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Regulations have their purpose to be sure. But they have a dark side as this article points out. Regulations lead to lobbying. And lobbying leads to corruption

Regulations have their purpose to be sure. But they have a dark side as this article points out. Regulations lead to lobbying. And lobbying leads to corruption. I think one of our biggest problems is we have tried for years to have a pseudo free market while tampering with it so much to create the situation we are in now. For instance the financial crisis. One big reason for this was regulations forcing banks to make awful loans in Bush’s “ownership economy”. This led to a situation where free market products (mortgage backed securities and derivatives) were corrupted with so many bad loans. The free market never had a chance. We all blame the banks but it wasn’t entirely their fault. We see it with college loans. You either make things like this entirely socialized or market based. Too much socializing the free market or free market socializing, depending on your point of view creates these problems.

lumberjack 7y ago
> Regulations lead to lobbying. And lobbying leads to corruption. So instead we just give companies what they want in the first place to eliminate corruption! That "fixes" it! No, that's stupid reasoning.
j_m_b 7y ago
Even before the lobbying step, regulations are barriers to entry. Established companies can afford them whereas small companies can not.
- deleted 7y ago
  [deleted]
pytester 7y ago
>Regulations lead to lobbying. And lobbying leads to corruption. Capitalism is a prerequisite for lobbying. Regulations are not. >For instance the financial crisis. One big reason for this was regulations forcing banks to make awful loans in Bush’s “ownership economy”. This is bank propaganda. It's been debunked countless times: https://www.forbes.com/sites/eriksherman/2018/05/06/the-lie-that-wont-die-poor-borrowers-caused-the-financial-crisis/ https://www.forbes.com/sites/eriksherman/2018/05/06/the-lie-... >This led to a situation where free market products (mortgage backed securities and derivatives) were corrupted with so many bad loans. The bad loans were made by people who knew exactly what they were doing. It was a form of control fraud (sometimes called "bankruptcy for profit").
- mikem170 7y ago
  >Capitalism is a prerequisite for lobbying. Regulations are not. I strongly disagree, or am missing your point. Is not the purpose of lobbying to get favorable treatment from those in power? What does capitalism have to do with it? Or do you mean specifically registered corporate lobbyists in Washington DC? The U.S. government sits on top of one third of the world's GDP, the largest military by far, dominating all corners of the globe, etc. Of course this attracts every type of corrupting influence possible. hardly nobody bothers lobbying the Somali government, right? I wonder how do you protect the system from so many selfish interests...
- g2ah5z 7y ago
  > Capitalism is a prerequisite for lobbying. Regulations are not. In order for lobbying to be effective, there must be a large and powerful government which can be lobbied to. The reason the farm lobby spends millions of dollars is because they get billions in subsidies in return. It would be more accurate to say that big government is a prerequisite for lobby, since a small government that merely enforces property rights wouldn't be worth lobbying to. > This is bank propaganda. It's been debunked countless times It's an empirical fact that Fannie and Freddie, which are government sponsored entities that buy the largest share of mortgages, lowered their standards significantly leading up to the crash in order to make artificially cheap loans more accessible to people who would otherwise be considered too risky to lend to. > The bad loans were made by people who knew exactly what they were doing. Lenders originated subprime loans because the government guaranteed to buy them via Fannie and Freddie. If Fannie and Freddie hadn't existed, these bad loans would have never been made in the first place.
reallydontask 7y ago
> Regulations lead to lobbying. And lobbying leads to corruption. I think one of our biggest problems is we have tried for years to have a pseudo free market while tampering with it so much to create the situation we are in now. I guess it all depends on how you define "pseudo free market" but the government has been intervening in the economy since the birth of the nation. It's just a bit of a myth that the market is a free market.
- beering 7y ago
  It's also a myth that lack of regulation necessarily makes the market freer. There are many tactics that a huge company or monopoly can carry out that suppress free market dynamics. Antitrust regulations are one example that promote free market dynamics.
  - PeterStuer 7y ago
    As an example, only strong regulatory intervention opened up the EU telecoms market.
andrewla 7y ago
There's a very fine line between "regulating an industry" and "picking winners". Codifying existing industry best practices as regulations tends to have the effect of entrenching existing institutions in that space, in proportion to how difficult compliance with those regulations is (either in complexity or cost). There's another fine line between regulating desired outcomes vs. regulating _towards_ desired outcomes. Using regulations to "nudge" towards a social good often means that the market, wiggly customer that it is, uses that nudge to push in directions that are not the desired outcome, or that achieve the desired outcome only in a technical sense. The negative examples are rampant; the good examples are harder to find, because a good regulation is nearly invisible. Take building codes as an example of good regulations, although if you've ever done a remodel or been involved in construction, you know that they're not _actually_ invisible. But for the most part they just make sure that buildings are safe and support certain common conventions that make future maintenance and upkeep a little easier. The goal of the regulations is to make sure that new construction adheres to certain standards of quality, and so that is what they do.
- kiba 7y ago
  They also increases the price of real estate since you can't actually build smaller homes, IIRC.
  - wool_gather 7y ago
    Nothing's perfect. It's generally possible to amend laws and regulations if a compelling use case comes up. Does anything prevent having one code for residential buildings over a certain size, and another for smaller buildings?
    - AnthonyMouse 7y ago
      > Does anything prevent having one code for residential buildings over a certain size, and another for smaller buildings? The building codes aren't the way they are because you need different rules for smaller buildings. It's because existing residents don't want smaller buildings. If you can build smaller buildings then people will, and then you have a bunch of new students in your school district whose education is paid for from local property taxes, only their parents aren't paying a proportionate share because they have a smaller house with a lower property value. Which means the existing residents would have to make up the difference, which they don't want to do, so they have the building code prohibit building smaller homes. It's basically regulatory capture by existing homeowners of larger homes.
dfsegoat 7y ago
> "We all blame the banks but it wasn’t entirely their fault." I personally blame the people who thought it would be a good idea to buy a $350-400k home with a predatory mortgage, when their gross annual income was like $25k/yr. Granted the banks made the instruments available for people to get into this mess, but I always come back to personal responsibility: "Just because you can doesn't mean you should".
- cortesoft 7y ago
  Because they were told over and over again that buying a house was a good investment, and that the value was going to increase so much they could sell it and make money later. Why do you hold the people who took the loans responsible but not the people who have them? How can they not have at least as much responsibility? Can't you say "just because you can doesn't mean you should" to people pushing predatory loans?
- msp_yc 7y ago
  The banks also turned around, repackaged those same predatory loans, and marked tranches of them as AAA-investment quality. Where was the responsibility in that activity? "Just because you can doesn't mean you should" Indeed.
- jredwards 7y ago
  There are many, many people who deserve some blame for the housing crisis. Certainly, the people who took out loans they couldn't afford, but also: - the loan underwriters who assured them they could afford the loans, because they had no risk, because they could turn around and sell the loans to: - the banks who bought up the loans and repackaged them into mortgage-backed securities, which they could sell easily, because they were highly rated by: - the credit rating agencies who gave those securities AAA ratings, which they did by completely ignoring systemic risk - And we haven't even gotten to credit default swaps In short: yes, there was a lack of personal responsibility on the part of buyers, but they were heavily encouraged to believe they could afford these houses, because the market conditions created an enormous demand for new mortgages, by convincing itself it could make money off of them with zero risk.
heavyset_go 7y ago
> For instance the financial crisis. One big reason for this was regulations forcing banks to make awful loans in Bush’s “ownership economy”. No, it wasn't. Regulations didn't force credit rating agencies to give AAA ratings to securities backed by subprime mortgages[1]. Greed did. [1] https://en.wikipedia.org/wiki/Credit_rating_agencies_and_the_subprime_crisis https://en.wikipedia.org/wiki/Credit_rating_agencies_and_the...
- bgun 7y ago
  But you can't "fix" greed. Even punishing greed doesn't make people less greedy. That's a bit like thinking that the war on drugs will make people want drugs less, or even seek them out less. Constraining an inflexible market only moves it to places you no longer control.
  - faceplanted 7y ago
    You don't have to fix the greed, you have to add oversight and accountability with things like mandatory reporting that make it not worth doing these activities on any profitable scale.
  - pytester 7y ago
    >But you can't "fix" greed. Even punishing greed doesn't make people less greedy. That's a bit like thinking that the war on drugs will make people want drugs less Or that punishing robbing banks makes people do it less?
    - throwaway2048 7y ago
      Cant fix murdering people either, even punishing them dosen't stop it. We just have to accept that sometimes people get murdered. /s
      - Spivak 7y ago
        Drop the /s and you’re right! We can’t fix people’s desire to murder other people. We punish harshly as a deterrent but unfortunately someone who’s in a place where they’ll murder someone usually isn’t weighing the risk or making a list of pros and cons. So people get murdered. It’s inevitable and there’s very little we can do to prevent it in general.
slg 7y ago
I don't understand the mindset that believes that a poor regulatory environment helped cause the financial crisis and sees that as an indication that we should have less regulation. That is like seeing your deadbolt was broken when someone robbed your house and instead of investing in a better lock, an alarm system, or a security camera, you just decide to leave your front door open 24-7. Yes, bad regulations exists. However the recipe to fix bad regulations is not no regulations, it is good regulations.
- noonespecial 7y ago
  I think its more like suggesting you can't jump half-way across a muddy ditch. You either go for it with everything or you stay put. Anything in the middle is going to be a bad time.
- BurningFrog 7y ago
  Here's the mindset explained: We think regulation will always be strongly influenced by the regulated entities, since they have by far the biggest skin in that game, and in the end, regulation will always end up "bad", much like a dropped $20 bill will always be taken. This concept is called "Regulatory Capture" by economists, it has been extensively studied, and I'm sure you can find reading material by googling.
  - pixelbash 7y ago
    Is that better or worse than allowing all sorts of unregulated crazy behaviour via free market incentives? I'd rather imperfect regulation and tweaking lobbying rules than toxic waterways etc.
    - BurningFrog 7y ago
      The better alternative in my mind is that you can sue for damages if some activity harms you or your property. This is fundamentally different from regulation in that there is no regulator to influence. The system also has a multi century track record that is pretty darn good. Certainly compared to the more recent regulatory system.
zip1234 7y ago
Houses have gotten bigger and therefore less affordable and the government has had policies to increase home ownership such as mortgage deductions. In addition, local policies such as zoning have helped perpetuate urban sprawl, which helped lead to people building bigger houses (bigger lots on cheaper land).
PeterStuer 7y ago
Lobbying will always exist. Are you advocating ruthless anarcho-capialism?
velcrovan 7y ago
If regulating a large bad actor ends up making it stronger, that is a sign that it needs to be broken up, not merely regulated.
pojntfx 7y ago
Are you seriously claiming the 2008 financial crisis is an instance of _too little_ regulation?

lumberjack 7y ago

> Regulations lead to lobbying. And lobbying leads to corruption. So instead we just give companies what they want in the first place to eliminate corruption! That "fixes" it! No, that's stupid reasoning.

j_m_b 7y ago

Even before the lobbying step, regulations are barriers to entry. Established companies can afford them whereas small companies can not.

deleted 7y ago
[deleted]

pytester 7y ago

>Regulations lead to lobbying. And lobbying leads to corruption. Capitalism is a prerequisite for lobbying. Regulations are not. >For instance the financial crisis. One big reason for this was regulations forcing banks to make awful loans in Bush’s “ownership economy”. This is bank propaganda. It's been debunked countless times: https://www.forbes.com/sites/eriksherman/2018/05/06/the-lie-that-wont-die-poor-borrowers-caused-the-financial-crisis/ https://www.forbes.com/sites/eriksherman/2018/05/06/the-lie-... >This led to a situation where free market products (mortgage backed securities and derivatives) were corrupted with so many bad loans. The bad loans were made by people who knew exactly what they were doing. It was a form of control fraud (sometimes called "bankruptcy for profit").

mikem170 7y ago
>Capitalism is a prerequisite for lobbying. Regulations are not. I strongly disagree, or am missing your point. Is not the purpose of lobbying to get favorable treatment from those in power? What does capitalism have to do with it? Or do you mean specifically registered corporate lobbyists in Washington DC? The U.S. government sits on top of one third of the world's GDP, the largest military by far, dominating all corners of the globe, etc. Of course this attracts every type of corrupting influence possible. hardly nobody bothers lobbying the Somali government, right? I wonder how do you protect the system from so many selfish interests...
g2ah5z 7y ago
> Capitalism is a prerequisite for lobbying. Regulations are not. In order for lobbying to be effective, there must be a large and powerful government which can be lobbied to. The reason the farm lobby spends millions of dollars is because they get billions in subsidies in return. It would be more accurate to say that big government is a prerequisite for lobby, since a small government that merely enforces property rights wouldn't be worth lobbying to. > This is bank propaganda. It's been debunked countless times It's an empirical fact that Fannie and Freddie, which are government sponsored entities that buy the largest share of mortgages, lowered their standards significantly leading up to the crash in order to make artificially cheap loans more accessible to people who would otherwise be considered too risky to lend to. > The bad loans were made by people who knew exactly what they were doing. Lenders originated subprime loans because the government guaranteed to buy them via Fannie and Freddie. If Fannie and Freddie hadn't existed, these bad loans would have never been made in the first place.

reallydontask 7y ago

> Regulations lead to lobbying. And lobbying leads to corruption. I think one of our biggest problems is we have tried for years to have a pseudo free market while tampering with it so much to create the situation we are in now. I guess it all depends on how you define "pseudo free market" but the government has been intervening in the economy since the birth of the nation. It's just a bit of a myth that the market is a free market.

beering 7y ago
It's also a myth that lack of regulation necessarily makes the market freer. There are many tactics that a huge company or monopoly can carry out that suppress free market dynamics. Antitrust regulations are one example that promote free market dynamics.
- PeterStuer 7y ago
  As an example, only strong regulatory intervention opened up the EU telecoms market.

andrewla 7y ago

There's a very fine line between "regulating an industry" and "picking winners". Codifying existing industry best practices as regulations tends to have the effect of entrenching existing institutions in that space, in proportion to how difficult compliance with those regulations is (either in complexity or cost). There's another fine line between regulating desired outcomes vs. regulating _towards_ desired outcomes. Using regulations to "nudge" towards a social good often means that the market, wiggly customer that it is, uses that nudge to push in directions that are not the desired outcome, or that achieve the desired outcome only in a technical sense. The negative examples are rampant; the good examples are harder to find, because a good regulation is nearly invisible. Take building codes as an example of good regulations, although if you've ever done a remodel or been involved in construction, you know that they're not _actually_ invisible. But for the most part they just make sure that buildings are safe and support certain common conventions that make future maintenance and upkeep a little easier. The goal of the regulations is to make sure that new construction adheres to certain standards of quality, and so that is what they do.

kiba 7y ago
They also increases the price of real estate since you can't actually build smaller homes, IIRC.
- wool_gather 7y ago
  Nothing's perfect. It's generally possible to amend laws and regulations if a compelling use case comes up. Does anything prevent having one code for residential buildings over a certain size, and another for smaller buildings?
  - AnthonyMouse 7y ago
    > Does anything prevent having one code for residential buildings over a certain size, and another for smaller buildings? The building codes aren't the way they are because you need different rules for smaller buildings. It's because existing residents don't want smaller buildings. If you can build smaller buildings then people will, and then you have a bunch of new students in your school district whose education is paid for from local property taxes, only their parents aren't paying a proportionate share because they have a smaller house with a lower property value. Which means the existing residents would have to make up the difference, which they don't want to do, so they have the building code prohibit building smaller homes. It's basically regulatory capture by existing homeowners of larger homes.

dfsegoat 7y ago

> "We all blame the banks but it wasn’t entirely their fault." I personally blame the people who thought it would be a good idea to buy a $350-400k home with a predatory mortgage, when their gross annual income was like $25k/yr. Granted the banks made the instruments available for people to get into this mess, but I always come back to personal responsibility: "Just because you can doesn't mean you should".

cortesoft 7y ago
Because they were told over and over again that buying a house was a good investment, and that the value was going to increase so much they could sell it and make money later. Why do you hold the people who took the loans responsible but not the people who have them? How can they not have at least as much responsibility? Can't you say "just because you can doesn't mean you should" to people pushing predatory loans?
msp_yc 7y ago
The banks also turned around, repackaged those same predatory loans, and marked tranches of them as AAA-investment quality. Where was the responsibility in that activity? "Just because you can doesn't mean you should" Indeed.
jredwards 7y ago
There are many, many people who deserve some blame for the housing crisis. Certainly, the people who took out loans they couldn't afford, but also: - the loan underwriters who assured them they could afford the loans, because they had no risk, because they could turn around and sell the loans to: - the banks who bought up the loans and repackaged them into mortgage-backed securities, which they could sell easily, because they were highly rated by: - the credit rating agencies who gave those securities AAA ratings, which they did by completely ignoring systemic risk - And we haven't even gotten to credit default swaps In short: yes, there was a lack of personal responsibility on the part of buyers, but they were heavily encouraged to believe they could afford these houses, because the market conditions created an enormous demand for new mortgages, by convincing itself it could make money off of them with zero risk.

heavyset_go 7y ago

> For instance the financial crisis. One big reason for this was regulations forcing banks to make awful loans in Bush’s “ownership economy”. No, it wasn't. Regulations didn't force credit rating agencies to give AAA ratings to securities backed by subprime mortgages[1]. Greed did. [1] https://en.wikipedia.org/wiki/Credit_rating_agencies_and_the_subprime_crisis https://en.wikipedia.org/wiki/Credit_rating_agencies_and_the...

bgun 7y ago
But you can't "fix" greed. Even punishing greed doesn't make people less greedy. That's a bit like thinking that the war on drugs will make people want drugs less, or even seek them out less. Constraining an inflexible market only moves it to places you no longer control.
- faceplanted 7y ago
  You don't have to fix the greed, you have to add oversight and accountability with things like mandatory reporting that make it not worth doing these activities on any profitable scale.
- pytester 7y ago
  >But you can't "fix" greed. Even punishing greed doesn't make people less greedy. That's a bit like thinking that the war on drugs will make people want drugs less Or that punishing robbing banks makes people do it less?
  - throwaway2048 7y ago
    Cant fix murdering people either, even punishing them dosen't stop it. We just have to accept that sometimes people get murdered. /s
    - Spivak 7y ago
      Drop the /s and you’re right! We can’t fix people’s desire to murder other people. We punish harshly as a deterrent but unfortunately someone who’s in a place where they’ll murder someone usually isn’t weighing the risk or making a list of pros and cons. So people get murdered. It’s inevitable and there’s very little we can do to prevent it in general.

slg 7y ago

I don't understand the mindset that believes that a poor regulatory environment helped cause the financial crisis and sees that as an indication that we should have less regulation. That is like seeing your deadbolt was broken when someone robbed your house and instead of investing in a better lock, an alarm system, or a security camera, you just decide to leave your front door open 24-7. Yes, bad regulations exists. However the recipe to fix bad regulations is not no regulations, it is good regulations.

noonespecial 7y ago
I think its more like suggesting you can't jump half-way across a muddy ditch. You either go for it with everything or you stay put. Anything in the middle is going to be a bad time.
BurningFrog 7y ago
Here's the mindset explained: We think regulation will always be strongly influenced by the regulated entities, since they have by far the biggest skin in that game, and in the end, regulation will always end up "bad", much like a dropped $20 bill will always be taken. This concept is called "Regulatory Capture" by economists, it has been extensively studied, and I'm sure you can find reading material by googling.
- pixelbash 7y ago
  Is that better or worse than allowing all sorts of unregulated crazy behaviour via free market incentives? I'd rather imperfect regulation and tweaking lobbying rules than toxic waterways etc.
  - BurningFrog 7y ago
    The better alternative in my mind is that you can sue for damages if some activity harms you or your property. This is fundamentally different from regulation in that there is no regulator to influence. The system also has a multi century track record that is pretty darn good. Certainly compared to the more recent regulatory system.

zip1234 7y ago

Houses have gotten bigger and therefore less affordable and the government has had policies to increase home ownership such as mortgage deductions. In addition, local policies such as zoning have helped perpetuate urban sprawl, which helped lead to people building bigger houses (bigger lots on cheaper land).

PeterStuer 7y ago

Lobbying will always exist. Are you advocating ruthless anarcho-capialism?

velcrovan 7y ago

If regulating a large bad actor ends up making it stronger, that is a sign that it needs to be broken up, not merely regulated.

pojntfx 7y ago

Are you seriously claiming the 2008 financial crisis is an instance of _too little_ regulation?