6 ms·

Well, the market successfully lobbied against regulation on CDO and CDS. It was the market that pushed the Gramm–Leach–Bliley Act. It was the market which gave

by st0p 15y ago

Well, the market successfully lobbied against regulation on CDO and CDS. It was the market that pushed the Gramm–Leach–Bliley Act. It was the market which gave AAA ratings to junk investments. I see your point, but I think that if the whole deregulation (and thus free market) hadn't happened, a lot of the damage could have been avoided.

fleitz 15y ago
A partially deregulated market is not a free market. Also, if you read anything about the SEC you'll know that they don't enforce the current regulation so any point about extra regulations helping anything is largely moot. Also, regarding the 'regulated market' look at the massive frauds that took place at Fannie and Freddy which are essentially arms of the gov't. Look at how the Social Security System is administered if any corporate pension plan was run the same way they'd be thrown in jail (if the SEC cared to enforce the law). Look at the pressure on those institutions to create subprime loans under the federal housing laws. Look at the Fed Reserve chief talking about how great ARM loans were. Regulators, market participants, law makers all conspired to create a toxic environment that was not stable in the long term. Yes, a lot of damage could be avoided if the gov't, regulators and market participants weren't going around telling everyone that they had guaranteed investments. To think that after passage of GLB we had a free market is incredibly naive.
- Retric 15y ago
  Gov regulations did little to promote sub prime lending. The simple fact was once investors started to buy loans banks where free to make loans as fast as they could repackage and sell those loans. This inundated the housing market with cheap loans and drove up prices creating the bubble in the first place. Computer models built in the middle of a housing bubble without much historical data where easy to trick into thinking housing loans where overly safe investment which let people churn loans until the only people left where those least able to afford them. Toss in late night infomercials promoting get rich quick house flipping and the pump was primed with people willing to fudge the paper work. And loan servicing companies willing to look the other flip crap loans with little downside. The only thing that really hurt many of these company's is they ended up with to large a loan inventory, if they been a little leaner far fewer companies would have been at risk.
  - anamax 15y ago
    > Gov regulations did little to promote sub prime lending. Actually, they did. See http://news.investors.com/Article/589858/201110311638/Housing-Crisis-Obama-Clinton-Subprime.htm http://news.investors.com/Article/589858/201110311638/Housin... . "At President Clinton's direction, no fewer than 10 federal agencies issued a chilling ultimatum to banks and mortgage lenders to ease credit for lower-income minorities or face investigations for lending discrimination and suffer the related adverse publicity. They also were threatened with denial of access to the all-important secondary mortgage market and stiff fines, along with other penalties." "The threat was codified in a 20-page "Policy Statement on Discrimination in Lending" and entered into the Federal Register on April 15, 1994, by the Interagency Task Force on Fair Lending. Clinton set up the little-known body to coordinate an unprecedented crackdown on alleged bank redlining." http://www.ots.treas.gov/_files/25022.pdf http://www.ots.treas.gov/_files/25022.pdf Then there's Fannie and Freddie lying about the composition of the loans they were buying, which threw off everyone's risk evaluation.
    - Retric 15y ago
      That's a stretch, if you look at the history of sub prime lending Clinton was out of office long before it took off. Most people would argue that subprime was a fairly healthy part of the overall loan / risk landscape until 2000. So, I think you need to look for slightly more recent causes. If you want to look for mis regulation the fed's stimulus to deal with .bust was a significant contributing factor. http://dallasfed.org/research/eclett/2007/el0711.html http://dallasfed.org/research/eclett/2007/el0711.html
    - inthewoods 15y ago
      Ugh, this tired idea. Ask yourself this: if the law was created in 1994, why didn't the bubble take off then? The CRA had nothing to do with the crisis as most of the subprime loans were made by non-CRA governed companies. The housing bubble could have been avoided entirely if the Fed had just placed tighter restrictions on the loans that could be made. Greenspan famously decided that he didn't want to do that - which lead to companies like Countrywide creating the loans for packaging by Wall Street, allowing them to offload all risk immediately. My true disappointment with Obama has been his lack of real, strong re-regulation of Wall Street and a pursuit of criminal charges against many on Wall Street, but at least, immediately after he came into office, added the simple language of requiring lenders to confirm income as part of the lending process. That simple language, which would seem obvious to anyone who would lend money, could have stopped the whole thing in its tracks in my opinion.

by st0p 15y ago

fleitz 15y ago

A partially deregulated market is not a free market. Also, if you read anything about the SEC you'll know that they don't enforce the current regulation so any point about extra regulations helping anything is largely moot. Also, regarding the 'regulated market' look at the massive frauds that took place at Fannie and Freddy which are essentially arms of the gov't. Look at how the Social Security System is administered if any corporate pension plan was run the same way they'd be thrown in jail (if the SEC cared to enforce the law). Look at the pressure on those institutions to create subprime loans under the federal housing laws. Look at the Fed Reserve chief talking about how great ARM loans were. Regulators, market participants, law makers all conspired to create a toxic environment that was not stable in the long term. Yes, a lot of damage could be avoided if the gov't, regulators and market participants weren't going around telling everyone that they had guaranteed investments. To think that after passage of GLB we had a free market is incredibly naive.

Retric 15y ago
Gov regulations did little to promote sub prime lending. The simple fact was once investors started to buy loans banks where free to make loans as fast as they could repackage and sell those loans. This inundated the housing market with cheap loans and drove up prices creating the bubble in the first place. Computer models built in the middle of a housing bubble without much historical data where easy to trick into thinking housing loans where overly safe investment which let people churn loans until the only people left where those least able to afford them. Toss in late night infomercials promoting get rich quick house flipping and the pump was primed with people willing to fudge the paper work. And loan servicing companies willing to look the other flip crap loans with little downside. The only thing that really hurt many of these company's is they ended up with to large a loan inventory, if they been a little leaner far fewer companies would have been at risk.
- anamax 15y ago
  > Gov regulations did little to promote sub prime lending. Actually, they did. See http://news.investors.com/Article/589858/201110311638/Housing-Crisis-Obama-Clinton-Subprime.htm http://news.investors.com/Article/589858/201110311638/Housin... . "At President Clinton's direction, no fewer than 10 federal agencies issued a chilling ultimatum to banks and mortgage lenders to ease credit for lower-income minorities or face investigations for lending discrimination and suffer the related adverse publicity. They also were threatened with denial of access to the all-important secondary mortgage market and stiff fines, along with other penalties." "The threat was codified in a 20-page "Policy Statement on Discrimination in Lending" and entered into the Federal Register on April 15, 1994, by the Interagency Task Force on Fair Lending. Clinton set up the little-known body to coordinate an unprecedented crackdown on alleged bank redlining." http://www.ots.treas.gov/_files/25022.pdf http://www.ots.treas.gov/_files/25022.pdf Then there's Fannie and Freddie lying about the composition of the loans they were buying, which threw off everyone's risk evaluation.
  - Retric 15y ago
    That's a stretch, if you look at the history of sub prime lending Clinton was out of office long before it took off. Most people would argue that subprime was a fairly healthy part of the overall loan / risk landscape until 2000. So, I think you need to look for slightly more recent causes. If you want to look for mis regulation the fed's stimulus to deal with .bust was a significant contributing factor. http://dallasfed.org/research/eclett/2007/el0711.html http://dallasfed.org/research/eclett/2007/el0711.html
  - inthewoods 15y ago
    Ugh, this tired idea. Ask yourself this: if the law was created in 1994, why didn't the bubble take off then? The CRA had nothing to do with the crisis as most of the subprime loans were made by non-CRA governed companies. The housing bubble could have been avoided entirely if the Fed had just placed tighter restrictions on the loans that could be made. Greenspan famously decided that he didn't want to do that - which lead to companies like Countrywide creating the loans for packaging by Wall Street, allowing them to offload all risk immediately. My true disappointment with Obama has been his lack of real, strong re-regulation of Wall Street and a pursuit of criminal charges against many on Wall Street, but at least, immediately after he came into office, added the simple language of requiring lenders to confirm income as part of the lending process. That simple language, which would seem obvious to anyone who would lend money, could have stopped the whole thing in its tracks in my opinion.