# Wall Street reforms **URL:** \ **Category:** Great Debates\ **Created:** [October 9, 2009, 1:01am UTC](https://boards.straightdope.com/t/wall-street-reforms/513136 "2009-10-09T01:01:08Z")\ **Posts on this page:** 20\ **Page:** 3
**Author:** ![LonghornDave](https://avatars.discourse-cdn.com/v4/letter/l/a87d85/32.png) [@LonghornDave](https://boards.straightdope.com/u/LonghornDave)\ **Post date:** [October 13, 2009, 3:48pm UTC](https://boards.straightdope.com/t/wall-street-reforms/513136/41 "2009-10-13T15:48:35Z")
> [@MOIDALIZE](#): > > 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. > [@MOIDALIZE](#): > > 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”. ---
**Author:** ![gonzomax](https://avatars.discourse-cdn.com/v4/letter/g/e8c25b/32.png) [@gonzomax](https://boards.straightdope.com/u/gonzomax)\ **Post date:** [October 13, 2009, 3:56pm UTC](https://boards.straightdope.com/t/wall-street-reforms/513136/42 "2009-10-13T15:56:23Z")
> [@LonghornDave](#): > > 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. ---
**Author:** ![LonghornDave](https://avatars.discourse-cdn.com/v4/letter/l/a87d85/32.png) [@LonghornDave](https://boards.straightdope.com/u/LonghornDave)\ **Post date:** [October 13, 2009, 4:08pm UTC](https://boards.straightdope.com/t/wall-street-reforms/513136/43 "2009-10-13T16:08:22Z")
> [@gonzomax](#): > > 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? ---
**Author:** ![Voyager](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/voyager/32/133_2.png) [@Voyager](https://boards.straightdope.com/u/Voyager)\ **Post date:** [October 13, 2009, 4:39pm UTC](https://boards.straightdope.com/t/wall-street-reforms/513136/44 "2009-10-13T16:39:21Z")
> [@gonzomax](#): > > 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. ---
**Author:** ![Voyager](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/voyager/32/133_2.png) [@Voyager](https://boards.straightdope.com/u/Voyager)\ **Post date:** [October 13, 2009, 4:53pm UTC](https://boards.straightdope.com/t/wall-street-reforms/513136/45 "2009-10-13T16:53:27Z")
> [@LonghornDave](#): > > 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. ---
**Author:** ![Voyager](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/voyager/32/133_2.png) [@Voyager](https://boards.straightdope.com/u/Voyager)\ **Post date:** [October 13, 2009, 4:54pm UTC](https://boards.straightdope.com/t/wall-street-reforms/513136/46 "2009-10-13T16:54:30Z")
> [@LonghornDave](#): > > 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. ---
**Author:** ![Voyager](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/voyager/32/133_2.png) [@Voyager](https://boards.straightdope.com/u/Voyager)\ **Post date:** [October 13, 2009, 4:58pm UTC](https://boards.straightdope.com/t/wall-street-reforms/513136/47 "2009-10-13T16:58:25Z")
> [@LonghornDave](#): > > 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? ---
**Author:** ![gonzomax](https://avatars.discourse-cdn.com/v4/letter/g/e8c25b/32.png) [@gonzomax](https://boards.straightdope.com/u/gonzomax)\ **Post date:** [October 13, 2009, 4:59pm UTC](https://boards.straightdope.com/t/wall-street-reforms/513136/48 "2009-10-13T16:59:44Z")
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. ---
**Author:** ![gonzomax](https://avatars.discourse-cdn.com/v4/letter/g/e8c25b/32.png) [@gonzomax](https://boards.straightdope.com/u/gonzomax)\ **Post date:** [October 13, 2009, 5:05pm UTC](https://boards.straightdope.com/t/wall-street-reforms/513136/49 "2009-10-13T17:05:21Z")
> [@Voyager](#): > > 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. ---
**Author:** ![Dick\_Dastardly](https://avatars.discourse-cdn.com/v4/letter/d/c4cdca/32.png) [@Dick\_Dastardly](https://boards.straightdope.com/u/Dick_Dastardly)\ **Post date:** [October 13, 2009, 5:12pm UTC](https://boards.straightdope.com/t/wall-street-reforms/513136/50 "2009-10-13T17:12:22Z")
> [@LonghornDave](#): > > 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. ---
**Author:** ![Dick\_Dastardly](https://avatars.discourse-cdn.com/v4/letter/d/c4cdca/32.png) [@Dick\_Dastardly](https://boards.straightdope.com/u/Dick_Dastardly)\ **Post date:** [October 13, 2009, 5:21pm UTC](https://boards.straightdope.com/t/wall-street-reforms/513136/51 "2009-10-13T17:21:04Z")
> [@LonghornDave](#): > > 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. ---
**Author:** ![gonzomax](https://avatars.discourse-cdn.com/v4/letter/g/e8c25b/32.png) [@gonzomax](https://boards.straightdope.com/u/gonzomax)\ **Post date:** [October 13, 2009, 6:39pm UTC](https://boards.straightdope.com/t/wall-street-reforms/513136/52 "2009-10-13T18:39:34Z")
> [@LonghornDave](#): > > 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 . ---
**Author:** ![gonzomax](https://avatars.discourse-cdn.com/v4/letter/g/e8c25b/32.png) [@gonzomax](https://boards.straightdope.com/u/gonzomax)\ **Post date:** [October 13, 2009, 6:59pm UTC](https://boards.straightdope.com/t/wall-street-reforms/513136/53 "2009-10-13T18:59:37Z")
> [@LonghornDave](#): > > 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 . ---
**Author:** ![gonzomax](https://avatars.discourse-cdn.com/v4/letter/g/e8c25b/32.png) [@gonzomax](https://boards.straightdope.com/u/gonzomax)\ **Post date:** [October 13, 2009, 7:33pm UTC](https://boards.straightdope.com/t/wall-street-reforms/513136/54 "2009-10-13T19:33:17Z")
[Goldman Sachs 2009 bonuses to double 2008's; $23 billion could send 460,000 to Harvard, buy insurance for 1.7 million families - Raw Story](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. ---
**Author:** ![LonghornDave](https://avatars.discourse-cdn.com/v4/letter/l/a87d85/32.png) [@LonghornDave](https://boards.straightdope.com/u/LonghornDave)\ **Post date:** [October 13, 2009, 7:42pm UTC](https://boards.straightdope.com/t/wall-street-reforms/513136/55 "2009-10-13T19:42:26Z")
> [@Voyager](#): > > 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. > [@Voyager](#): > > 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. > [@Voyager](#): > > 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. ---
**Author:** ![LonghornDave](https://avatars.discourse-cdn.com/v4/letter/l/a87d85/32.png) [@LonghornDave](https://boards.straightdope.com/u/LonghornDave)\ **Post date:** [October 13, 2009, 7:45pm UTC](https://boards.straightdope.com/t/wall-street-reforms/513136/56 "2009-10-13T19:45:08Z")
> [@Voyager](#): > > 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. ---
**Author:** ![LonghornDave](https://avatars.discourse-cdn.com/v4/letter/l/a87d85/32.png) [@LonghornDave](https://boards.straightdope.com/u/LonghornDave)\ **Post date:** [October 13, 2009, 7:48pm UTC](https://boards.straightdope.com/t/wall-street-reforms/513136/57 "2009-10-13T19:48:38Z")
> [@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. 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. ---
**Author:** ![LonghornDave](https://avatars.discourse-cdn.com/v4/letter/l/a87d85/32.png) [@LonghornDave](https://boards.straightdope.com/u/LonghornDave)\ **Post date:** [October 13, 2009, 7:52pm UTC](https://boards.straightdope.com/t/wall-street-reforms/513136/58 "2009-10-13T19:52:15Z")
> [@Dick\_Dastardly](#): > > \*“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. ---
**Author:** ![LonghornDave](https://avatars.discourse-cdn.com/v4/letter/l/a87d85/32.png) [@LonghornDave](https://boards.straightdope.com/u/LonghornDave)\ **Post date:** [October 13, 2009, 7:53pm UTC](https://boards.straightdope.com/t/wall-street-reforms/513136/59 "2009-10-13T19:53:19Z")
> [@Dick\_Dastardly](#): > > 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. ---
**Author:** ![Voyager](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/voyager/32/133_2.png) [@Voyager](https://boards.straightdope.com/u/Voyager)\ **Post date:** [October 13, 2009, 8:57pm UTC](https://boards.straightdope.com/t/wall-street-reforms/513136/60 "2009-10-13T20:57:08Z")
> [@LonghornDave](#): > > 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. [Previous page](https://boards.straightdope.com/t/wall-street-reforms/513136.md?page=2) [Next page](https://boards.straightdope.com/t/wall-street-reforms/513136.md?page=4)