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Further counterpoints... (warning; I'm a touch sleepy). First, there is the primary issue, severely undermining almost everything you write, of "encouraging" v

by crux_ 18y ago

Further counterpoints... (warning; I'm a touch sleepy). First, there is the primary issue, severely undermining almost everything you write, of "encouraging" vs "doing". (I'm making an assumption here:) It's really quite ironic to see a libertarian claiming that one who encourages a decision bears greater responsibility than the individual who actually made the decision him/her/itself. In other words: if I take you at face value, the regulators encouraged bad behavior, individuals and institutions behaved badly, and it is the former who bears the majority of the blame. Pardon me if I don't buy it. Sure, the regulators screwed up, but to a tar-and-feathering degree rather than a torches-and-pitchforks level. Further complicating the "regulators are more to blame" approach, even if we overlook the basic contradiction at its core, are the issues of regulatory capture: Wall Street and the regulators in question are pretty much the exact same people at this point, and their motives pretty much identical (due to many reasons; e.g. the revolving door). (I digress, but I believe this is a big part of the reason the current response has sucked so badly: too much Wall Street, not too much regulators!) Finally, although I'm sleepy, I believe I detect huge amounts of spin in your response here. A couple of examples: CDS contracts entered into by AIG were rather larger than the entire value of the company, for example, not what I would call a "relatively small" amount. And Geitner doesn't want to "force unregulated institutions into insolvency" ... the institutions in question are already insolvent! What he wants is, presumably, is to force them into something along the lines of a slowed-down, taxpayer supported restructuring (aka: bankruptcy). This may or may not be a good thing but to cast it as "forcing an organization into insolvency" is duplicitous.

anamax 18y ago
> Further complicating the "regulators are more to blame" approach, even if we overlook the basic contradiction at its core, are the issues of regulatory capture: Regulatory capture is a consequence of regulation, so its effects are problems with regulation. > CDS contracts entered into by AIG were rather larger than the entire value of the company, for example, not what I would call a "relatively small" amount And they were hedged by contracts that were of comparable size. That's how insurance companies work. And all of this was approved by regulators. In AIG's case, by both bank and insurance company regulators in the US and (at least) bank regulators from other countries. (I don't know if other countries also regulated AIG as an insurance company, but I suspect that they did.) Note that the foreign banks that bought AIG policies did so with the express permission of their regulators. We know that because banks get no benefit from unregulated assets.
- crux_ 18y ago
  > Regulatory capture is a consequence of regulation, so its effects are problems with regulation. My point was that if we are looking for people to blame, whether we chose to point the finger at Wall St or at "regulators," it turns out it will be the exact same group. > And they were hedged by contracts that were of comparable size. Not at AIG they weren't, which is why so much of our taxpayer money is flowing through them to the counter-parties of their CDS contracts -- e.g., Goldman Sachs. > Note that the foreign banks that bought AIG policies did so with the express permission of their regulators. So when a regulator gives you permission undertake an activity, by doing so they also lift all responsibility from you when you choose to go ahead with it? Regulators have made it possible for me to drink, does that mean it is their fault when I contract alcohol poisoning?
  - anamax 18y ago
    > My point was that if we are looking for people to blame, whether we chose to point the finger at Wall St or at "regulators," it turns out it will be the exact same group. Actually, it's not. Unregulated Wall St has fared far better. >> And they were hedged by contracts that were of comparable size. > Not at AIG they weren't Yes, they were - that's how regulated insurance works. > which is why so much of our taxpayer money is flowing through them to the counter-parties of their CDS contracts -- e.g., Goldman Sachs. The money is flowing because the assets backing up the liabilities weren't actually worth enough and the risk was underestimated. > Regulators have made it possible for me to drink, does that mean it is their fault when I contract alcohol poisoning? It means that you can't say that regulation solves alcohol poisoning.
    - crux_ 18y ago
      > Actually, it's not. Unregulated Wall St has fared far better. Like Bear Sterns, Lehman Brothers, Goldman Sachs? > It means that you can't say that regulation solves alcohol poisoning. I never claimed this. What it does mean is that you cannot say that regulation causes alcohol poisoning.
      - 18y ago
cwan 18y ago
I'm not sure how making the argument that blaming regulators who created the incentives and environment for an industry to act against their long term self interest is inconsistent with being libertarian. What Wall Street did was celebrated by regulators and legislators up until the point they realized that it was a house of cards (which was after its collapse). Wall Street took the bait - for which I'm not going to deny they have some responsibility over their own destruction - and they have paid heavily financially for that pain (look at financial sector stock prices and how many actually remain), But to the original point (and the linked post): "A free market in which participants risked their own money might work quite well, but that’s not what we tried. We had a market in which participants risked other peoples’ money and pocketed much of the upside but suffered no downside risk, all made possible by the government’s regulating away public company shareholder power." AIG's demise has come rather late in the game. CDS's are responsible for their massive losses, however CDS's are not responsible for this crisis. There's a difference here. However what's infuriating about the response that it is overdone relative to the crisis. He wants to be able to monitor risks private firms take with their own money and that of their investors. This is a power grab - since it's not like he only wants these powers for AIG - for something akin to the rogue trading at Barings bank. AIG's collapse could have been managed. Most of the business units held by AIG are actually quite profitable not to mention highly regulated. To put this in perspective with respect to legislation, what Geithner could have done if he wanted to have an orderly liquidation or even save AIG was to push for the suspension of mark-to-market which would have allowed AIG not to seek massive amounts of funding to meet _regulatory_ requirements. AIG was already regulated as an insurer and as a financial institutions. What Geithner wants extends far beyond preventing what happened to AIG.
- crux_ 18y ago
  > 'm not sure how making the argument that blaming regulators who created the incentives and environment for an industry to act against their long term self interest is inconsistent with being libertarian. Perhaps a metaphor will help you see the contradiction. Who do I blame for my eventual heart attack: The fast food industry, who has created the incentives and environment for my obesity, or my own damn shortsighted self? Depending on the degree of your libertarianism, you would answer "entirely yourself" or "you bear primary responsibility but the fast food industry certainly helped you on your way." To blame the fast food industry is rather counter to the entire principle of individual responsibility, yet this is exactly what you are doing when you blame regulators for Wall Street's 'heart attack.' The rest of your response is about "what should (not) be done," not "who should we blame" so I'll just leave it at that.

by crux_ 18y ago

anamax 18y ago

> Further complicating the "regulators are more to blame" approach, even if we overlook the basic contradiction at its core, are the issues of regulatory capture: Regulatory capture is a consequence of regulation, so its effects are problems with regulation. > CDS contracts entered into by AIG were rather larger than the entire value of the company, for example, not what I would call a "relatively small" amount And they were hedged by contracts that were of comparable size. That's how insurance companies work. And all of this was approved by regulators. In AIG's case, by both bank and insurance company regulators in the US and (at least) bank regulators from other countries. (I don't know if other countries also regulated AIG as an insurance company, but I suspect that they did.) Note that the foreign banks that bought AIG policies did so with the express permission of their regulators. We know that because banks get no benefit from unregulated assets.

crux_ 18y ago
> Regulatory capture is a consequence of regulation, so its effects are problems with regulation. My point was that if we are looking for people to blame, whether we chose to point the finger at Wall St or at "regulators," it turns out it will be the exact same group. > And they were hedged by contracts that were of comparable size. Not at AIG they weren't, which is why so much of our taxpayer money is flowing through them to the counter-parties of their CDS contracts -- e.g., Goldman Sachs. > Note that the foreign banks that bought AIG policies did so with the express permission of their regulators. So when a regulator gives you permission undertake an activity, by doing so they also lift all responsibility from you when you choose to go ahead with it? Regulators have made it possible for me to drink, does that mean it is their fault when I contract alcohol poisoning?
- anamax 18y ago
  > My point was that if we are looking for people to blame, whether we chose to point the finger at Wall St or at "regulators," it turns out it will be the exact same group. Actually, it's not. Unregulated Wall St has fared far better. >> And they were hedged by contracts that were of comparable size. > Not at AIG they weren't Yes, they were - that's how regulated insurance works. > which is why so much of our taxpayer money is flowing through them to the counter-parties of their CDS contracts -- e.g., Goldman Sachs. The money is flowing because the assets backing up the liabilities weren't actually worth enough and the risk was underestimated. > Regulators have made it possible for me to drink, does that mean it is their fault when I contract alcohol poisoning? It means that you can't say that regulation solves alcohol poisoning.
  - crux_ 18y ago
    > Actually, it's not. Unregulated Wall St has fared far better. Like Bear Sterns, Lehman Brothers, Goldman Sachs? > It means that you can't say that regulation solves alcohol poisoning. I never claimed this. What it does mean is that you cannot say that regulation causes alcohol poisoning.
    - 18y ago

cwan 18y ago

I'm not sure how making the argument that blaming regulators who created the incentives and environment for an industry to act against their long term self interest is inconsistent with being libertarian. What Wall Street did was celebrated by regulators and legislators up until the point they realized that it was a house of cards (which was after its collapse). Wall Street took the bait - for which I'm not going to deny they have some responsibility over their own destruction - and they have paid heavily financially for that pain (look at financial sector stock prices and how many actually remain), But to the original point (and the linked post): "A free market in which participants risked their own money might work quite well, but that’s not what we tried. We had a market in which participants risked other peoples’ money and pocketed much of the upside but suffered no downside risk, all made possible by the government’s regulating away public company shareholder power." AIG's demise has come rather late in the game. CDS's are responsible for their massive losses, however CDS's are not responsible for this crisis. There's a difference here. However what's infuriating about the response that it is overdone relative to the crisis. He wants to be able to monitor risks private firms take with their own money and that of their investors. This is a power grab - since it's not like he only wants these powers for AIG - for something akin to the rogue trading at Barings bank. AIG's collapse could have been managed. Most of the business units held by AIG are actually quite profitable not to mention highly regulated. To put this in perspective with respect to legislation, what Geithner could have done if he wanted to have an orderly liquidation or even save AIG was to push for the suspension of mark-to-market which would have allowed AIG not to seek massive amounts of funding to meet _regulatory_ requirements. AIG was already regulated as an insurer and as a financial institutions. What Geithner wants extends far beyond preventing what happened to AIG.

crux_ 18y ago
> 'm not sure how making the argument that blaming regulators who created the incentives and environment for an industry to act against their long term self interest is inconsistent with being libertarian. Perhaps a metaphor will help you see the contradiction. Who do I blame for my eventual heart attack: The fast food industry, who has created the incentives and environment for my obesity, or my own damn shortsighted self? Depending on the degree of your libertarianism, you would answer "entirely yourself" or "you bear primary responsibility but the fast food industry certainly helped you on your way." To blame the fast food industry is rather counter to the entire principle of individual responsibility, yet this is exactly what you are doing when you blame regulators for Wall Street's 'heart attack.' The rest of your response is about "what should (not) be done," not "who should we blame" so I'll just leave it at that.