On Mon, Oct 20, 2008 at 9:45 AM, David B. Shemano <[EMAIL PROTECTED]> wrote: > Query -- what specific regulatory proposal of the anti-libertarians did > libertarians oppose that would have prevented the bubble and resulting > financial crisis?
Repeal of Glass-Steagall was one example. The Commodities Futures Modernization Act was another. Appointing Alan Greenspan to the Fed and keeping him there was another. > Weisberg ciites derivative regulation, but how would derivative regulation as > proposed 10-15 years ago have made a difference with respect to this crisis? > The best argument I can think of is that the derivatives created a moral > hazard by giving investors a false sense of comfort, so they were lax in > their analysis of the underlying securities. Therefore, if there had been > regulation that would have required AIG, Lehman and other large derivative > sellers to hold reserves akin to what insurance companies are required to > hold, that would have limited derivative availability, which would have > arguably limited investment in the mortgage-backed securities. Is that the > argument? Beyond being very attenuated, can anybody point me to any defeated > legislation that was proposed on these grounds? Thats is one argument. Although I am not sure what you mean by "very attenuated": derivatives simply could not have existed without moral hazard. Did anyone really think they were buying real insurance by buying CDSes from some itty-bitty hedge fund? A bigger argument can be made that the main purpose of derivatives and all the bogus mathematics that went into it, was to enable financial institutions to conceal fraud on an enormous scale. This required the government to look the other way, and libertarian ideology was key for justifying it. > And why would Congress have supported regulation that would have had the > effect of limiting derivatives that had the effect of increasing mortgage and > home ownership investment? Isn't that the entire point of the GSEs -- insure > mortgages to induce mortgage lending? The bipartisan Congress LOVED the GSEs > and their investments, encouraged their expansion and opposed any proposed > regulation (and regulators) that would have restricted their expansion. The > notion that Congress was all ready to limit derivatives (and constrict the > mortage market) but for those libertarian theorists seems rather silly to me. The libertarians always hated the GSEs and the GSEs were part of the problem. But you are way overstating their role in all this. For all their faults, the GSE mortgages were overall much better quality than the rest. They had their problems but you can't pin it all on them and let the libertarian ideologists off the hook. -raghu. -- Seeing is deceiving. It's eating that's believing. _______________________________________________ pen-l mailing list [email protected] https://lists.csuchico.edu/mailman/listinfo/pen-l
