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> I think it's something we just don't quite understand. There was a period of relative calm between the instantiation of post-1929-crash banking regulations a

> I think it's something we just don't quite understand. There was a period of relative calm between the instantiation of post-1929-crash banking regulations and the repeal of Glass-Steagall (Gramm-Leach-Bliley) and the deregulation of derivatives (CFMA) in the late 90's/early 2000's. Perhaps finance is better understood than is recognized.

ch4s3 9y ago
I have a dim view of the repeal of Glass-Steagall, but it had little to do with sub-prime lending, CDO, et. al. The 2008 crash was because of shoddy lending underwriting, mass speculation in real estate, and some fraud like collateralization. The economy didn't fall over because banks were dealing in both retail banking and investment banking. I mean I could be wrong in my assessment, but I think I remember it well enough. The truth is that crashes are cyclical... for reasons that are poorly understood. There are probably ways to manipulate cycles, but eventually human psychology takes over and people start acting irrationally en masse. What we can do, I think, is focus on how we respond to down turns.
- pjmorris 9y ago
  Richard Bookstaber's arguments in 'Demon of Our Own Design' for how to reduce the frequency and severity of systemic financial crashes can be oversimplified to loosening the coupling between systems, and reducing the complexity of systems. The natural incentives of financial firms are toward coupling that they can profit from and complexity that they can charge for. Alan Greenspan eventually figured out that letting the firms police themselves probably isn't actually a good idea [0]. I may have targeted the wrong top two deregulatory initiatives, but I'm pretty confident that removing and failing to enforce existing regulations was a significant contributor to the crisis. It's not that we don't know how to avoid crashes, it's that it is less profitable (for some) to do so. [0] https://www.theguardian.com/business/2008/oct/24/economics-creditcrunch-federal-reserve-greenspan https://www.theguardian.com/business/2008/oct/24/economics-c...
  - ch4s3 9y ago
    I don't disagree with the sentiment, just with the assertion about the particular piece of regulation.
    - pjmorris 9y ago
      GS was a bad example anyway; my main point was that we achieved financial system stability for a long period, correlated with financial system regulation.
      - ch4s3 9y ago
        I mean, there was a huge slump in the 70s with the oil crisis and other factors leading to stagflation. https://www.investopedia.com/articles/economics/08/1970-stagflation.asp https://www.investopedia.com/articles/economics/08/1970-stag... Sensible regulation will buy us a lot, but you can't prevent people from doing big stupid things forever.
      - runeks 9y ago
        > […] my main point was that we achieved financial system stability for a long period […] What period was that, exactly?
        pjmorris 9y ago
        For the US, approximately 1930-2000. Have a look at the 20th century list of financial crises on Wikipedia [0], and filter for US banking. [0] https://en.wikipedia.org/wiki/List_of_economic_crises https://en.wikipedia.org/wiki/List_of_economic_crises

ch4s3 9y ago

I have a dim view of the repeal of Glass-Steagall, but it had little to do with sub-prime lending, CDO, et. al. The 2008 crash was because of shoddy lending underwriting, mass speculation in real estate, and some fraud like collateralization. The economy didn't fall over because banks were dealing in both retail banking and investment banking. I mean I could be wrong in my assessment, but I think I remember it well enough. The truth is that crashes are cyclical... for reasons that are poorly understood. There are probably ways to manipulate cycles, but eventually human psychology takes over and people start acting irrationally en masse. What we can do, I think, is focus on how we respond to down turns.

pjmorris 9y ago
Richard Bookstaber's arguments in 'Demon of Our Own Design' for how to reduce the frequency and severity of systemic financial crashes can be oversimplified to loosening the coupling between systems, and reducing the complexity of systems. The natural incentives of financial firms are toward coupling that they can profit from and complexity that they can charge for. Alan Greenspan eventually figured out that letting the firms police themselves probably isn't actually a good idea [0]. I may have targeted the wrong top two deregulatory initiatives, but I'm pretty confident that removing and failing to enforce existing regulations was a significant contributor to the crisis. It's not that we don't know how to avoid crashes, it's that it is less profitable (for some) to do so. [0] https://www.theguardian.com/business/2008/oct/24/economics-creditcrunch-federal-reserve-greenspan https://www.theguardian.com/business/2008/oct/24/economics-c...
- ch4s3 9y ago
  I don't disagree with the sentiment, just with the assertion about the particular piece of regulation.
  - pjmorris 9y ago
    GS was a bad example anyway; my main point was that we achieved financial system stability for a long period, correlated with financial system regulation.
    - ch4s3 9y ago
      I mean, there was a huge slump in the 70s with the oil crisis and other factors leading to stagflation. https://www.investopedia.com/articles/economics/08/1970-stagflation.asp https://www.investopedia.com/articles/economics/08/1970-stag... Sensible regulation will buy us a lot, but you can't prevent people from doing big stupid things forever.
    - runeks 9y ago
      > […] my main point was that we achieved financial system stability for a long period […] What period was that, exactly?
      - pjmorris 9y ago
        For the US, approximately 1930-2000. Have a look at the 20th century list of financial crises on Wikipedia [0], and filter for US banking. [0] https://en.wikipedia.org/wiki/List_of_economic_crises https://en.wikipedia.org/wiki/List_of_economic_crises