first on their mortgages. You can see how the financial crisis started as there was a surge in subprime mortgage interest rate resets :

http://farm4.static.flickr.com/3279/2910373628_01df212949.jpg


http://farm4.static.flickr.com/3107/2865867619_c851e038da.jpg

[LonghornDave]

There were regulations that controlled bond ratings agencies until they were allowed to self-regulate, and that's how garbage securities made up of deregulated million dollar mortgages to unemployed drug dealers were given AAA ratings.

What specifically was deregulated regarding the rating agencies? What is the specific act that deregulated these agencies?

[Dick Dastardly]

What specifically was deregulated regarding the rating agencies? What is the specific act that deregulated these agencies?

There wasn't any specific act, like there wasn't any specific legislation that allowed banks to lever up their debt:assets ratio from 10:1 to 30 and 40:1. It's just regulatory arbitrage, firms moiving from regulator to regulator depending on which one offers to regulate least. In the case of the ratings agencies it all started to go wrong when the people paying for the ratings changed from potential investors to the security originators, but the situation only really disintegrated over the past few years. It got to the point that ratings agencies actually shared their ratings models with the securities firms so that they could put together securities that would get the right ratings. Credit derivatives only really took off a decade ago so there was no real data to accurately base risk on, so they just made it up, rated everything AAA and saw their profits go through the roof :

How did they justify that AAA rating? By looking at the historic cost of rolling credit derivatives on indices of investment-grade corporate issuers, which generally have a high-BBB rating. These had been around for about three years when the first CPDOs were rated, and the roll had never cost more than 3 basis points. Factoring in that cost, at a leverage of 15-to-1, and using historic 6-month default rates for the portfolio (since the index would be rolled every six months), the proposed trading strategy would never lose money. Hence a AAA rating.
Let me reiterate that, just to drive the point home. The ratings agencies said: you can take a BBB-rated index, leverage it 15-to-1, and follow an entirely automatic trading strategy (no trader discretion, no forecasting of defaults or anything, just a formula-driven adjustment to the leverage ratio and an automatic roll of the index), and the result is rated AAA.
Needless to say, this worked out really well (http://www.google.com/search?q=moody%27s+cpdo&ie=utf-8&oe=utf-8&aq=t&rls=org.mozilla:en-US:official&client=firefox-a) for all concerned. But that’s not really the point. The point is: the notion that you could grant a AAA based on a trading strategy for which there was at best three-years of data (three years that encompassed not a single recession, I’ll note) is mind-boggling. And, worse than that, nobody at the agencies apparently stood up and said, “wait a second: how can you turn a BBB into a AAA by leveraging it 15-to-1? That’s impossible!” Which, of course, it is.
I want to be very clear about something: we’re not talking about a CDO where the AAA investor is providing leverage, and there are subordinate investors below who bear the first risks of loss. This was a trading strategy; the investor in the AAA CPDO had first-loss risk with respect to a BBB portfolio. The trading strategy was just supposed to generate enough returns to create “virtual” subordination to justify the AAA.
When I first heard about this product, I thought: whichever agencies rated this thing have lost their minds. When people asked me whether it made sense as an investment, I said: it’s an outright fraud. You’re practically guaranteed to lose money. I never bought or sold one of these things myself, and neither did anyone else in our group. But the existence of such a ridiculous product should have been a wake-up call about just how divorced from reality the agencies were. And if they were out to lunch on something as straightforwardly absurd as the CPDO, how out to lunch were they on other products, ones that were far more significant to the markets and the economy, where the absurdity of their assumptions was less-obvious?
How did a market that, I thought, had really helped capitalism work in 2002 become the great destroyer of capitalism of the last two years? There were a lot of contributors to the catastrophe, but one indispensable one is that the ratings agencies monetized their sterling reputations in an extraordinary fashion, and nobody in regulatory apparatus of government saw that this was happening, and what it might portend. The success of 2002 depended on market confidence in the ratings agency process: that’s what made investors willing to buy the notes issued by structured finance vehicles that issued the credit protection that made it possible for banks to hedge. Without that confidence, the market would never have developed. And by 2006, the agencies understood just how much that confidence was worth.


http://theamericanscene.com/2008/12/23/ahi-quanto-a-dir-qual-era-e-cosa-dura-esta-selva-selvaggia-e-aspra-e-forte-che-nel-pensier-rinova-la-paura




Here's how it looked inside the firms :


this instant message exchange between two unidentified Standard & Poor's officials about a mortgage-backed security deal on 4/5/2007:
Official #1: Btw (by the way) that deal is ridiculous.
Official #2: I know right...model def (definitely) does not capture half the risk.
Official #1: We should not be rating it.
Official #2: We rate every deal. It could be structured by cows and we would rate it.
A former executive of Moody's says conflicts of interest got in the way of rating agencies properly valuing mortgage backed securities.
Former Managing Director Jerome Fons, who worked at Moody's until August of 2007, says Moody's was focused on "maxmizing revenues," leading it to make the firm more "issuer friendly."



http://www.cnbc.com/id/27321998


I don't know what americanscene.com is like politically or factually in general ,it just happened to come up when I was googling for CDPOs.

[LonghornDave]

There wasn't any specific act, like there wasn't any specific legislation that allowed banks to lever up their debt:assets ratio from 10:1 to 30 and 40:1. It's just regulatory arbitrage, firms moiving from regulator to regulator depending on which one offers to regulate least. In the case of the ratings agencies it all started to go wrong when the people paying for the ratings changed from potential investors to the security originators, but the situation only really disintegrated over the past few years. It got to the point that ratings agencies actually shared their ratings models with the securities firms so that they could put together securities that would get the right ratings. Credit derivatives only really took off a decade ago so there was no real data to accurately base risk on, so they just made it up, rated everything AAA and saw their profits go through the roof :

How did they justify that AAA rating? By looking at the historic cost of rolling credit derivatives on indices of investment-grade corporate issuers, which generally have a high-BBB rating. These had been around for about three years when the first CPDOs were rated, and the roll had never cost more than 3 basis points. Factoring in that cost, at a leverage of 15-to-1, and using historic 6-month default rates for the portfolio (since the index would be rolled every six months), the proposed trading strategy would never lose money. Hence a AAA rating.
Let me reiterate that, just to drive the point home. The ratings agencies said: you can take a BBB-rated index, leverage it 15-to-1, and follow an entirely automatic trading strategy (no trader discretion, no forecasting of defaults or anything, just a formula-driven adjustment to the leverage ratio and an automatic roll of the index), and the result is rated AAA.
Needless to say, this worked out really well (http://www.google.com/search?q=moody%27s+cpdo&ie=utf-8&oe=utf-8&aq=t&rls=org.mozilla:en-US:official&client=firefox-a) for all concerned. But that’s not really the point. The point is: the notion that you could grant a AAA based on a trading strategy for which there was at best three-years of data (three years that encompassed not a single recession, I’ll note) is mind-boggling. And, worse than that, nobody at the agencies apparently stood up and said, “wait a second: how can you turn a BBB into a AAA by leveraging it 15-to-1? That’s impossible!” Which, of course, it is.
I want to be very clear about something: we’re not talking about a CDO where the AAA investor is providing leverage, and there are subordinate investors below who bear the first risks of loss. This was a trading strategy; the investor in the AAA CPDO had first-loss risk with respect to a BBB portfolio. The trading strategy was just supposed to generate enough returns to create “virtual” subordination to justify the AAA.
When I first heard about this product, I thought: whichever agencies rated this thing have lost their minds. When people asked me whether it made sense as an investment, I said: it’s an outright fraud. You’re practically guaranteed to lose money. I never bought or sold one of these things myself, and neither did anyone else in our group. But the existence of such a ridiculous product should have been a wake-up call about just how divorced from reality the agencies were. And if they were out to lunch on something as straightforwardly absurd as the CPDO, how out to lunch were they on other products, ones that were far more significant to the markets and the economy, where the absurdity of their assumptions was less-obvious?
How did a market that, I thought, had really helped capitalism work in 2002 become the great destroyer of capitalism of the last two years? There were a lot of contributors to the catastrophe, but one indispensable one is that the ratings agencies monetized their sterling reputations in an extraordinary fashion, and nobody in regulatory apparatus of government saw that this was happening, and what it might portend. The success of 2002 depended on market confidence in the ratings agency process: that’s what made investors willing to buy the notes issued by structured finance vehicles that issued the credit protection that made it possible for banks to hedge. Without that confidence, the market would never have developed. And by 2006, the agencies understood just how much that confidence was worth.


http://theamericanscene.com/2008/12/23/ahi-quanto-a-dir-qual-era-e-cosa-dura-esta-selva-selvaggia-e-aspra-e-forte-che-nel-pensier-rinova-la-paura




Here's how it looked inside the firms :


this instant message exchange between two unidentified Standard & Poor's officials about a mortgage-backed security deal on 4/5/2007:
Official #1: Btw (by the way) that deal is ridiculous.
Official #2: I know right...model def (definitely) does not capture half the risk.
Official #1: We should not be rating it.
Official #2: We rate every deal. It could be structured by cows and we would rate it.
A former executive of Moody's says conflicts of interest got in the way of rating agencies properly valuing mortgage backed securities.
Former Managing Director Jerome Fons, who worked at Moody's until August of 2007, says Moody's was focused on "maxmizing revenues," leading it to make the firm more "issuer friendly."



http://www.cnbc.com/id/27321998


I don't know what americanscene.com is like politically or factually in general ,it just happened to come up when I was googling for CDPOs.

In other words, the rating agencies weren't deregulated, you just think they should have been regulated differently.

The word, deregulate, is defined (http://dictionary.reference.com/browse/deregulate) as "to remove government regulatory controls from". In other words, if the government regulations existed and they were either removed or eased, you can use the word deregulate. If the government regulations weren't ever there, you have to use a different word that actually fits with the context.

[Dick Dastardly]

In other words, the rating agencies weren't deregulated, you just think they should have been regulated differently.

The word, deregulate, is defined (http://dictionary.reference.com/browse/deregulate) as "to remove government regulatory controls from". In other words, if the government regulations existed and they were either removed or eased, you can use the word deregulate. If the government regulations weren't ever there, you have to use a different word that actually fits with the context.

And you're back to nitpicking again. I guess that you could say that technically the regulations that existed relating to bond ratings agencies werem removed due to a combination of congressional indifference, regulatory arbitrage and regulators like the Fed not wanting to get involved. But the fact remains that this, shall we say, loosening of any kind of standards accelerated to the point where it became dangerous in the 2002-onwards period. I know for instance congess jumped all over the Fed to sort the ratings agencies out after Enron blew up but the Fed declined and ignored the issue. But however you look at it a handy shorthand way of describing it is that they were deregulated.

Is this the only quibble you have with my original post? You're acceptinng the rest of it is correct?

[gonzomax]

The rating agencies were bought off. They knew that had to give great ratings to whatever piece of crap the financial companies gave them. They were paid very well to do what they were told. If they didn't give the rating they wanted, they would go to a different agency that would. They were knee deep and guilty of betraying the public trust. They were pathetic.

[LonghornDave]

The rating agencies were bought off. They knew that had to give great ratings to whatever piece of crap the financial companies gave them. They were paid very well to do what they were told. If they didn't give the rating they wanted, they would go to a different agency that would. They were knee deep and guilty of betraying the public trust. They were pathetic.

I think it is a little more nuanced than that, but I essentially agree. Most of the major rating agencies are paid by the company that is being rated. This would be the big names that you hear of like Moody's and S&P. There are a few that are paid by customers that want the ratings such as Lace. Naturally, a rating agency paid in the Moody's fashion would seem to have a conflict of interest whereas those paid like Lace would not.

The conflict of interest is a big problem as well as the fact that companies can go shop for the best rating. That is less of an issue as most major institutions or instruments that needed a rating were required to get both a Moody's and S&P rating.

[LonghornDave]

And you're back to nitpicking again. I guess that you could say that technically the regulations that existed relating to bond ratings agencies werem removed due to a combination of congressional indifference, regulatory arbitrage and regulators like the Fed not wanting to get involved. But the fact remains that this, shall we say, loosening of any kind of standards accelerated to the point where it became dangerous in the 2002-onwards period. I know for instance congess jumped all over the Fed to sort the ratings agencies out after Enron blew up but the Fed declined and ignored the issue. But however you look at it a handy shorthand way of describing it is that they were deregulated.

Is this the only quibble you have with my original post? You're acceptinng the rest of it is correct?

I have other problems with your post, but this is a major sticking point for me. The regulations were not there in the first place. It's not a nitpick; it's a fundamental piece of the issue. If the regulations were never there in the first place then the problem is not deregulation, it is lack of regulation. Unless you can point to a specific regulation that was in place that is no longer in place or was weakened, then the problem was not deregulation. You can still say it is a regulatory problem though.

Since you still seem to keep using the language of either deregulation, or weakened regulations, or non-enforcement of regulations, I will ask you again a specific and simple question. What specific regulation was in place before and what specific act or action either removed or weakened that regulation?

[gonzomax]

http://www.bloomberg.com/apps/news?pid=email_en&sid=aJ8HPmNUfchg
Even Greenspan who helped cause this mess ,sees he did the wrong thing. Now he wants the huge banks broken up because they control the market and stifle fair competition. Can you image that. He sees ever greater sized companies inhibit capitalism. Remember that lesson. Bigger and bigger companies are anti-capitalistic and are bad for the consumer . There is no value in allowing endless acquisitions.

[Dick Dastardly]

I have other problems with your post, but this is a major sticking point for me. The regulations were not there in the first place. It's not a nitpick; it's a fundamental piece of the issue. If the regulations were never there in the first place then the problem is not deregulation, it is lack of regulation. Unless you can point to a specific regulation that was in place that is no longer in place or was weakened, then the problem was not deregulation. You can still say it is a regulatory problem though.

Since you still seem to keep using the language of either deregulation, or weakened regulations, or non-enforcement of regulations, I will ask you again a specific and simple question. What specific regulation was in place before and what specific act or action either removed or weakened that regulation?

And I keep telling you that the record shows that regulations were variously prevented by the Bush administration from being enforced, relaxed, not enforced by regulators and drastically altered to allow banks to take on exponentially more risk without any specific legislation being passed to authorise the changes.

[gonzomax]

You don't have to change regulations, just defund the regulators or put in those who will not regulate. They did that for 8 years. Put an industrial exec in charge of regulating his own industry and watch what happens. Everything the companies do will be fine.

[Honesty]

And I keep telling you that the record shows that regulations were variously prevented by the Bush administration from being enforced, relaxed, not enforced by regulators and drastically altered to allow banks to take on exponentially more risk without any specific legislation being passed to authorise the changes.


Did George Bush sign an Executive Order ordering banks to take on more risk?

[Markxxx]

Why is it bad for a company to be too big to fail? Big companies (on average) can accomplish more, with less overhead, and are more stable. So long as there is competition, big companies are good.


Here in lies the problem, you don't need competition you need ACTUAL competition.

There is a thing called an effective monopoly, this is something that on paper is fine, but in the real world controls the market. For instance eBay is an effective monopoly. Sure anyone can start an online auction site, but eBay is so far ahead, it's unlikely anyone would catch. Could it be done? Of course, but it isn't going to happen soon.

Banks are forbidden to collude in their business practices, for that is akin to price fixing which is illegal. But the fewer the number of business the easier it is to figure out what there doing with no collusion.

For instance, BoA can't call Citibank and ask them about their rates, but they can watch and see what happens. If BoA has to watch three or four other banks, than it's a simple matter of having "effective collusion."

It doesn't matter if there are 10,000 smaller banks, because the smaller banks can't do anything on their own. So BoA doesn't have to watch them only the few "superbanks" that are on their own level.

Regulation is needed when there are so few comanies that can participate. For example if you have a project that is 100 billion dollars, only a few banks world wide can afford to go in on a piece of that.

But this fact gets lost when people say "Yes, but there are thousands of banks." But none of those are big enough to participate, so the field of competition is really a lot less than it seems.

[Dick Dastardly]

Did George Bush sign an Executive Order ordering banks to take on more risk?

No, but the guy he appointed to run the SEC changed the rules so that they could. So he didn't order them to do it, he just allowed them to do it. He also did everything he could to prevent law enforcement officials from enforcing laws relating to predatory mortgage lending right when all the bad mortgages started being written. The guys he appointed to run other regulators like the OTS all played their part in stripping awat various regulation too.

[gonzomax]

Did George Bush sign an Executive Order ordering banks to take on more risk?

http://www.gregpalast.com/ken-lays-alive/ This is how it is done. You strip as much regulation as you can ,then put an industry insider in charge of regulating his own industry. He gives them everything he can, like Pauson and Geithner did for Goldman. It is not illegal, just immoral and unethical.