3 ms·

If SarBox applied to the government's own accounting, most Federal officials would be doing hard time. Meanwhile, the vast majority of corporations don't end up

If SarBox applied to the government's own accounting, most Federal officials would be doing hard time. Meanwhile, the vast majority of corporations don't end up restating their earnings. It's one thing to say that people are flawed, and are dishonest when they can get away with it; but it's another idea entirely to imagine that government regulation does a better job. Madoff's competitors called him a scam artist before the SEC got involved; Paulson made a fortune by correctly betting that housing was overpriced; the Enron story was pushed by short sellers and journalists, to the point that the government didn't get involved until after the bankruptcy. So why would we trust the government--which has failed miserably so far--to suddenly do a better job than the private sector?

roc 17y ago
Luckily it's not an either/or. There's a nice balance in there where the free market weeds out most problems, the government mops up mistakes that get by and regulation prevents those mistakes from growing into systemic risks. The only real problem we just suffered, was that certain institutions were allowed to become integral parts of our financial system and were allowed to play fast and loose with their own solvency. If those banks weren't absurdly leveraged, the housing bubble would have just been another recession. Lesser problems were the risk ratings that were tantamount to fraud and the short-sighted financial focus of your average corporate entity which lead to the over-leveraging. But I'm comfortable conceding that ground to caveat emptor and letting the SEC sweep up the most egregious trouble-makers a day late, as usual. Because I honestly have no idea how you could actually _fix_ those problems without breaking something far more important.
- anamax 17y ago
  > regulation prevents those mistakes from growing into systemic risks. Regulation creates systemic risks. Regulation is why all big US banks took a huge hit when Fannie and Freddie hit the skids. Regulation is also why banks were holding "insured" mortgage pools.
- lionhearted 17y ago
  > There's a nice balance in there where the free market weeds out most problems, the government mops up mistakes that get by and regulation prevents those mistakes from growing into systemic risks. You missed the largest problem - the Federal Reserve set the price of borrowing money artificially low, almost to the point of being free. Whenever you set the price of borrowing money (interest and fees) lower than the rate of inflation, you're going to get some sort of massive financial problem. It's in everyone's rational interest under that scenario to borrow as much as they can. Of course, that leads to catastrophe.
  - jbooth 17y ago
    That plus the large tax cuts aimed pretty much exclusively at the rich -- give all of the asset holders a bunch of extra liquidity and remove ordinary T-notes as an option by setting rates lower than inflation even while borrowing a ton of money.. You're gonna get a bubble somewhere -- that money has to go somewhere.
    - roc 17y ago
      But bubbles in and of themselves don't lead to the systemic crisis we just went through. There were plenty of policies I disagreed with and plenty more that fueled the bubble. But I was talking specifically about the problems that lead to the credit crisis, paralyzed markets and generally gummed things up above and beyond a popped bubble.
- bd_at_rivenhill 17y ago
  If those banks weren't absurdly leveraged, the housing bubble would have just been another recession. And now we've gone from a situation where the banks were absurdly leveraged to a situation where the government is absurdly leveraged, most likely resulting in massive inflation unless a miracle happens. I can't really see how the public sector is doing any better than the private sector here. Nobody seems willing to exercise prudence anymore.
jbooth 17y ago
That's a silly assertion. Between the Freedom of Information Act and various federal, state and local procurement rules, the government never spends any money without making much more information available than Sarbox requires. That's part of why it's inefficient. "Blah government is stupid" is not a sufficient answer to most questions.
- byrneseyeview 17y ago
  How could someone possibly run a pension like social security? How could they run a health insurance system like Medicare? Seriously. Can you tell me how anyone could do what those entities do, release the same financial statements, and not a) be in jail, and b) deserve it?
  - jbooth 17y ago
    Medicare is more efficient than the overwhelming majority of private insurance companies. Social Security also has super-low overhead, less than most funds (although lower returns than many funds as well). The federal government is actually better at pure administration than the majority of private companies, because they're constantly under the threat of getting the axe and have a mandate to do their job rather than take paychecks home. The lower salaries don't hurt, either. (EDIT: by pure administration I mean simple administrations like SS -- money goes in, money goes out, the administration is a miniscule share of the budget. No way a private company provides a service like that without demanding a bigger chunk for themselves) Lots of problems with the government.. if you're looking for wasted money, I'd suggest looking at military procurement. But pure administration of simple tasks, they actually do pretty well. If you're ideologically opposed to the existence of even a perfectly run Medicare and SS, of course, that's a different story..
    - byrneseyeview 17y ago
      Medicare is more efficient than the overwhelming majority of private insurance companies. Insurance companies would operate very differently if they could charge prices based on what their customers would cost them. It would also help if employer-provided health plans didn't have such huge tax advantages. And Medicare provides a different set of services. It would be as if the government mandated that 1) instead of buying meals, you had to buy the right to eat at a restaurant--but the restaurant could not charge different people different amounts based on how hungry they were or what they liked to eat, and 2) companies could buy food for employees at a tax-advantaged rate. If that were the case, food would suck, and one could imagine free government-run cafeterias that provided cheaper, better service. Social Security also has super-low overhead, less than most funds (although lower returns than many funds as well). Their return is zero, minus administrative costs. When you invest money in a mutual fund, they buy stocks with it; they don't use it to pay off the previous investors, and spend the rest on their pet projects. That's illegal. The federal government is actually better at pure administration than the majority of private companies, because they're constantly under the threat of getting the axe and have a mandate to do their job rather than take paychecks home. I would like to meet some of these government employees who actually fear losing their jobs. Where did you find them? The lower salaries don't hurt, either. http://economix.blogs.nytimes.com/2009/12/21/private-vs-public-sector-pay/ http://economix.blogs.nytimes.com/2009/12/21/private-vs-publ... Government workers make vastly more than private sector workers. If you're ideologically opposed to the existence of even a perfectly run Medicare and SS, of course, that's a different story... It's clear from the data that I don't need to be.
ajscherer 17y ago
I don't follow your argument. Are you saying the government's failure to prevent those three things from happening somehow proves regulation is worthless? Or are you just pointing out that individuals in the private sector were able to figure these things out before any government agencies? It certainly doesn't appear that the private sector was able to prevent those three things from happening, so I can't see how your conclusion follows from your argument.

roc 17y ago

Luckily it's not an either/or. There's a nice balance in there where the free market weeds out most problems, the government mops up mistakes that get by and regulation prevents those mistakes from growing into systemic risks. The only real problem we just suffered, was that certain institutions were allowed to become integral parts of our financial system and were allowed to play fast and loose with their own solvency. If those banks weren't absurdly leveraged, the housing bubble would have just been another recession. Lesser problems were the risk ratings that were tantamount to fraud and the short-sighted financial focus of your average corporate entity which lead to the over-leveraging. But I'm comfortable conceding that ground to caveat emptor and letting the SEC sweep up the most egregious trouble-makers a day late, as usual. Because I honestly have no idea how you could actually _fix_ those problems without breaking something far more important.

anamax 17y ago
> regulation prevents those mistakes from growing into systemic risks. Regulation creates systemic risks. Regulation is why all big US banks took a huge hit when Fannie and Freddie hit the skids. Regulation is also why banks were holding "insured" mortgage pools.
lionhearted 17y ago
> There's a nice balance in there where the free market weeds out most problems, the government mops up mistakes that get by and regulation prevents those mistakes from growing into systemic risks. You missed the largest problem - the Federal Reserve set the price of borrowing money artificially low, almost to the point of being free. Whenever you set the price of borrowing money (interest and fees) lower than the rate of inflation, you're going to get some sort of massive financial problem. It's in everyone's rational interest under that scenario to borrow as much as they can. Of course, that leads to catastrophe.
- jbooth 17y ago
  That plus the large tax cuts aimed pretty much exclusively at the rich -- give all of the asset holders a bunch of extra liquidity and remove ordinary T-notes as an option by setting rates lower than inflation even while borrowing a ton of money.. You're gonna get a bubble somewhere -- that money has to go somewhere.
  - roc 17y ago
    But bubbles in and of themselves don't lead to the systemic crisis we just went through. There were plenty of policies I disagreed with and plenty more that fueled the bubble. But I was talking specifically about the problems that lead to the credit crisis, paralyzed markets and generally gummed things up above and beyond a popped bubble.
bd_at_rivenhill 17y ago
If those banks weren't absurdly leveraged, the housing bubble would have just been another recession. And now we've gone from a situation where the banks were absurdly leveraged to a situation where the government is absurdly leveraged, most likely resulting in massive inflation unless a miracle happens. I can't really see how the public sector is doing any better than the private sector here. Nobody seems willing to exercise prudence anymore.

jbooth 17y ago

That's a silly assertion. Between the Freedom of Information Act and various federal, state and local procurement rules, the government never spends any money without making much more information available than Sarbox requires. That's part of why it's inefficient. "Blah government is stupid" is not a sufficient answer to most questions.

byrneseyeview 17y ago
How could someone possibly run a pension like social security? How could they run a health insurance system like Medicare? Seriously. Can you tell me how anyone could do what those entities do, release the same financial statements, and not a) be in jail, and b) deserve it?
- jbooth 17y ago
  Medicare is more efficient than the overwhelming majority of private insurance companies. Social Security also has super-low overhead, less than most funds (although lower returns than many funds as well). The federal government is actually better at pure administration than the majority of private companies, because they're constantly under the threat of getting the axe and have a mandate to do their job rather than take paychecks home. The lower salaries don't hurt, either. (EDIT: by pure administration I mean simple administrations like SS -- money goes in, money goes out, the administration is a miniscule share of the budget. No way a private company provides a service like that without demanding a bigger chunk for themselves) Lots of problems with the government.. if you're looking for wasted money, I'd suggest looking at military procurement. But pure administration of simple tasks, they actually do pretty well. If you're ideologically opposed to the existence of even a perfectly run Medicare and SS, of course, that's a different story..
  - byrneseyeview 17y ago
    Medicare is more efficient than the overwhelming majority of private insurance companies. Insurance companies would operate very differently if they could charge prices based on what their customers would cost them. It would also help if employer-provided health plans didn't have such huge tax advantages. And Medicare provides a different set of services. It would be as if the government mandated that 1) instead of buying meals, you had to buy the right to eat at a restaurant--but the restaurant could not charge different people different amounts based on how hungry they were or what they liked to eat, and 2) companies could buy food for employees at a tax-advantaged rate. If that were the case, food would suck, and one could imagine free government-run cafeterias that provided cheaper, better service. Social Security also has super-low overhead, less than most funds (although lower returns than many funds as well). Their return is zero, minus administrative costs. When you invest money in a mutual fund, they buy stocks with it; they don't use it to pay off the previous investors, and spend the rest on their pet projects. That's illegal. The federal government is actually better at pure administration than the majority of private companies, because they're constantly under the threat of getting the axe and have a mandate to do their job rather than take paychecks home. I would like to meet some of these government employees who actually fear losing their jobs. Where did you find them? The lower salaries don't hurt, either. http://economix.blogs.nytimes.com/2009/12/21/private-vs-public-sector-pay/ http://economix.blogs.nytimes.com/2009/12/21/private-vs-publ... Government workers make vastly more than private sector workers. If you're ideologically opposed to the existence of even a perfectly run Medicare and SS, of course, that's a different story... It's clear from the data that I don't need to be.

ajscherer 17y ago

I don't follow your argument. Are you saying the government's failure to prevent those three things from happening somehow proves regulation is worthless? Or are you just pointing out that individuals in the private sector were able to figure these things out before any government agencies? It certainly doesn't appear that the private sector was able to prevent those three things from happening, so I can't see how your conclusion follows from your argument.