3 Reasons The New Financial Regs Won’t Fix Anything
The financial reform bill currently working its way toward President Barack Obama’s desk for signing is being touted as the biggest overhaul of the banking and investment sectors since the Great Depression. But the new regs won’t be any more effective than the ones they replace in fixing anything or preventing the next major panic for at least three reasons. 1. New Watchdog, Old Tricks They create a new watchdog consumer agency designed to protect consumers from their own supposed stupidity. You’ll now be facing fewer choices when it comes to getting credit cards, loans, and other basic financial transactions. 2. Never Too Big To Fail They replace “Too Big to Fail” with… “Too Big to Fail.” One of the reasons why major financial institutions played Russian Roulette with the economy was because they were betting they would get bailed out. Which is precisely what happened. The new rules codify the idea that the government will make sure certain institutions can never fail. And if you think the big boys won’t game that system, then you don’t understand how well Citigroup, Goldman Sachs, et al have come through the current meltdown. 3. Housing Bubble Trouble The financial crisis was set into motion by government policies that encouraged people to buy homes they couldn’t afford at prices that were unsustainable. Between desperate attempts to keep people in houses and to keep interest rates below an effective rate of zero, the government continues to pour more money down the …
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@TheAtheistAllegiance I’d point out that the total number of regulations has increased, but I digress.
I already pointed out that Prime mortgages made up a larger number of the total defaults early into the crisis before total subprimed defaults had even hit their 2002-2003 levels that were actually higher. I could just repeat myself, but I won’t.
@TheAtheistAllegiance The cause and effect pattern doesn’t follow your narrative. Sorry.
@tkwelge
Sub-prime loans made up approximately 20% of the total mortgage market, yet accounted for nearly half of all foreclosures, which is incriminating. Because ARM’s are based on interest rates – which are currently very low – ARM delinquencies should be decreasing, but they’re not. This points to ARM’s being the victims of economic spillover, but not the cause thereof.
It’s not the ARM’s, but rather the risk of the borrower that has a more significant effect on the chance of default.
@tkwelge
When you point out that prime mortgages made up a larger outstanding number of foreclosures, you’re assuming that they had equal market share with sub-prime loans. The fact is, sub-prime loans only made up 20% of the market.
You shouldn’t be repeating yourself because you would be repeating a miscalculation on your part.
@TheAtheistAllegiance Arm defaults aren’t based on the interest rate level, but the ability of the owners to flip their houses before any adjustments. Many ARMs were set up with low initial payments, as a short term trade, but since the demand fell out of the market, people with ARMs have nowhere to go but default.
@TheAtheistAllegiance It doesn’t make a difference what proportion of the market subprime was. You’re confusing the issue. Proportionality doesn’t play a role here. The fact of the matter is that larger number of prime mortgages were defaulting when subprime mortgages were defaulting. I’m well aware that subprime is a smaller part of the market, but in this issue, it is the actual number of defaults that matter,not defaults as a portion of the subprime and prime markets as if they weren’t…
@tkwelge …. in the same market. You’re also ignoring the fact that subprime defaults were higher in 2002 and 2003 than they were in the beginning of the meltdown. The vast majority of defaults are ARM’s whether prime or subprime.
Fight Terrorism: Shoot a Banker!!
@TheAtheistAllegiance Coolidge had nothing to do with the Great Depression. The central planners at the Federal Reserve sat on the sidelines when the economy desperately needed an infusion of liquidity to keep it going. The Great Depression drug on because of central planning statist nonsense like the National Recovery Act. Once FDR’s body was cold, the investing climate in America improved for investors. The economy recovered. “Unemplyment” improved, the draft saw to that.
@tkwelge
The proportion matters because it shows what the underlying cause of the crisis was. If ARM’s were the cause instead of sub-prime loans, prime loans would make up 80% of delinquency. ARM’s were caught in the tsunami created by the sub-prime market that imploded.
Also, ARM’s are definitely based on interest rates. When the Fed started jacking up interest rates, every sub-prime borrower with an ARM defaulted, and the ensuing recession caused the prime borrowers to default as well.
@tkwelge
Current sub-prime default rates easily surpassed those of the 2001 peak after 9/11.
@order9066
Actually, the Fed made things worse after the crash by contracting the money supply, which was the opposite of what should have been done.
It wasn’t until New Deal policies were enacted that the economy recovered. Unemployment rates were drastically slashed well before the war had began, and investment and growth improved greatly under FDR’s policies, which lasted well through the 50′s and 60′s.
it’s unconstitutional too..
everything going on in washington is not meant to fix or prevent, its meant to take over and destroy whats left. come on people, didnt you get it yet?
The message is simple and the reasons are clear, Impeach Oblahblah !
@TheAtheistAllegiance You’re failing to acknowledge the fact that private sector employment and public sector employment growth was incredibly lopsided throughout the implementation of such policies as the New Deal. Growth of ONE kind of employment improved greatly under FDR’s policies and lasts still today. Unemployment doesn’t actually become effectively reduced if its cut through implementation of public projects. I.e. the census today.
@TheAtheistAllegiance You should read the “Great Myths of The Great Depression by Lawrenece Reed. “Freed from the worst of the New Deal, the economy showed signs of life. Unemployment dropped to 18 percent in 1935, 14 percent in 1936 and even lower in 1937. But by 1938, it was back up to nearly 20 percent as the economy slumped again.”
@TheAtheistAllegiance lol what history are you talking about? Actually unemployment was at 17% in 1938 and just started dipping down after we started massively selling weapon and food supplies to Europe for “their” oncoming war. Unemployment was at 24% when FDR took over. A 7% drop in 5 years is hardly a recovery, when these keynesian government intervention policies were inacted in order to lower it below 10 percent by 1937. WW2 brought us out, New deal dug us deeper
@tivla
and what does your teacher say now? did he change his mind?
@HatemongerNTBSF1129
FDR’s policies did benefit the private sector in job creation.
However, it doesn’t really matter because public employment programs rejuvenate the economy in the same manner that private employment does. Employed people have money to spend, businesses gain revenue and ramp up production, hire more people to meet the rise in demand, and ultimately growth in GDP ensues, along with a stabilized and expanding economy.
@order9066
The economy suffered a double-dip recession because of the Conservative Coalition in the House and Senate, which was successful in removing many of FDR’s New Deal policies. The cause of the slump was a premature slash in spending when the economy wasn’t ready for it.
@ltkhokie1
You contradict yourself in stating that one Keynesian policy is effective, but another isn’t when they are one in the same. War has the same effect as New Deal programs, it is just different in method. It is massive government expenditure that employs millions and rejuvenates an abysmal demand.
Not only are your numbers wrong, but you ironically just asserted that war helped the economy while Keynesian economics didn’t, when in fact, war is a Keynesian policy on steroids.
@triforcelink. Of course not. The bailout was supposed to maintain a highly unsustainable credit system. Most American debt are virtually useless with a high concentration in the housing market. The irony is that most of these properties are located in poorly serviced suburbs. Do remember, Americans are getting older, and these assets are becoming riskier.
US, especially, has seen the largest misallocation of post-war surplus in the history of humankind. It was put into failed instruments.
@rsobies
“Never underestimate the difficulty of changing false beliefs by facts”- Henry Rosovsky.
We didn’t discuss it at all afterward as it was a final presentation. I hardly think she changed her mind, but I was sure to be thorough with regard to what really happened. The most I can say was that she seemed to make thoughtful expressions and did indicate that she had learned something. A couple classmates seemed interested, too, so I felt good about it.