Mitt Romney the next new leader of the free world!!!

[jts1882]

Which is screwing over consumers. There was weakening of regulation at the end of the Clinton administration which allowed mortgage officers to give mortgages to people that definitely couldn't afford the houses they were buying. Consumers shouldn't need a lawyer sitting with them every time they make a big purchase, nor can most people afford one. The banks then sold these subprime mortgages, hedging against them because they knew they would fail at some point. I honestly don't understand how free market forces would somehow prevent banks from doing questionable things, or downright taking people's lunch money. Do you have an explanation for LIBOR?

When there's money to be made so a return can be delivered to investors, corporations can not be altruistic. They're looking out for their own bottom line, not for their customer's. The banks are too intertwined with government in the first place. Many of the past heads of the SEC have been former bankers and CEOs.

Bailing out the banks was distasteful, I agree, but these banks have made themselves too big to fail. The repercussions of making these giant financial institutions tank would've destroyed our economy, and I won't suggest it would lead to WWIII, but it would create very uncertain conditions for governments.

Aren't several of those examples ones where the free market is not operating. The excessive hedging is passing the risk to others who are unaware of the risk. The SEC caught one of banks (Goldman Sachs?) deliberately constructing derivatives that they knew would lose value after selling them. LIBOR is another example of fraudulent practice. These are cases highlighting the need for regulation that will allow market forces to operate.

 

[scaramanga]

The purpose of the regulation is to let the markets operate freely, not to manipulate them. Even Adam Smith advocated this when he commented that you can't leave businessmen in a room together for five minutes before they start colluding (or something along those lines).

The banking crisis became as severe and widespread as it did because market forces weren't operating. The investments banks were repackaging risk as safe investments, with collusion of the rating agencies, and were rigging the market with distorting practices (rapid trading, naked short selling, etc). The ability to gamble, without taking the full consequences led them to take greater risks and then they had the government to protect them from those. The government guarantees were part of the problem but far from the whole problem.

Agree on the shareholder involvement. Just look at how the Murdoch family have been allowed to control News Corp with a minority share.

Which is screwing over consumers. There was weakening of regulation at the end of the Clinton administration which allowed mortgage officers to give mortgages to people that definitely couldn't afford the houses they were buying. Consumers shouldn't need a lawyer sitting with them every time they make a big purchase, nor can most people afford one. The banks then sold these subprime mortgages, hedging against them because they knew they would fail at some point. I honestly don't understand how free market forces would somehow prevent banks from doing questionable things, or downright taking people's lunch money. Do you have an explanation for LIBOR?

When there's money to be made so a return can be delivered to investors, corporations can not be altruistic. They're looking out for their own bottom line, not for their customer's. The banks are too intertwined with government in the first place. Many of the past heads of the SEC have been former bankers and CEOs.

Bailing out the banks was distasteful, I agree, but these banks have made themselves too big to fail. The repercussions of making these giant financial institutions tank would've destroyed our economy, and I won't suggest it would lead to WWIII, but it would create very uncertain conditions for governments.

I'll reply to both of these together as the basic point is the same - that the market forces weren't working in protecting the consumer.

IMO the market forces were working perfectly, the consumers and shareholders simply fell into the trap of believing that depositing cash and/or buying shares was money for nothing. That you could just put your money into a bank and at some point in the future, more would come back. I'm as guilty of this as anyone - my UK accounts are with the same bank I've been with since I was 13. One of the main reason I (and others) don't care which bank we deposit with is the guarantee provided by governments for our savings.

Now, had a few banks been allowed to fail people would be far more careful. One of the ways in which banks could differentiate themselves from the competition is to be safer than the others - a great selling point for consumers. With the aid of government meddling, there is no need whatsoever for them to do this. I care about what's going on and I don't know which banks are safer than others, how is the layman supposed to?

That, in essence is the market working and the market working perfectly. It has regulated itself and there is no need for complicated goverment involvement giving everyone a false sense of security. In a truly free market where banks can fail there is no mortgage for those who can't pay, there is no repackaging of dangerous debt because the consumers/shareholders know it is a risk and won't allow it. Despite their best efforts, the government and their predecessors are allowing banks to do more of the same.

 

[Leeds Spur]

Taking a leap here, but are you talking about banking when you say that? I make that assumption as that seems to be what everyone is talking about when they talk about regulation to curb excesses. If so, how do you reconcile that with the part of you that believes in market forces?

It's my belief that if governments had got less involved and let the market "do its bit" then there would currently be no banking problem whatsoever. Had banks been allowed to fail then I can guarantee that there would be no banks right now taking excessive risks, and not one would be doing so any time soon either. We'd probably have a (much improved) personal banking sector where the overall risk rating (probably independantly assessed) of depositing money would be balanced against the interest received on that account. Want to keep earning interest at high rates like you did before? Fine - your deposits are used in the more risky sector of the market. Want to ensure that your savings are safe no matter what? Then your deposits are only used for the low-risk ventures or even just kept as cash with all the inflation risks that go with it. You're a bank and you want to continue taking risks? Then you'll probably struggle for customer deposits.

Another likely side effect of this happening would be more shareholder involvement. This is one of the main problems with the current market - shareholders are not taking enough interest in their investments (and neither are pension fund managers representing us) to keep companies in check. A belly up bank or two would ensure that people stung by it would be taking far more interest in what goes on under the hood of the companies in which they invest.

If governments had just kept their grubby noses out of the markets (generally a very good rule) then not only would we have been saddled with the risk of bailing out and increasing the country's risk profile but we would also have let the market do what it does so well.

The banks weren't using their own capital. It was mine and yours savings mate.

If the government lets the banks go pop with your life savings its all cool yeah?

Thats why we need to regulate......there needs to be the rule of law. The extension of what you're saying is let the whole world run riot eh? Survival of the fittest and all that?

There needs to be an agreed framework otherwise you have anarchy

 

[Richie]

The banks weren't using their own capital. It was mine and yours savings mate.

If the government lets the banks go pop with your life savings its all cool yeah?

Thats why we need to regulate......there needs to be the rule of law. The extension of what you're saying is let the whole world run riot eh? Survival of the fittest and all that?

There needs to be an agreed framework otherwise you have anarchy

Err Leeds, that's exactly how Banking is supposed to work. That's how you get your interest, they loan out your money for you and pay a little bit of the profit to you.

The reality is that yes, if a bank goes pop with your life savings you should lose it all IMO. Let's have consumers taking responsibility for where they put their money. As it stands now the government guarantees all bank deposits, so the banks can do whatever they want without fear of losing customers because the government will save them.

What really fudges me off is people like you without a clear distinction between regulation and law. Nobody is advocating anarchy here, but I've heard people compare a lack of regulation and allowing the free markets to operate to Somalia and Rwanda. The part you aren't wrong about is the survival of the fittest. Exactly, yes it should be, for companies. That is what a free market does, allows the strongest companies to survive.

 

[Leeds Spur]

Lol....I put my money in the bank to lend to other people, mortgages and loans etc....the bank assess risk and claim interest and make a margin in the middle.

I don't expect them to gamble the money on credit default swaps, derivatives and other casino banking flimflam.

For clarity, these banks BROKE THE fudging LAW, they committed willful fraud creating CDO's.

Don;t patronise me by pretending I don't know what i'm on about here. I know how the fudging market works......they need to reintroduce the Glass Steagall Act.

 

[scaramanga]

The banks weren't using their own capital. It was mine and yours savings mate.

If the government lets the banks go pop with your life savings its all cool yeah?

Thats why we need to regulate......there needs to be the rule of law. The extension of what you're saying is let the whole world run riot eh? Survival of the fittest and all that?

There needs to be an agreed framework otherwise you have anarchy

The market already has a mechanism for doing what you suggest without the need for government intervention.

Bank goes pop > savers/shareholders learn that their money isn't guaranteed > savers/shareholders insist on more information from banks > risky banks get no capital to play with > safer banks become more successful.

This would all happen if the govt would just fvck off out of it and leave the market alone.

 

[Richie]

The market already has a mechanism for doing what you suggest without the need for government intervention.

Bank goes pop > savers/shareholders learn that their money isn't guaranteed > savers/shareholders insist on more information from banks > risky banks get no capital to play with > safer banks become more successful.

This would all happen if the govt would just fvck off out of it and leave the market alone.

This. Adam Smith and the Invisible Hand and all that

 

[jts1882]

That, in essence is the market working and the market working perfectly. It has regulated itself and there is no need for complicated goverment involvement giving everyone a false sense of security. In a truly free market where banks can fail there is no mortgage for those who can't pay, there is no repackaging of dangerous debt because the consumers/shareholders know it is a risk and won't allow it. Despite their best efforts, the government and their predecessors are allowing banks to do more of the same.

I don't disagree on the banks being allowed to fail, but you can't seriously say market forces were working perfectly when the banks were rigging the market.

You claim that "repackaging of dangerous debt because the consumers/shareholders know it is a risk and won't allow it" misses the point. The debt was repackaged into new derivatives containing only the bad debt tranches and this was rated triple A. Some of these disguised bad debt derivatives were put into other derivatives contain more bad debt. The people buying it didn't know it was bad debt and I'm sure if they did they would not have paid premium price for it. The banks got rid of their risk through deception and if you sell something that isn't what it is, then market forces can't operate.

 

[Leeds Spur]

The market already has a mechanism for doing what you suggest without the need for government intervention.

Bank goes pop > savers/shareholders learn that their money isn't guaranteed > savers/shareholders insist on more information from banks > risky banks get no capital to play with > safer banks become more successful.

This would all happen if the govt would just fvck off out of it and leave the market alone.

Seperate the investment bansk from retail banks and we agree.

That's not what people have signed up for.

You are describing a theoretical situation that never arises.

 

[Leeds Spur]

This. Adam Smith and the Invisible Hand and all that

Smith believed in regulation as well.

 

[Leeds Spur]

I don't disagree on the banks being allowed to fail, but you can't seriously say market forces were working perfectly when the banks were rigging the market.

You claim that "repackaging of dangerous debt because the consumers/shareholders know it is a risk and won't allow it" misses the point. The debt was repackaged into new derivatives containing only the bad debt tranches and this was rated triple A. Some of these disguised bad debt derivatives were put into other derivatives contain more bad debt. The people buying it didn't know it was bad debt and I'm sure if they did they would not have paid premium price for it. The banks got rid of their risk through deception and if you sell something that isn't what it is, then market forces can't operate.

Exactly! Criminal

 

[Skinhead in a Suit]

Examples of banks being allowed to fail:
Lehman Brothers
ING

Result:
They merely ended up being purchased for literally nothing by another bank.

Changes made privately in the way business was conducted afterwards:
None

 

[Skinhead in a Suit]

Smith believed in regulation as well.

And I believe in the concept of social responsibility ahead of shareholder's returrns.

 

[scaramanga]

I don't disagree on the banks being allowed to fail, but you can't seriously say market forces were working perfectly when the banks were rigging the market.

You claim that "repackaging of dangerous debt because the consumers/shareholders know it is a risk and won't allow it" misses the point. The debt was repackaged into new derivatives containing only the bad debt tranches and this was rated triple A. Some of these disguised bad debt derivatives were put into other derivatives contain more bad debt. The people buying it didn't know it was bad debt and I'm sure if they did they would not have paid premium price for it. The banks got rid of their risk through deception and if you sell something that isn't what it is, then market forces can't operate.

I agree that the market wasn't working perfectly, but not through the fault of the banks or through lack of regulation. The people who are supposed to hold all businesses to account are its customers and its shareholders. We all fell into the trap of believing that we didn't need to regulate the banks ourselves by moving our custom as and when we wanted.

Whilst many of the CDOs sold were hard to analyse, the banks have both the expertise and the resources to see what they're built on. Again, if my bank is buying CDOs without looking inside them (as was the case with most banks at the time) then I will move my custom elsewhere. Govt regulation is stopping this information being available though, so I don't get to choose - I just have to keep my UK savings under the guarantee level and hope the govt comes good on their promise.

In an unregulated market, after banks started to fail there would be few (or likely no) buyers for complex CDOs. This would force those selling them into either being more transparent about the contents for making less complex packages to sell.

 

[scaramanga]

Seperate the investment bansk from retail banks and we agree.

That's not what people have signed up for.

You are describing a theoretical situation that never arises.

It's precisely what people have signed up for.

"The value of your shares may go down as well as up".

 

[scaramanga]

Examples of banks being allowed to fail:
Lehman Brothers
ING

Result:
They merely ended up being purchased for literally nothing by another bank.

Changes made privately in the way business was conducted afterwards:
None

Sort of my point.

A tiny amount of meddling in the market can create a massive distortion in how the market runs. You either regulate fully or not at all. A little less regulation doesn't create a slightly more free market, it creates the same market just slightly less well-regulated.

The only answer which ensures that we as customers and shareholders self-regulate the market is an entirely hands-off one.

 

[Leeds Spur]

I agree that the market wasn't working perfectly, but not through the fault of the banks or through lack of regulation. The people who are supposed to hold all businesses to account are its customers and its shareholders. We all fell into the trap of believing that we didn't need to regulate the banks ourselves by moving our custom as and when we wanted.

Whilst many of the CDOs sold were hard to analyse, the banks have both the expertise and the resources to see what they're built on. Again, if my bank is buying CDOs without looking inside them (as was the case with most banks at the time) then I will move my custom elsewhere. Govt regulation is stopping this information being available though, so I don't get to choose - I just have to keep my UK savings under the guarantee level and hope the govt comes good on their promise.

In an unregulated market, after banks started to fail there would be few (or likely no) buyers for complex CDOs. This would force those selling them into either being more transparent about the contents for making less complex packages to sell.

Shareholders don't understand derivatives and CDOs. These tossers were wilfully sold this brick knowing it was fraud. Banks employ nuclear physicists for a reason.

 

[Leeds Spur]

It's precisely what people have signed up for.

"The value of your shares may go down as well as up".

No.

The brochure didn't say we'd make up ever more complex algorithms no one understands so we can book a paper profit and fudge off to the Cayman Islands.

 

[Leeds Spur]

I agree that the market wasn't working perfectly, but not through the fault of the banks or through lack of regulation. The people who are supposed to hold all businesses to account are its customers and its shareholders. We all fell into the trap of believing that we didn't need to regulate the banks ourselves by moving our custom as and when we wanted.

Whilst many of the CDOs sold were hard to analyse, the banks have both the expertise and the resources to see what they're built on. Again, if my bank is buying CDOs without looking inside them (as was the case with most banks at the time) then I will move my custom elsewhere. Govt regulation is stopping this information being available though, so I don't get to choose - I just have to keep my UK savings under the guarantee level and hope the govt comes good on their promise.

In an unregulated market, after banks started to fail there would be few (or likely no) buyers for complex CDOs. This would force those selling them into either being more transparent about the contents for making less complex packages to sell.

Lol. When was the last time you asked your bank what trading positions they have? As if they'd tell you and as if you'd have a fudging clue what they were talking about.

Laughable.

 

[papaspur]

Actually, I agree with Scara on the point that the banks and government are too cozy. It's basically the opposite of regulation though because the banks operate under different laws than the rest of the citizens. Scara, I would highly advise reading the Matt Taibi articles I linked earlier. If you're interested, I will link all the relevant ones because I think he does a good job describing the core problems within the banking industry.

Skinhead is also correct: it's still the same flimflam. These banker assholes are above the law, that's why they feel free to do whatever they want with our money. How about that for regulation?