-- In [email protected], "ShempMcGurk" <shempmcg...@...> wrote:
If you are making a case that government agencies fuck up too you'll get no argument from me. But if you want to frame all the complexities as being because of regulations it will be as absurd as me arguing it is all because of lack of regulation. The dance between these extremes is far too complex to sum up in a tight ideological package. Your post balances out mine nicely. I suspect the truth is somewhere between the two. Either way we are living with regulations and oversight by government agencies mixed with plenty of profit driven special interest groups steering those agencies. > > > > --- In [email protected], "curtisdeltablues" <curtisdeltablues@> > wrote: > > > > [snip] > > > > > I'm kind of skeptical that any economic ideology has this all figured out. > > I'm a fan of free market capitalism but I have seen it really fuck up big > > time. The devastation caused by not regulating the mortgage markets and the > > creation of insane derivatives have brought the real estate market to its > > knees. Watching that should be pretty humbling to some people who thought > > the market would correct itself. We are facing a decade at least of > > painful "correction" here in my area. > > > > > [snip] > > > I would argue that it was regulations that caused much if not most of the > problems with the mortgage markets, not the lack of regulation. > > And where lack of regulation was at fault, I would argue that it was trusting > the overbearing, cumbersome federal government to have oversight for the > regulation that was the problem and if regulation was needed, we will be far, > far better served by having that regulation imposed upon us by a more local > regulation overseer, such as the states. > > The derivatives you refer to are, I assume, the Credit Default Swaps (CDSs) > which AIG was dealing in. Well, they are truly great financial instruments > and any banks that were using them to hedge against the risk inherent in the > mortgages they were holding were actually doing a very responsible thing > because in the event of a downturn in the market, the CDSs were supposed to > act like insurance policies and eliminate most of the loss that would occur. > > But, of course, the problem was that the CDSs weren't backed up by adequate > assets; the issuers of the CDSs, such as AIG, were selling them uncovered. > And when it came time to pay, they couldn't. So everything collapsed. > > But why, pray tell, did a bank or other institution holding those risky > mortgage-bundles buy CDSs that would turn out to be useless? Could it have > been that the credit rating agencies, such as Moody's and Standard and Poor, > had given AIG their top ratings? If I were a financial institution buying > CDSs to protect against the risk of the mortgages I held and saw that AIG had > the top credit rating, could I be blamed for trusting that the CDSs swaps > would work? > > Well, it turns out that AIG was in shitty financial shape and hadn't a > fraction of the assets to back up the, literally, trillions that the CDSs > that they sold were supposed to protect against. Yet the credit rating > agencies nevertheless gave AIG a clean bill of health. > > Why? > > Well, one reason is that there was no competition for the rating > agencies...and if there isn't any competition, where was the incentive for > them to do a good job by providing accurate reports on the companies they > were rating. > > YOU SEE, CURTIS, THE CREDIT RATING AGENCIES WERE SANCTIONED BY THE FEDERAL > GOVERNMENT AS THE OFFICIAL RATING AGENCIES. Indeed, certain financial > transactions couldn't be done in America without the okay by these agencies. > There wasn't competition in the credit rating "industry" because the federal > government gave their official blessing to three of them and three only. > > So it was regulation that created the situation where agencies gave such a > high rating to a company that didn't have the assets to back up what they > sold. > > As for having the federal government be the regulator where regulation is > needed, I say: look at the 50 states' Deparments of Insurance. Yes, > insurance companies failed during this recent crisis but in terms of dollar > amount, it is only a very small fraction compared to the problems banks had. > One of the reasons is that state insurance regulations require banks to have > very safe, conservative investments to back up the policies sold and in > percentages much higher than for banks. > > So why we would want the SEC -- which, for example, ignored 10 years of > complaints to them that Maldoff was running a Ponzi Scheme -- to oversee > CDSs, I do not know. I say: if we need regulation, let the states do it > 'cause they have a much greater track record than fucking Congress and the > U.S. government whose record with banks is,simply, atrocious. >
