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I don't think it can be a bubble when up until very recently it was illegal for 'crowds' to invest in private equity deals at all. How can there be over investm

by pgroves 14y ago

I don't think it can be a bubble when up until very recently it was illegal for 'crowds' to invest in private equity deals at all. How can there be over investment from small investors when there is currently zero investment from small investors?

noahc 14y ago
Many bubbles are caused by a change in legislation that either incentivizes bubble participation or removes barriers to bubble participation. We saw this with the policies the Bush Administration adopted to further encourage an ownership society via home ownership as well as ongoing incentives to own a house. We also saw that the changes to Glass–Steagall contributed to the economic meltdown. I'm not arguing that we are or aren't in a bubble, but instead the legislative changes are common leading up to a bubble. Some would argue that the house bubble has been building via legislative change since the 1950s.
- pdx 14y ago
  When you say Bush Administration, I think you mean Clinton's 1995 and 1999 modifications to the Community Reinvestment Act. http://en.wikipedia.org/wiki/Community_Reinvestment_Act http://en.wikipedia.org/wiki/Community_Reinvestment_Act
  - noahc 14y ago
    You are correct. Thanks.
  - deleted 14y ago
    [deleted]
  - masukomi 14y ago
    When he says "Bush Administration" and you say "Clinton's...Community Reinvestment Act" I think you mean to say legistlation like Roosevelt's New Deal http://en.wikipedia.org/wiki/New_Deal http://en.wikipedia.org/wiki/New_Deal
- CWuestefeld 14y ago
  I agree with your premise, and I'd add to it the governmental efforts that interfere with correcting the bubble, such as the Obama administration's work to prop up home prices. However, it's not true that Glass-Steagall contributed to the economic crisis. If anything, it served to mitigate the problem. I think the argument here [1] is pretty slam-dunk: <quote> The 1933 Glass-Steagal Act [] prohibited commercial banks from owning investment banks ... Just look at which organization’s have failed: * Bear Stearns was an investment bank before it was sold to JP Morgan Chase (which includes a commercial bank). * Fannie Mae were Freddie Mac were government sponsored entities before the government bought them. * Lehman Brothers was an investment bank before it want bankrupt. * Merrill Lynch was an investment bank befor it was sold to Bank of America (which is a commercial bank). * AIG is an insurance company with no commercial banking division. Remember, Glass-Steagal was passed to protect commercial banks from failure by forbidding them from investment bank practices like trading in securities and underwriting stocks and bonds. As you can see above non of the failed institutions are commercial banks that got in trouble through risky investment banking. Instead, it is the commercial banks that are providing some stability to the system by purchasing troubled investment banks. </quote> [1] http://blog.heritage.org/2008/09/22/the-glass-steagall-myth/ http://blog.heritage.org/2008/09/22/the-glass-steagall-myth/
garethsprice 14y ago
The act removes restrictions on advertising of securities. It's specifically designed to get amateur investors to put money into small startup companies. Hence, there will be large amounts of advertising aimed at encouraging the mass population to put money into risky investments that the mass population (seeing Instagram/Facebook/etc) think will make them rich beyond their wildest dreams. Historically, this does not end well.
- deleted 14y ago
  [deleted]
- vibrunazo 14y ago
  > Historically, this does not end well. Could you expand?
  - kooshball 14y ago
    "Dot-com bubble, real-estate flipping, tulip mania"
  - Robin_Message 14y ago
    Refer to the great-grandparent comment.
  - scott_w 14y ago
    "Dot-com bubble, real-estate flipping, tulip mania..." Add the 1930s crash to that.
    - pgroves 14y ago
      ...CD ladders, reinvesting dividend portfolios, index investing, life insurance, health insurance... advertising securities to the general population isn't guaranteed disaster.

by pgroves 14y ago

noahc 14y ago

Many bubbles are caused by a change in legislation that either incentivizes bubble participation or removes barriers to bubble participation. We saw this with the policies the Bush Administration adopted to further encourage an ownership society via home ownership as well as ongoing incentives to own a house. We also saw that the changes to Glass–Steagall contributed to the economic meltdown. I'm not arguing that we are or aren't in a bubble, but instead the legislative changes are common leading up to a bubble. Some would argue that the house bubble has been building via legislative change since the 1950s.

pdx 14y ago
When you say Bush Administration, I think you mean Clinton's 1995 and 1999 modifications to the Community Reinvestment Act. http://en.wikipedia.org/wiki/Community_Reinvestment_Act http://en.wikipedia.org/wiki/Community_Reinvestment_Act
- noahc 14y ago
  You are correct. Thanks.
- deleted 14y ago
  [deleted]
- masukomi 14y ago
  When he says "Bush Administration" and you say "Clinton's...Community Reinvestment Act" I think you mean to say legistlation like Roosevelt's New Deal http://en.wikipedia.org/wiki/New_Deal http://en.wikipedia.org/wiki/New_Deal
CWuestefeld 14y ago
I agree with your premise, and I'd add to it the governmental efforts that interfere with correcting the bubble, such as the Obama administration's work to prop up home prices. However, it's not true that Glass-Steagall contributed to the economic crisis. If anything, it served to mitigate the problem. I think the argument here [1] is pretty slam-dunk: <quote> The 1933 Glass-Steagal Act [] prohibited commercial banks from owning investment banks ... Just look at which organization’s have failed: * Bear Stearns was an investment bank before it was sold to JP Morgan Chase (which includes a commercial bank). * Fannie Mae were Freddie Mac were government sponsored entities before the government bought them. * Lehman Brothers was an investment bank before it want bankrupt. * Merrill Lynch was an investment bank befor it was sold to Bank of America (which is a commercial bank). * AIG is an insurance company with no commercial banking division. Remember, Glass-Steagal was passed to protect commercial banks from failure by forbidding them from investment bank practices like trading in securities and underwriting stocks and bonds. As you can see above non of the failed institutions are commercial banks that got in trouble through risky investment banking. Instead, it is the commercial banks that are providing some stability to the system by purchasing troubled investment banks. </quote> [1] http://blog.heritage.org/2008/09/22/the-glass-steagall-myth/ http://blog.heritage.org/2008/09/22/the-glass-steagall-myth/

garethsprice 14y ago

The act removes restrictions on advertising of securities. It's specifically designed to get amateur investors to put money into small startup companies. Hence, there will be large amounts of advertising aimed at encouraging the mass population to put money into risky investments that the mass population (seeing Instagram/Facebook/etc) think will make them rich beyond their wildest dreams. Historically, this does not end well.

deleted 14y ago
[deleted]
vibrunazo 14y ago
> Historically, this does not end well. Could you expand?
- kooshball 14y ago
  "Dot-com bubble, real-estate flipping, tulip mania"
- Robin_Message 14y ago
  Refer to the great-grandparent comment.
- scott_w 14y ago
  "Dot-com bubble, real-estate flipping, tulip mania..." Add the 1930s crash to that.
  - pgroves 14y ago
    ...CD ladders, reinvesting dividend portfolios, index investing, life insurance, health insurance... advertising securities to the general population isn't guaranteed disaster.