Lars Larson on No More Regulations!

More regulation is not what we need.

All I’ve been hearing is “more regulations”. That, if only, America had regulation of financial markets, of banks, of the securities business, of the people who make up home loans. If we only had regulations that would cover everything””all of the Liar’s Loans and the Stated Income loans, and the loans where you don’t put forward a W-2.

I’m going to tell you the truth. I don’t think more regulation is going to do it. I don’t think more regulation is the answer. If anything, the government needs to get out of the business.

The banks are very good at figuring out risk. If you can figure out risk, you can figure out what a home loan ought to be priced at. You can also figure out whether you want to buy a bundle of those home loans or not.

We ought to let the financial services business run things. The government should stand back at enough of a distance not to muck things up, the way they have appeared to have mucked things up this time around.

“For more Lars click here”

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  • dean

    Ha ha ha ha ha……good one Lars. “Banks are very good at figuring out risk.” Yes, and passing that risk onto the rest of us.

    • eagle eye

      Yes, dean, it’s hilarious, isn’t it. The financial whiz Lars Larson telling us how to do it. Maybe he will be so kind as to call up Paulson and Bernanke and let them in on his wisdom. After all, he did go to UO for a year, he isn’t tainted by being a Princeton professor like Bernanke or a Goldman bigwig like Paulson.

      Here’s an idea: Sarah Palin and Lars Larson for Pres/VP in 2012! After all, Palin has done so well since McCain picked her. I was completely wrong about her being in over her head, I have to confess. She is far less qualified than I realized at the time!

      • dean

        Palin is showing herself to be about what I thought. She is charming, reasonably up on Alaska issues, interesting in many ways, and utterly in over her head in national politics. If McCain goes down, I think history will write that his selection of her played a big part. He threw away his best card, which is his greater experience and presumably better judgement.

        I think you are implying in the Lars-Palin for 2012 ticket that there is an ultimate logical conclusion to anti-intellectualism.

        By the way, a very interesting breakdown of the financial implosion is in the current issue of New York Magazine. The Masters of the Universe (financial whiz kids) have run their course.

        • eagle eye

          Yes, the anti-intellectualism and anti-elitism of the current Republicans saddens me very much as a Republican myself. A long time back — around 1980 or a little earlier — I felt that the liberals had lost their way, were no longer competent to run the country, and that the Republicans and conservatives had them outlcassed intellectually and in terms of being able to govern. And I felt completely vindicated, beyond any but my wildest expectations, by Ronald Reagan and his administration.

          Now, it seems that they almost glory in their inability. And they actually seem to believe that demonstrating their inability makes the case for Republicanism/conservatism. It’s very bizarre. After the coming election, I’m afraid they will be carried off to the loony bin blathering about how the election was stolen by the New York Times and the Democrats. (Not unlike some on the left after 2004, by the way).

          The post here by Lars Larson is a great example. Only people almost psychotically self-deluded can think that this is the time to turn the financial system entirely over to the private workings of the banks.

          These people would blithely let a new Great Depression happen — and it’s still a very real possibility — and then claim that this demonstrates the case for markets. And then be amazed that a 50 year period of socialism ensued. As they were the last time around.

          There’s a huge amount of blame to go around for the present debacle. It’s not all due to the “Masters of the Universe”. I would claim that the government forced the finance system to engage in predatory lending, and got the whole miserable fiasco rolling. But then they got a lot of help from the supposed conservatives. A huge amount of blame to go around.

          Now we need to try to escape without a worldwide depression. I wish us all the best.

          • dean

            Eagle, I always appreciate your perspective, even when we disagree.

            For my money:
            1: Populism is tempting in a middle class nation, but is a 2 edged sword, and the Republican Party carried their faux populism about 2 steps too far and now are being sliced and diced by themselves. Its one thing to run against pointy headed snarks on the left, which by the way we tend to produce in great abundance. Its another to actually nominate mediocre minds to run the nation. And it was purse foolishness for a John McCain, a very wealthy man, son and grandson of admirals, educated at the Naval Academy, to run against the media that once adored him and now feels like a jilted spouse. Big mistake.

            2: My Democratic party did self-destruct in part by nominating and electing Jimmy Carter, a good man but very inexperienced national politician who dealt badly with the crises he faced. Even today, I don’t think my party has done much of anything to earn its way back into power, but is benefiting from the present self-destruction of your party. We have nominated and are about to elect another good man but inexperienced politician. This could lead again to very bad things for us and the nation. I’m hoping Obama is up to the job, but I don’t really know.

            3: I agree with you the investment banking implosion was due to a combination of government policy, particularly holding interest rates low and promoting housing ownership as an end in itself, as well as private capital run amok. We have never had pure capitalism in this nation and never will. We have a mixed system, in which the government pushes investment in directions it favors through taxing and spending policy, and private capital goes where the best opportunities seem to lie. When bubbles form, which is a natural part of investment psychology and would happen with our without government, it is the job of government to try and keep these from getting so big that they threaten the larger economy. At levery level government (the Administration, the Fed, and Congress) failed to take heed and let this bubble get way too big. I think it was adherence to a free market ideology that caused this delay, but I can’t prove it. Maybe it was just incompetance.

            4: I agree that unless drastic action is now taken along the lines of the buying up of bad paper that is on the table, at the least we are looking at the Japanese experience of the 90s after their real estate bubble burst, and at worst a recession approaching a depression. We have to make the best of a bad situation, and this is going to cost us one way or another (higher inflation, sinking dollar, forgone infrastrucutre spending, all of the above, etc…)

          • eagle eye

            “I think it was adherence to a free market ideology that caused this delay, but I can’t prove it. Maybe it was just incompetance.”

            I don’t think it was simply “adherence to market ideology”. As I said, and as you apparently recognize as well, a big part of it was the government fostering the subprime real estate mess. Then the problem was compounded by the “deregulation” of the financial industry, which aided and abetted the irresponsibility. It was both over-regulation (forcing subprime lending which turned into “predatory” lending) and under-regulation (lax, very un-conservative rules on banking practices). I would also fault all the money being pumped out by the Federal Reserve, partly to finance the fiscal irresponsibility of the federal budget. But it wasn’t just easy money: we’ve survived far worse inflation than we have at present without akirting disaster. I would also fault the fantastic growth of computer technology, financial “technology” such as all the new financial instruments. I don’t think anyone really was up to understanding the full implications of this.

            If one reads the classic F.A. Hayek “The Road to Surfdom”, which I recommend to anyone, one of the points he makes is that it is the role of government to create the optimal “rules” of operation for the system of a “competitive” economy. (Both words in quotes are his). He makes it clear that devising and enforcing these rules is the role of government. And that devising the system of rules in the optimal way is by no means an easy or obvious task.

            We have seen a massive failure to get this right in the current crisis. The mistakes clearly are not all of one kind, nor always especially obvious. I would say that if they stem from any one thing, it is from a lack of responsibility, on the part of many players.

            We have had perhaps the last wakeup call before untold damage is done to this country, indeed to the entire world.

    • Phill Yasen

      I don’t want to receive emails in Italian. ,

  • Anonymous

    It’s not the banks passingon risk to us. It’s the government with their always forthcoming unintended consequences from the mission creep meddling you always support at every level.

  • Bob Clark

    I have to disagree with Lars on this. In 1999, president Clinton signed into law the repeal of the Glass-Steagall Act of 1933. This Act had served to keep banks from mixing traditionally banking with investment banking. This sped the development of financial derivatives – for instance, leveraged bets that such and such debt is good. In addition, a year ago or so the Securities Exchange Commission eliminated a key restriction on short selling of stocks, namely, the “uptick” rule. The “uptick” rule made a short seller wait until a stock price inched higher before selling such stock. This enabled speculators to more easily manipulate certain financial equity prices, driving down financial stock prices helping to speed the fall in financial derivative assets (like collateralized debt obligations). “Bear raids” were allowed by the SEC through this crisis until just lately.

    In summary:
    The government regulators stepped away from the “casino” because everybody was getting happy with so many people participating in the housing bubble, especially those who didn’t have much staying power (income to pay mortgages).

    I love capitalism but even Adam Smith required some form of governance and laws to prevent manipulation and fraud. What we’ve had in this most grievious of financial crisis is literally a lot of tall bets allowed by the casino operator (government regulators). Every good poker game needs a host to properly put borders on the play, or else a lot of innocent bystanders and players end up dead.

  • Rupert in Springfield

    The interesting thing to see is where we will go from here.

    The American people are very well aware of two things:

    1) Banks and Government weren’t doing their jobs. Banks were loaning willy nilly, Government was pressuring them to do so. We now have so many members of the Clinton administration admitting to governments pressure on banks in this area that people are starting to catch on.

    2) Banks got money, politicians got votes and now those who saved and didn’t buy over their heads are going to get stuck with the bill.

    There is a feeling of resentment out their. The fact that political futures of all involved apparently will emerge untarnished is testament to the fact that whatever bailout emerges will result in money spent, not lessons learned. Will any heads roll in Washington at all? Of course not. We will hear endless beating up of CEO’s, but it would be nice if we could hear at least some chastisement of the lawmakers who were at a bare minimum equally responsible. The laws that forced this reckless lending, and those, such as Barney Frank, that perpetually insisted on lowering the standards need to be changed. We need an immediate repeal of the community reinvestment act as well as the lowered Clinton era standards. We need an immediate rethinking of why the hell government is involved in the home loan business at all.

    Sadly I saw nothing in the debate Friday that indicated to me that if Obama is elected, he will curtail any of his spending desires in any manner whatsoever. How can a man emerge from chairing a disastrous meeting about a trillion dollar bailout package and then seem to be totally unphased in his massive spending plans at a debate mere hours later? How can anyone do that and not expect cynicism? Every taxpayer just got stuck with a $10,000 bill for this mess. It would be nice to hear some talk of government tightening its belt. That would be real change.

    Will Chris Dodd be investigated? Of course not and that much is a certainty. Will Barney Frank at least admit his language accusing anyone who opposed lowering of loan standards as a racist several years ago was maybe not constructive? Of course not. No one will be held to account, and that is why there is no benefit according to any presidential candidate, outsider or not. People simply know they got robbed, and the earthworms that gain power form this sort of theft have no intention of protecting anything but their own filthy holes in the ground.

    Heads should roll in Washington and Wall street. They may in the latter but it is very doubtful in the former. And that is how one hardly needs a GPS unit to determine the precise global coordinates for the dark recess that is the location of those non rolling heads.

    • dean

      Rupert, economists have looked at this for months now, and statistically (I know you hate that word) the idea that the CRA and poor people caused the collapse of the American financial system, which is actually run by rich people, is….to put it politely…bunkum. Yes, under Carter the feds required federally insured banks and S&Ls to stop red-lining and to increase their loans in poor urban and rural communities that these banks served. Since this law went into place in the 70s, and the sub-prime debacle happened 30 years later, its hard to see much cause and effect.

      The Clinton CRA update went into effect in the mid 90s. Again, there was a long time lag between this and the housing bubble rising and bursting. Bush weakened the CRA in 2004 by letting affiliates opt out, after which sub prime lending shot up even higher than it had been. A full half of sub prime loans originated with independent brokers who were not subject at all to the CRA. Only an estimated 1 in 4 subprime loans were made by banking institutions that were subject to CRA rules. And those instututions made far fewer sub prime loans as a percentage of all loans than did the non CRA instututions, according to Janet Yellen of the San Francisco Federal Reserve (I know…I know, San Francisco….Nancy Pelosi….conspiracy).

      Private lenders cashed in on a gravy train of rising home values by shoving loans into the pockets of anyone who could breathe and sign a piece of paper with something more than an X. They learned how to make easy money on the transaction rather than the loan itself, which they immediately packaged up and sold to unsuspecting buyers who wanted a “safe” investment with a better return than T-bills, which paid very low for years so that Bush could finance his feckless frat party of a government. Since Moody’s rated these bundles Triple A, they thought they were buying safe. (Note that poor people and Moody’s are rarely used in the same sentence).

      Every taxpayer is only stuck with a $10K portion of the bill if we all pay equally, which we do not. We are basically borrowing a lot of money at very low interest, hopefully from the Chinese if they are still dumb enough to go along. And if this madness is managed well by the green eye shade folks that get hired to buy up, sort out, and dispose of the properties we are about to buy for cents on the dollar, we may make money on the deal if we can manage to arrest the equity decline. I’m not holding my breath, but this is a business transaction. Its not your normal government spending. we are buying moldering condos and desert McMansions for later resale, not sewer and water systems or inexplicable wars that have no resale value.

      You pick on Chris Dodd and Barney Frank a lot. Maybe they screwed up, and maybe they did so criminally. I don’t know. I do notice you never mention George Bush, Alan Greenspan, Phil Graham, and as I have said before, the political party that shall go unnamed that actually ran Washington through most of this century, which coincided neatly with the baloon and its bursting in air.

      You can continue to avoid discussing them. But I suspect “the American people,” or somewhere north of 50% of the voters at any rate, know who shoulders the majority of the responsibility here.

      As for the debate and Obama’s reluctance to abandon his entire program on the spot, my personal view is he won’t and he shouldn’t. The need for ending the Iraq war, bridge repair, highway maintenance, alternative energy development, and expanded health insurance is not any less for the banking collapse. If anything some of tehse items, like health care and infrastructure spending will be MORE important if unemployment rises, as it is bound to. Cheney taught us that “deficits don’t matter” (or was that Reagan….but never mind). It’s time Democrats accepted this philosophy as well and stopped being the cleanup crew for your party’s binges.

  • Rupert in Springfield

    Oh my God, at last you have actually done some research into the CRA.

    The hilarious thing is YOU giving me a history lesson on the CRA, which you had first of all never heard of before I mentioned it several threads back, and when I brought it up, you said “I’m not buying it” because it was 20 years old.

    At least you admit now to some culpability of this act, but you launching into the history lesson, when I have been begging you for three threads now to educate yourself on it, is simply a riot. I’m not sure there is anything that looks more foolish than a pedant seeking to educate others on an issue his audience had to inform him about

    As for this statement.

    > I do notice you never mention George Bush, Alan Greenspan, Phil Graham,


    Learn to read. Stop blathering saying I didn’t ever mention them when I did and you are simply couldn’t read. God, I am not sure I have ever ran into a more intellectually lazy person.

    >as I have said before, the political party that shall go unnamed that actually ran Washington through most of this century

    Oh wow, now that’s desperate. Most of this century? That’s 8 Years, of which they ran 6. Does this work with liberals? You have to be really brain dead to think this is meaningful.

    OOOoooohhhh so we had Republicans running things for six years in Washington, yeah, that means its all their fault.

    That’s weak, and you know it, otherwise you wouldn’t have pulled the “this century” thing to try and make six years sound more substantial.

    At any rate, your argument boils down to unless it happened real recently nothing legislatively could be have culpability.

    Robert Reich disagrees with you, as does Bill Clinton, oh well. They have the ability to criticize their own party, unlike you.

    Anyway good luck with the history lessons. This one took the cake at least in absurdity.

    • dean

      Rupert….very good at denegrating the messenger. Not so good at dealing with the actual issues he raised. CRA = 30 years old. Housing bubble was 2001-2005 (post Clinton,) with prices beginning to decline in 2006, or just after the Dems won a majority in Congress for the first time in 12 years. Yes…”this century” is quite relevant since the entire event happened in this particular century. Greenspan lowered the federal funds rate 11 times between 2001 and 2003 until it was below 2%. Why?

      In 1997, Clinton’s time and after he boosted CRA, the refusal rate on mortgages was 28%. In 2003 it was half that, 14%. Why? What in God’s name did this have to do with the CRA? Nothing. Home prices were balooning and private lenders were on a gravy train. Greenspan cheered it on, and Bush sat on his tushie.

      Given the timeline, how could the CRA have *caused* the housing bubble? Given Barney Frank & Chris Dodd did not assume their chair positions until 06, after the bubble had peaked and was already deflating, how could they have *caused* it? They had no authority other than their individual votes as part of a minority party.

      This century = 2000-2008. Republicans in total control: 2001-2006. Housing bubble: 2001-2005. Responsibility. Get it? Why is it that every bad thing that happens under Republican control gets foisted over to Democrats? 9-11 attacks. Clinton’s fault. Iraq war goes bad, well some Democrats voted to authorize it. Financial system breaks down, the CRA, a 30 year old policy caused it. The Hurricane Katrina debacle? The Governor of Louisiana was to blame for the failure of FEMA to show up because she did not ask the right questions. Please. Its all getting quite ridiculous.

      You think I like giving you history lessons? I don’t. I do it out of sheer frustration. Do I ever get a thank you? No. A card? Flowers? Nothing. Just ridicule. Abuse. Humiliations. Now I’m all verklempt.

      Democrats are at fault yes….for being spineless weenies and letting Republicans get away with near ruin of the nation. Okay?

      I don’t know what you are reading from Reich and Clinton, but it is probably the first time you have ever agreed with either of them on anything.

  • Rupert in Springfield

    Why not denigrate the messenger?

    Your argument boils down to the concept that only events contemporaneous to a given event are relevant to its cause.

    I am present to understand it because of events between my mother and father in bed several decades ago. Therefore an event far older than the CRA is the sole reason for my existence to listen to your inanity that events separated by decades have no relationship.

    Things can have consequences far down the road. Democrats like to laugh them off as “good intentions” gone awry. I like to look at it more as criminal negligence.

    Is the CRA entirely to blame for this? Of course not. But it is a major factor. And your refusal to face that fact and look simply to blame Republicans and lurch into pedantic history lessons on events others have had to inform you of is ridiculous.

    >Democrats are at fault yes….for being spineless weenies and letting Republicans get away with near ruin of the nation. Okay?

    Yes Dean, we know,

    Democrats always good, Republicans always bad.

    Have you ever read Animal Farm Dean? I really honestly think you don’t understand the “Napoleon is always right” reference.

    You are a good and loyal party member Dean, Ill give you that. However I do wonder if the black pajama wardrobe gets a little old. I frankly think its beginning to cause you to project yourself onto others a wee bit. Your assertion that I don’t ascribe blame to Bush or Republicans would clearly indicate that. I would strongly recommend a re-read of Animal Farm if it has been a while.

    • Chris Lowe

      Rupert, this is weak. Dean has made substantive arguments to which you have not responded. If the CRA was in force in 1997 and 2003, but the rate of mortgage denial halved, how exactly did the CRA “force” lenders to change those judgments? Was Clinton enforcement different from 1998-2000? Are we to believe that Bush admin forced lenders to make loans against their will?

      Let us imagine that somehow Congress had passed a law tightening the requirements. Would Bush have signed it? Or would it have been vetoed as unwarranted regulation?

      Is Dean wrong that Bush further loosened the requirements, creating an unregulated lending sector? Is he wrong in the proportion of bad loans that derive from that sector? Since those lenders were not under CRA, how could it have “forced” the loans on the lenders?

      Did the CRA “force” the creation of the speculative financial instruments that distributed the bad loans throughout the financial investment sector meaning that the risk was not carried by those who made the loans, and distributed in forms that made the risk hard to isolate and the actual financial value and status of financial institutions’ assets hard to determine?

      Did government regulation for the ratings agencies to pump up the bubble out of conflicts of interest and knee-jerk ideology that the market always knows best?

      Basic market theory says that markets function relatively better when participants have full and equal information. The speculative instruments and the lies of the ratings agencies, both unforced private sector actions, obscured and continue to obscure information, choices made in pursuit of profits = the profit motive per se does not always lead to the best result.

      Rules which allow such obscurantism, i.e. insufficiently regulatory rules, are not “optimal” in Hayekian or any other terms.

      The issue isn’t more or less regulation, it’s right regulation.

      P.S. _The Road to Surfdom_? Kowabunga! Oops. Wipeout!

      • eagle eye

        Surfdom? LOL! I was reading the definitive updated edition in Hayek’s Collected Works. Was the message I got from this dignified gentleman that he feared we would all turn into Beach Boys? I guess so!

      • Rupert in Springfield

        >Is Dean wrong that Bush further loosened the requirements, creating an unregulated lending sector?

        Not in the least. I have mentioned repeatedly, and blamed repeatedly, Bush for lowering the standards. I have even cited my own mortgage as an example of this, and have done so endlessly. If you are going to argue Deans side, remember Dean rule one: Dean feigns poor reading ability so that he can set up straw man arguments, such as I ascribe no blame to Bush. Dean makes the error that is someone comes from an ideological perspective, they come from a partisan one as well.

        The fact that Dean insists on saying that I don’t blame Bush and the fact that Dean will always excuse Democrats is why I don’t treat his argument as one of any substance. It isn’t. Dean is simply a good soldier for his party, willing to excuse everything it does and lay blame at the Republicans doorstep no matter what the issue.

        Likewise, Dean will never admit forthrightly that Democrats were wrong. On any issue, ever. If he ever admits any fault with Democrats, he will do so in a back handed manner ascribing some minor portion of the problem to democrats, but the major fault with Republicans. Dean once argued with me that the word “several” meant the same thing as “all” and to this day insists on it. Therefore arguing things with him on a point by point basis is a fools errand.

        If you want me to say Bush had blame for this, fine, I do so, Bush had a lot of blame. Bush should not have lowered CRA standards further, and Bush and the rest of the Republicans frankly should have sought repeal of this measure outright. I’ve said this before, now I have said it again. I have no idea why it is the federal governments business to be involved in home loans. Since Republicans made no effort to end the practice, and instead exacerbated an already inane concept they are to blame as well.

        There, I have said it again for about the hundredth time.

        As far as the CRA and the Democrats culpability, Dean refuses to address that and instead seeks to lecture me on the history of an act he had no knowledge of and entirely dismissed prior to my informing him of its existence. To argue it is not a factor, when Clinton himself, as well as Robert Reich have owned up to culpability, is really a little foolish. Basically I argue an ideology, Dean argues a party. I am fully willing to say when Republicans are wrong, I have no love of the Republican party and regularly refer to the as “the stupid party”. Dean cant comprehend that as he is a party loyalist hence his bizarre insistence that I have never ascribed blame to Bush or the Republicans on this or a myriad of other issues. His simplified version, that if the Democrats are to be ascribed any blame at all it is in not watching over those evil Republicans is simply partisan.

      • Davis

        Let’s get something straight: Dean’s basic premise, and thus the basic error, is that the current crisis was due to DE-regulation. Nothing could be further from the truth. As Rupert correctly points out, to the extent that failure by debtors to responsibly make payments on their mortgages lies at the heart of the current crisis in confidence of our financial system, all blame must be directed at CRA. Chris Lowe simply compounds the error by improper use of terms:

        >If the CRA was in force in 1997 and 2003, but the rate of mortgage denial halved, how exactly did the CRA “force” lenders to change those judgments?< Here is how CRA forced lenders to do its will: From Ralph Reiland, "The Pittsburgh Tribune-Review" 09/29/08 -- "...the CRA decreed that federal banking regulators would consider how well banks were doing in meeting the goal of more multiculturalism in loaning when considering requests by banks to open new branches or to merge. "A good "CRA rating" was earned by way of increasing loans in poor neighborhoods. Conversely, lenders with low ratings could be fined. "The Fed, for instance, warned banks that failure to comply with government guidelines regarding the delivery of 'equal credit' could subject them to 'civil liability for actual or punitive damages in individual or class actions, with liability for punitive damages being as much as $10,000 in individual actions and the lesser of $500,000 or 1 percent of the creditor's net worth in class actions.'" > Was Clinton enforcement different from 1998-2000?< Yes. He made it much more difficult to gain that coveted "good CRA rating" thus pushing lenders to ever greater lengths to comply with this stupid regulation. > Are we to believe that Bush admin forced lenders to make loans against their will?< He didn't have to since all the necessary sticks were already in place. All he had to do was encourage people to "go to the mall" following the 9/11 attacks that further weakened our economy suffering from the Clinton recession (otherwise known as the dot-com bust) of 1999-2002. >Is Dean wrong that Bush further loosened the requirements, creating an unregulated lending sector?

        Yes, he is. Since this question presumes that by “loosened the requirements” means deregulation, Rupert is also wrong in his response to his question. Look at the context: CRA forces lenders to eliminate “discriminatory” judgments like credit-worthiness and ability to repay the loan, and ratio of debt to income, etc. when the request came from certain low-income individuals living in particular areas of town. Any further loosening of requirements by lenders in response to CRA would mean stricter enforcement of the regulation rather than the opposite. Rupert is absolutely correct, however, in his assertion that Bush and Republicans should have sought the repeal of CRA

        >Did the CRA “force” the creation of the speculative financial instruments that distributed the bad loans throughout the financial investment sector meaning that the risk was not carried by those who made the loans…?< Yes. Although banks and other lenders commonly sell most of the mortgages they create to investors in order to maintain sufficient cash for liquidity (due to other regulations), because CRA forced lenders to make these riskier loans in the first place, and knowing that investors would demand sharp and unacceptable discounts due to the higher risk, these lenders had to find ways to make them acceptable. Any "lies" from the rating agencies were plausible as long as the boom continued and the value of the asset could be pegged to the expected value at maturity. That reminds me, Sarbanes-Oxley also needs to be repealed.

        • dean

          Davis…I don’t know enough about economics and finance to absolutely conclude that deregulation was the main cause of the banking debacle. I b elieve it was a contributing cause, but I’m not sure of the extent. I think that the main cause, lets say 75% of it, was artificially low interest rates combined with lax lending practices and new financial gimmicks (largely from the unregulated investment banks) that bundled good and bad loans together and sold them on AAA bond ratings. I don’t know the extent to which existing or past (i.e. Glass-Steigal) regulations should or could have prevented this, but the repeal of G-S did happen a pretty short time before the bubble began, we know that much.

          What I am arguing, and what Rupert keeps avoiding, is that the actual factual evidence does NOT point at the CRA. I base this conclusion on:

          1: the length of time CRA existed prior to the housing bubble (notwithstanding Rupert’s touching personal story)
          2: the percent of loan turndowns during Clinton versus Bush
          3: Bush weakened, he did not strengthen CRA.
          4: the coincidence of the bubble with Republican led politics and economic leadership suggests democratic policies and policy makers had no more than a minor role.

          CRA, like I have said, applied only to commercial banks with insured deposits. It did not apply to investment banks, and last I looked they are the ones out of business altogether. It did not apply to mortgage brokers, who initiated the bulk of the questionable loans (including my own home refinance). Statistically comercial banks created less than 25% of the subprime loans, and they still stand.

          Rupert…you say Bush “lowered” standards. What standards are you talking about? CRA? My undrstanding is that what he did was lessen CRA requirements by exempting bank subsidiaries. Again….the extreme decrease in loan turndowns during the bubble cannot reasonably be connected to CRA. Its a red herring intended to distract from real causes. Nothing more.

          Party loyalist? Intesting. I have never attended a Democratic party function in my life. I have contributed a total of about $200 over my lifetime to Democratic candidates. If I am what passes as a “loyalist,” they are in big trouble.

          For the record, I consider myself to be an independent minded, liberal leaning person who is registered as a Democrat and tends to vote democrat because there are few Republicans around any more worth voting for. Most have been captured by ideologues, and I’m not interested in anyone who parks their brain at the door running my city, state, or nation. In the past I supported Hatfield, would have supported McCall, and might have voted for the 2000 version of McCain if he had run against Gore. I say might because it would have depended on how he ran in the general election.

          As for Bush, the stock market and Nasdaq are both officially below where they were when he took office. Unemployment is 2 ticks higher, and inflation is also higher. The dollar has lost about 40% against the Euro. Oil prices are something like 4 or 5 times higher than they were. And then there is the debt he has piled on.

          I can’t imagine anyone defending this guy or his policies any longer. He is making Jimmy Carter look like an economic genius. By the way, I did not vote for Carter for re-election. Some loyalist I am.

  • Anonymous

    “For the record, I consider myself to be an independent minded, liberal leaning person who is registered as a Democrat and tends to vote democrat because there are few Republicans around any more worth voting for.”

    Funny. That’s what every lefty loon says.

    They’re not nuts. They’re independent.

  • Rupert in Springfield

    Dean, the basic problem with your argument is you seem insistent that if two events are not correlated in time, then they have no relationship.

    Obviously that is pretty ridiculous, especially with economic matters, but if you want to insist on it, fine.

    Your argument, “It happened on Bush’s watch” so then therefore he is responsible, is pretty thin. This is especially so when we have the people who lowered the CRA standards, including Clinton himself, accepting responsibility. Good luck with your take on things though, as I have said before, you are a true party loyalist if not a great debater.

    A word of advice, you will almost always work yourself into a corner when you start with the premise that the Democrats can do no wrong and the Republicans can do no right.

    • dean

      Oh really? A law that requires federally insured lenders to provide loans in the same disadvantaged communities they take deposits from goes into effect in the 1970s, and what….sits there like a time bomb until it blows up in 2006? It took that long? Why? What is your explanation? Why would the CRA rules offer a better explanation than all the events that happend between say the late 90s and the meltdown? Particularly in light of the numbers I showed you that loan turndowns were twice as high under Clinton as they were under Bush? Its not just the long time lag, its a lot of other things that do not add up Rupert. And if you were the least bit objective and less defensive I think you would see that.

      Bush is *politically responsible* for what happens to the national economy during his presidency. That and the Iraq war are why he is now the least popular president in modern history. When people (including you) point to the great economic growth we had under Ronald Reagan, what do they attribute it to? Jimmy Carter policies? I don’t think so. And when they talk about the terrible economy under Carter, do they blame Nixon or Ford? No so much, even though the inflationary seeds were arguably planted then.

      Stuff happens and Presidents respond. A lot of money rushed into residential real estate during Bush’s presidency, the loan vehicles used got unhinged from oversight, and when interest rates were raised to dampen inflation the house of cards came down. Bush was president, and the Republican party ran congress during the entire bubble….start to finish. They did nothing, or at least nothing effective, to put a lid on this. When you try and finger Barney Frank, who was effectively out of power during that period, it just does not hold any water. It has nothing to do with partisanship on my end. I don’t care about Barney Frank one way or another.

      Take your own advice and get out of the corner you have painted yourself into on this. You lack the empirical data to support your case that the CRA was anything more than a very minor part of this. And you lack anything beyond anecdote with respect to Barney Frank’s culpability.

  • Sweet Loveable Ole Barn

    If every person diligently practiced active ethics, along with being scrupulously honest, which includes not trying to take advantage of another person, “regulation” would not be necessary. However, we do not live in such a world. History has taught us that unregulated capitalism is fascism. Globalization has internationalized the marketplace which previously existed on a flat plane. This new dimension requires a change in the regulations to govern the marketplace. Unfortunately greed and avarice are common place.

    The members of the Senate and House are not expert enough to recognize all of the nuances of “deregulation.” The corporate world has spent millions of dollars looking for loopholes and millions more hiring lobbyists to exploit those loopholes with our elected representatives. The only way that the common man or woman can be assured that their representatives are beyond reproach is to have public financing only of federal elections. Since political speech is considered free speech under the First Amendment of the Constitution, this is currently not possible. Therefore, I suggest that we remove corporate personhood.

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