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Has Wall Street Been Tamed?
- deleted 10y ago[deleted]
- adrenalinelol 10y agoNope, leverage ratios are still too generous and if a bank failed, you can bet your ass we'd bail them out in a heartbeat.
- harryh 10y agoQuite a few banks have failed in the US this year without government bailouts. https://www.fdic.gov/bank/individual/failed/banklist.html https://www.fdic.gov/bank/individual/failed/banklist.html
- duaneb 10y agoThe phrase "too big to fail" exists for a reason—the big banks aren't getting smaller. Unless the big banks are shoving their liabilities into smaller ones just before death, I don't think it's too relevant to the financial crisis.
- DashRattlesnake 10y agoI don't think that list is on point. Just looking at the names, a lot of those look like small local banks. When people complain about bailouts and "too big to fail" banks, they're usually talking about the treatment of large national banks.
- cm2187 10y agoI would like to refer to my post on bail in. https://news.ycombinator.com/item?id=12220961 https://news.ycombinator.com/item?id=12220961 I honestly do not believe a politician will accept to face the political heat of a bail out before having attempted a bail in first.
- s_q_b 10y agoIn the aftermath of the financial crisis, we frequently heard the term moral hazard. The reason why bailout money couldn't be used to restructure underlying mortgage debt directly, we were told, is that individual consumers would see it as license to take on risky housing debt, believing that the government would bail them out again in the future. Unfortunately, that's exactly what happened, with one small difference. Because it was the banks that were recapitalized, the largest banks are actually incentivized to make risky bets, seeking higher returns. The bailout now constitutes an implicit government guarantee.
- paulpauper 10y agokinda. the shareholders for many of these banks lost everything or close to everything, and the govt . took large stakes. It was not a shareholder bailout - rather it wa a capital infusion. We're moving closer to nationalization of parts of the fin. system
- zzleeper 10y agoThen it was a bondholder bailout. Many bondholders should have lost a lot but came away mostly unscarred..
- hx87 10y agoAbove all it was a managerial bailout. The people who made the actual decisions that led to the crisis made it out fine, as long as their company was lucky enough to be bailed out.
- lintiness 10y agoand the entire planet is better for it. any idea how much worse things would have gotten if regulators (bernanke, paulson) hadn't drawn a line in the sand somewhere? those guys are heroes; they go down as the best treasury secretary and fed chair in history.
- maxxxxx 10y ago
- paulpauper 10y agoThe sensationalist media makes it seem like bank failures and collapse are a frequent occurrence. In reality, there have only been tow major financial crisis in the past 100 years (1929 and 2008). So while that does not prove there wont be another crisis, the odds are pretty long.
- 6stringmerc 10y agoYeah, considering the revolving door between banking and regulation, the odds are kind of, you know, stacked by now.
- ProAm 10y ago1980 S&L crisis?
- paulpauper 10y agothat was a big deal but not quite catastrophic. the losses were S&L losses at $90 billion. these involved smaller 'thrift' banks
- hkmurakami 10y agoBetteridge's law still alive and well.
- Mendenhall 10y agoGovernment pass laws that spark crises, goverment bails out banks. People blame Wall Street.
- lintiness 10y agonobody wants to hear it. the cause of the 08 financial crisis tracks directly back to congressional republicans (gramm) and democrat executives (clinton) unwinding sensible regulation from the great depression on the delusional belief that we'd gotten better at "understanding" and quantifying "risk".
- erdevs 10y agoAbsolutely agree with what you are both saying, in that DC enabled Wall St by foolishly deregulating investment banking and banks. Of course, that does not absolve Wall Street of blame for managing risk poorly, for fraudulent behavior, for negligence, and for short-term risk taking over long-term growth.
- noobermin 10y agoThen that only justifies the grandparent's first two sentences, but the last sentence is unfair.
- alanwatts 10y agoWho do you think are among the top financiers of elections who are also pushing for deregulation? You don't think those congressmen actually wrote those technical laws themselves, do you?
- randomgyatwork 10y agoYou are certainly right about that, but its not like governments didn't have a choice.... they to choose to listen to the money rather than 'reason'. Pretty much everyone is to blame, but the people with more power deserve much more blame.
- 10y ago
- teslaberry 10y agonew york times is bankster street times. for years they have deliberately ignored, covered for, and apologized and mischaracterized the malfeasance on wall street, in particular the behavior that led to the 2008 bailouts being made. what has happened , as does happen routinely in history, is that history is rewritten and written again by the victors. not only that but general public lack of curiousity, forgetfull ness and ignorance prevails. crimes are covered up as well as forgotten by the scars of time. and the world continues thoughtless steaming forward to the next crisis, unaware of the past history. those who get cuaght up on the past too much can be driven insane by it.
- xlayn 10y agoOne way to determine if the "financial game" it's more regulated now it's to look for crazy investment. -Oil surging like cray.... not -Tech companies (cough twitter) valued in several hundred millions with no clear business plan... not -insert here next big thing to invest in Update: -medical services... -risky operations where blame can be deferred for a long time, e.g. Dupont and teflon or frackling -crimes against environment (gas leak on california)
- alanwatts 10y agoAdd student loans to the list
- erdevs 10y agoI don't see how Wall St will be "tamed" until the following criteria are met: * No individual bank is "too big to fail". Today we have several banks which are all too big to actually let fail, which means we're likely to need to do structured bailouts for them again. * Commercial banking and investment banking are split again. As it stands with commercial banks and investment banks housed in the same entity and sharing risks, there is the constant risk of contagion from bad IB bets jeapordizing commercial banking assets and operations. This not only creates further interdependence and correlation between IB activity and commercial banking, but also adds more pressure for bailouts of big, cross-breed banks. * There are legitimate personal fines and even criminal penalties and a demonstrated will of enforcement for individuals who participate in fraudulent or negligent investments. We pursued (to a lighter degree than we probably should have) the banks themselves for these activities and received judgments and settlements, yet we didn't pursue many personal penalties nor criminal cases related to any of them. See: http://www.theatlantic.com/magazine/archive/2015/09/how-wall-streets-bankers-stayed-out-of-jail/399368/ http://www.theatlantic.com/magazine/archive/2015/09/how-wall... We need to reconcile this and even strengthen the laws governing bank investing, so as to disincent poor investment behavior at the most personal level, rather than simply being a financial calculus for the company itself, with no expected loss or penalty for the persons involved in the decision making.
- dclowd9901 10y agoYour last point is especially salient. If wall street needs anything, it's a chilling effect. The threat of personal liability is a pretty good one. Hell, we jail journalists for not revealing sources, but we can't throw a banker in jail for tanking the economy?
- dublinben 10y agoThat's probably not the best comparison, since we shouldn't be jailing journalists for protecting their sources.
- dclowd9901 10y ago
- noobermin 10y agoDiscussing the actual content of the article, it seems like to me, a non-expert but one interested in the issue, that regulation and the "riskiness" present on Wall Street is a nuanced and complicated issue, but even when there are changes, as the author claims, it doesn't grab headlines because it's technical and not exactly sexy or interesting details that matter.
- lintiness 10y agonegative interest rates and governments pretending like they're managing their nations' finances wisely at zero and negative interest rates. the biggest threat to global economic stability and growth are out of control governments borrowing at a rate never before seen in human history. http://www.mckinsey.com/global-themes/employment-and-growth/debt-and-not-much-deleveraging http://www.mckinsey.com/global-themes/employment-and-growth/...
- cm2187 10y agoIt's a bit frustrating to read articles like this which miss the most important regulatory change in probably the past 50 years to deal with too big to fail: the introduction of bail-in. Bail-in is a fundamental change to insolvency law. It is a power given to the regulator to declare a bank non viable, whether it is because of capital or liquidity concerns, and to imposes losses on its bond holders over the course of a week end. This would auto-recapitalise the bank which should be open for business the following Monday with a healthy capital position. You can think of it as a flash, extra-judiciary chapter 11, specific to banks. The intention is to imposes losses on wholesale investors of the bank, essentially investors in bonds and capital instruments, and to spare depositors, even if technically depositors have the same ranking than bond holders (and therefore would share the losses equally in a bankruptcy). However should the magnitude of the losses require an extraordinary large bail-in, uninsured depositors may be targeted too (essentially corporate clients and high net worth individuals). Banks are required to accumulate a large amount of wholesale funding to ensure that there is enough debt to bail in the day the shit hits the fan. This should largely mitigate the too big to fail, as it would avoid the messy aspects of a large bank bankruptcy (Lehman scenario) while not using any tax payer money and making investors bear the losses related to their investments. Does it solve all problems? God knows what will be the magnitude of the next crisis. If the US, the UK or France default, that may not be sufficient to save the banking system. But it should certainly mitigate a lot the too big to fail risk. And it is extremely unlikely that a bail-out would be considered before a bail-in would have happened. Disclaimer: I work in a bank.
- 6stringmerc 10y agoAs you work in a bank, and I've been out of direct Wall St. finance for a few years, is there enough money in the entire world to address the swaps market if a massive insolvency triggers an messy, imperfect unwinding rather than the "oh everything balances out" claim?
- cm2187 10y agoBut everything nets each other contractually. The gross position of swaps is an intellectual (and accounting) view. The only thing you can make a claim for in a court is the net position because that's your agreement with the counterparty (ISDA). The fact that this net position is calculated from a sum of gross positions doesn't mean you can go to a court with these gross positions. There are some courts that would ignore the contractual agreements. Italy is known for its weird ruling. But I do not believe the gross positions are meaningful.
- matt_wulfeck 10y agoThe sad part about this is that so many people took their money out in 2008 out of frustration or mistrust -- and then missed one of the greatest bull rallies in our generation. Those that left it in, continued buying (maybe because of discipline or because what else do you do when you're incredibly rich), became even wealthier.
- grandalf 10y agoGovernment and banks are collaborating on many Halliburton/Blackwater style public/private partnerships: - The mortgage lending industry is largely influenced by Fannie May and Freddie Mac, which exist under the implication of a bailout, which means they have an undisciplined appetite for risk. They also have not been required in the past to disclose financials like regular firms are required to. Subsidized loans are the fountainhead of "credit as a right" policies intended to help the poor take on debt that would not otherwise be affordable. - There has been a tremendous increase in education lending, which has helped to fuel the education bubble. But unlike credit card debt, student loans are not discharged if the borrower is forced to declare bankruptcy. Our politicians have rallied to have more and more of this lending occur, which has resulted in no price pressure on universities (which is why the US has the highest priced secondary education in the world). Banks love it because they get to live in a world where bankruptcy laws intended to protect consumers don't exist. - These are all part of the "too big to fail" policy of US regulators. When governments have a stake in particular prices (such as the price of a loaf of bread, a home, or a college education) the market starts to distort, and supply and demand no longer help guide investment. When a bank has purchased massive amounts of Mortgage backed securities under the impression that they are low risk, and the price changes, the bank cares a lot about certain prices. The corruption is what happens when the government starts to care and starts to build policies to shelter banks from market price movement. Wall Street has not been tamed. For a while the game was to collude to structure risk so that every ounce of leverage benefitted the banks and the systemic risk was unhedged. Now the game is to engage in "credit as a right" policies that couple the bank's outcome to a government policy goal, with profits coming from barriers to entry and lack of competition moreso than from successful portfolio management or efficiency. Without the strict discipline of total failure to guide bank behavior, it is without question that myriad perverse incentives exist and are being exploited. Greed is not the issue, it's much simpler than that. It's corruption. Regulators are equally at fault.
- tvchurch 10y agoI strongly recommend reading about John Cochrane's notion of equity-financed banking (PDF): http://www.hoover.org/sites/default/files/research/docs/george_shultz_blueprint_for_america_ch7.pdf http://www.hoover.org/sites/default/files/research/docs/geor... It functionally eliminates bank runs and the need for most regulation. People will be able to bank like normal, but contagion and bank failures go away. Not all banks need to be forced to go this route. But if you offered banks the option to opt-out of Dodd-Frank if they were 95% financed by equity and retained earnings, I'm pretty sure most would. Longer essay here: http://johnhcochrane.blogspot.com/2016/05/equity-financed-banking.html http://johnhcochrane.blogspot.com/2016/05/equity-financed-ba...
- infinotize 10y agoMatt Levine's column had a good commentary on this (the headline at least), among other things. http://www.bloomberg.com/view/articles/2016-08-03/tamed-banks-and-unequal-markets http://www.bloomberg.com/view/articles/2016-08-03/tamed-bank...
- rm_-rf_ 10y agoIt's cute that this article doesn't even mention Wall Street's personal Shill of a presidential candidate: Hillary
- Animats 10y ago"Tamed" as in "probability of catastrophic failure reduced somewhat", yes. "Tamed" as in "returned to its classical function as a service function for industry and individuals", no. Real taming would mean brokerages who aren't allowed to trade for their own account. Real taming would mean no more "hedge funds"; all funds must be organized as SEC-registered mutual funds. Real taming would mean a Tobin tax (0.01% on every financial transaction) to discourage high-frequency or excessive trading. Real taming would mean not treating interest as a deductible business expense, which would kill the leveraged buyout/private equity industry and end equity to debt conversions. Since at one time all of those restrictions were in effect, or something else with the same effect was, this is the conservative approach. We know this works. (Restoring Glass-Stegall is in the GOP platform, amazingly enough.)
- carsongross 10y agoNo. http://www.acting-man.com/blog/media/2014/11/2-financial-sector-by-share-of-total-corporate-profits_large.png http://www.acting-man.com/blog/media/2014/11/2-financial-sec...
- yompers888 10y agoIf the article is posed as a question, the answer is almost surely no. Having read the content of the question as well, I now have two reasons to come to that conclusion.