ray

One reason our regulatory environment gets more complicated is that people call for more regulation instead of better regulation.

Its more complicated because people are creative and find ways to take advantage of things for short term gain. Enormous short term gain.
Here's the thing, every time regulations in the banking sector have been loosned the banks have shot themselves in the foot. Remember the Savings and Loan fiasco? But somehow, they were to be trusted with looser over sight and regulations this time?

Since Reagan, the established truth is that regulation is bad. And government can't do regulation well. That was the central thesis of this whole disaster. That somehow large financial corporations could self govern because, after all, they wouldn't do anything ilogical and take too many risks.. (You know like illogical riisks taken by mining companies or oil drillers either...) People aren't good with evaluating risk when they have a huge reward possible. Thats the whole reason Vegas exists...
If you look around the world the banking sectors in countries that did not follow the American trend to loosening regulation and reporting regulations, and which continued with stringent capital retraints survived the crisis quite well.
In the US it wasn't govenment that forced banks or the private capital organizations like Lehman to make loans and investments 40 times greater than their capital reserves. It was government that loosened the regulations that allowed them to do so. But the politiicans didn't come up with this idea all on their own. The financiers who could see big money if they could only get the regulations loosened...lobbied hard for years.. Today, most right wing politicians blithely go on about further loosening banking and corporate regulations. Its like the meltdownm and Enron and the S&L never happened... Cognotive dissonance...

You asked about the ability of the SEC to actually police their area? Here's from a speech by the head of the SEC in 2009... Notice that his budgets were being cut at a time when the sector was exploding with new corporate entities , new financial isntruments and many new technological advances. (I use that term loosely, as many of those advancements made policing of CDS's impossible)
We had a discussion on the old board about Fannie and Freddie's involvement in this by the way. I learned then that F&F entered the area of sub and off prime mortages 3 years after it started, and exited after 14 months. They were responsible for only a small part (I remember 14%) of the poorly qualified mortgages. And yes, they were pressured into the business by Washington politicians, because it was felt that lowering mortgage qualifications could increase home ownership significantly. Didn't work out. But even without Fannie and Freddie, there was an abundance of bad paper out there floating around in CDS's... Without their involvment it would still have happened.
I note that recently Mitt suggested that everyone who's mortgage is under water should simply default and turn their homes over to the banks... Do you know that in many cases the actual paper has been traded so often that the final owner of the paper isn't always known? I wonder if he's figured out how the markets would react to millions of properties suddenly defaulting?

We have a staff of 3,700 individuals responsible for overseeing more than 35,000 entities, and areas as diverse as accounting, market structure, corporate governance, mutual fund and intermediary regulation to name just a few.
And, our examination staff — tasked with inspecting 11,000 investment advisory firms and 8,000 mutual funds — numbers less than 500. As a result, our investor on Main Street has about a 10% chance of walking into an investment adviser who has been inspected by the SEC in the previous year.What's more, as the financial world and product complexity were growing exponentially, our budget was shrinking. Since 2005, the SEC staff size has dropped and funding for discretionary technology has decreased by 50%.

source: http://www.sec.gov/news/speech/2009/spch120309mls.htm
Note that the 10% "inspection" tally? Wonder what kind of man power, computer power and sophistication it would have taken to unravel the convoluted mess of CDS from Goldman Sachs and Lehman Bros? The whole point was that the instrumnents were largely unfathomable. Except by their architects. Which is why Goldman Sachs made billions betting against the CSDs they created...After taking a big commission packaging and selling them to their own clients in the first place
Why aren't those guys in jail Ray? In any other business that would be fraudulent representation .
But somehow they survive. I'm thinking politcal donations have a lot to do with it.

The spinning of the truth, the deflection to Fannie and Freddie and to govenrment is very important to their continued benefit. That political ideologues give into that nonsense is expected. But it does a disservice to real capitalists who build real companies and produce real goods and services that benefit society. Its time to divide the radical dangerous capitalists from real business men. An intelligent tax on the transfer of all shares and financial instruments would be a first step. It would immediately slow down trades made for slender margins, and put them under the scope of the IRS...
Would it slow commerce? Only if you think trading CSDs every 30 seconds is real commerce.

people hearing without listening ...

Again, I agree with RJ.

Indeed, but I see the irony :-)

Yeah, there is plenty of irony to go around.

Ricky:

you asked about the ability of the SEC to actually police their area? Here's from a speech by the head of the SEC in 2009... Notice that his budgets were being cut

It's not unusual for department heads to moan about their budgets being cut. I did a few Google searches to find out the SEC budget over the years, and then stopped because of my short attention span. I could not find it on the SEC web site which is interesting. They certainly had enough staff to follow tips that Madoff was running a billion dollar Ponzi scheme, but did not.

I was just asking for objective data on their actual budget before opining on whether they are over-funded or under-funded. In response, you don't need to rehash all of the mistakes of crony capitalism for the last 20 years as if I am personally responsible.

Ricky, I've called for better regulation instead of more regulation, which you seem to have vehemently disagreed with. Is it your position that we should have more and worse regulation, or am I not listening?

Ray Jay, like you, I looked up the SEC budget and saw that it went up over the years. But that doesn't mean that they had the capacity to keep up with a rapidly growing, ever-more complicated and smart sector. Or that 'resources' means just money. It doesn't, it includes material, legal powers, skilled manpower, accessible data etc etc. But Ricky's point is that they did seem to believe themselves that they were not able to apply resources across the board.

And on the wikipedia page for ChristopherCox:

On September 26, 2008, Cox ended the 2004 program for voluntary regulation of investment bank holding companies, begun under SEC Chairman William Donaldson and then-Director of Market Regulation (later SEC Commissioner) Annette Nazareth. The program "was fundamentally flawed from the beginning, because investment banks could opt in or out of supervision voluntarily" Cox said.[95] A critical report by the SEC inspector general that evaluated the program in light of the Bear Stearns near-failure in March 2008 found that while "Bear Stearns was compliant with the capital and liquidity requirements" at the time of its acquisition, "its collapse raises serious questions about the adequacy of these requirements." However, according to the Inspector General, his report "did not include a determination of the cause of Bear Stearns' collapse" or determine "whether any of these issues directly contributed to Bear Stearns' collapse." On that subject, the report stated, "we have no evidence linking these significant deficiencies with the cause of Bear Stearns' collapse."[96][97] Cox criticized the oversight program on the ground that because of its voluntary nature and the SEC's limited statutory authority, the agency could not force changes in the hundreds of unregulated subsidiaries of large investment banks such as Goldman Sachs, Morgan Stanley, Merrill Lynch, Lehman Brothers and Bear Stearns as bank regulators could do with bank holding companies.In testimony before Congress on several occasions in 2008, he asked for statutory authority to regulate investment bank holding companies.

there are several point being made. Firstly that rather than mandatory regulation, there was a programme of voluntary regulation. Which is like asking the foxes not to break into the henhouse as long as the door is left open and the farmer walks away. Secondly that the legal powers to regulate didn't apply to subsidiaries, and some of these were where the problems lay. Thirdly that the regulations which were in place did not seem to be strong enough.

Now, to your point about 'more' vs 'better'. I think it doesn't take a genius to work out that 'better' is subjective, whereas when we see a gap in regulation that then coincides with a problem area (CDS instruments, subsidiaries of banking groups etc), it's clear that 'some' regulation is likely to be better than 'none', implying we need 'more'. But still there's the vexed question of what they should be (because it's true that regulation can makes things worse or just push a problem around or create a whole new set of issues).

But 'better'? Who gets to decide what is 'better' regulation. Let's look at an analogy. Today over here it was drizzly, with gusty winds and a miserable grey day. So, let's say that we all agree that tomorrow we'd like the weather to be 'better'. But in what way would it be better?

I may want it to be less cloudy, dry and still, so that I don't get wet or cold, and the view from my window is nice and cheery. But a farmer may want rain, because it's been a dry year and he needs water for his crops. A sailor may want solid wind from a particular direction to make a sailing journey easier. A kid might want snow so he gets a day off.

So, we can all say that we want better regulations. But without any idea of what we mean by better (simpler? more far reaching? with fewer loopholes? with a more effective set of sanctions? less so as to allow the market to do what it will?) it's not going to get very far.

So, sign me up for 'better', for some value of better. But don't assume that we mean the same thing by it. I don't assume that 'more' is 'better', but I do think that it's been noticeable that areas with little to no regulation often end up causing problems. Sure, areas with huge amounts can get clogged up and distorted.

But again, we need to look at how regulations accrete over time to understand how they got where we are. Simple rules are actually easy to get around. There are marginal cases that become unfair, and so there is fudging. Special interests lobby for various amendments. Some prove to be hard to actually enforce and need to be changed. Every iteration makes it harder to go back and simplify.

And, crucially, the words of regulations are only one part of the story. You need the regulators to play their part as well. Do you really think it makes a hill of beans of difference what the rules were if companies were able to hide away activities of subsidiaries and also to choose whether or not to be regulated at holding company level?

ray

Ricky, I've called for better regulation instead of more regulation, which you seem to have vehemently disagreed with. Is it your position that we should have more and worse regulation, or am I not listening

There were regulations in place that worked just fine. They WERE better. For instance rules on capitlization of financial institutions. Glass Stegall worked just fine. The barriers put up that didn't allow fiancial institutions to Mix roles..

What I'm raging about is the implication that somehow regulations failed. Regulatuions were removed ...then the financial systems failed.It isn't a question of better regulations. Its returning to the regualtions that worked fine for decades. (Same with the S&L bailout). Whats wrong about bringing up "better regulations" is that its a distraction from the fact that regulations that worked were in place. And thats what the whole cloud of obfuscation is about... Distracting, deflecting and trying to blunt the charge that Wall Street screwed the world all by itself.

And yes, you can have all the regulations in the world if you defang the regulators so that they don't have the resources or the motivation to acomplish their roles. The SEC regulators failed not just on Madoff, but on the corrupt packaging, selling and then shorting of MBS "instruments".A crime a hundred fold worse than Madoff in scope.
You don't get to let Wall Street off the hook for their behaviour becasue the SEC was not competent though. Thats akin to letting some one off murder charges because the police force was undermanned and incompetent. The crime still was the responsiblity of the people who lobbied to get regulatotions and the regulatory bodies out of their hair in order to be "more productive". And then proceeded to collapse due to stupid insane decision making that obviously they never would have made until the regulations were stripped at their request, The fools didn't realize they were being protected from themselves , and those who aren't outraged and symapthetic to the OWS mob probably don't understand that as tax payers they were screwed too.
If Fannie and Freedie executives getting "bonuses aggrieves one" how cannot the compensation on Wall Street, particularly at firms that were bailed out? As soon as those firm were bailed out they became, just like Fannie and Freddie, publicly owned. Well, their debts were owned by the public. Their profits - nope.

rickyp wrote:ray

Ricky, I've called for better regulation instead of more regulation, which you seem to have vehemently disagreed with. Is it your position that we should have more and worse regulation, or am I not listening

There were regulations in place that worked just fine. They WERE better. For instance rules on capitlization of financial institutions. Glass Stegall worked just fine. The barriers put up that didn't allow fiancial institutions to Mix roles..

This is a pretty good point. Sometimes it is the case that 'more' (or 'restoring what we had') is also 'better'. They are not mutually exclusive.

Of course Ricky doesn't want more and worse. He wants better, but his idea of 'better' is not the same as yours. To move on, we could do with knowing what you mean by 'better', I guess.

danivon wrote:

rickyp wrote:ray

Ricky, I've called for better regulation instead of more regulation, which you seem to have vehemently disagreed with. Is it your position that we should have more and worse regulation, or am I not listening

There were regulations in place that worked just fine. They WERE better. For instance rules on capitlization of financial institutions. Glass Stegall worked just fine. The barriers put up that didn't allow fiancial institutions to Mix roles..

This is a pretty good point. Sometimes it is the case that 'more' (or 'restoring what we had') is also 'better'. They are not mutually exclusive.

Of course Ricky doesn't want more and worse. He wants better, but his idea of 'better' is not the same as yours. To move on, we could do with knowing what you mean by 'better', I guess.

That's fair ... to some extent we are arguing semantics. Most Americans in the business world experience too much regulation. I worked as a tax professional for about 12 years. The IRS promulgates permanent regulations, temporary regulations, and proposed regulations. You have to read them all. They are extensive, very specific, and mandated by Congress. Some temporary regulations last for decades.

In the accounting world, the Europeans (IASB - International Accounting Standards Board) and Americans (FASB) have very different approaches. IASB Accounting is based on principles. FASB is very specific and tries to cover all circumstances. It is very complicated, and doesn't work because you cannot keep up with all circumstances. Business is dynamic. The world is adopting the European approach and leaving the US in the dust which is important because it is a global world.

To say you want more regulation is to be out of sync with at least 50% of the US experience. To say you want better regulation is to say something that 75% of Americans can agree with. We need to start from the beginning and figure out what we need to regulate. Safe food, safe water, safe environment, appropriate business practices, etc. We also need to throw out the hundreds of thousands of pages of regulation that do nothing except take up huge man hours, prevent entrepreneurship, enrich lawyers, and give power to bureaucrats who may or may not do something worthwhile.

If your mantra is more regulation, then you are only worrying about 1 type of error, but you are ignoring the damaging effects of the other type of error which includes needless bureaucracy, unproductive time, and mind numbing complexity that makes us miss the forest for the trees, or even the bark. There needs to be a cost benefit analysis of all regulation; the analysis should be redone periodically.

That's all for now; there's a lot more I can write about when I am fresh.

Ray I beleive in Kaizan. Constant improvement involving everyone, as a business principal.
regulations can always be made better,.
But the discussion about the crash has to start with a reinstatement of the regulations that existed previously. Why? Because they were obviously very effective at preventing idiots from self destructing and taking the ordinary tax payers with them.
I'm very leery whenever anyone starts a discussion about the "causes of the crash" and says "we need Better regulation". Why? Because its a half step away from thinking that somehow the financial industry was failed by govnerment because the regulations weren't good enough.
The fact is that until they were removed, and changed (and there were hundreds which are summarized in the earlier post well enough) the financial community was doing fine and society was doing fine. There wasn't an effort to "improve them" so much as an effort to remove them. A successful effort.
Its too early to talk about improving regulation... the regulations that existed that prevented and worked well have not yet been replaced in their previous forms. Until that happens, things are still worse then they were. . Lets return to a system that worked, then figure out a way to improve that. Taking into acount the wasted decades, since the concept that all regulation is inherently bad began to take hold in your nation.. Wasted, becasue virtually everyone has eitehr gone backwards or at best tread water economically since 1980.... Except for that famous 1%

I don't think the issue is what the appropriate amount of regulation for Wall Street should be. The issue is that Wall Street used its lobbying power to change regulations and inhibit regulation for its own benefit and at the expense of the public interest. In other words, you cannot find the optimal amount of regulation when an industry is so strong they will prevent an appropriate amount of regulation. Wall Street has contributed a lot of money to Obama, and we know they have the Republicans in their back pocket, so there will not be any reform of Wall Street that will bring an appropriate amount of regulation of Wall Street to prevent another financial crisis and to restore some equity to what amount of Amrican's wealth goes to Wall Street as opposed to Main Street. And that is why Occupy Wall Street started as a movement, because there reached a point where a sufficient number of people realized that it was impossible to reform Wall Street within the existing political system.

Government regulations are the great Boogety Man of the Right. Poltiicans use the term without any realization of what they mean, and without any corroboration. Not just in the financial sector but with every area since reagan it been the coomon trope. But is it true?

A little fact checking of the republican Debate last night follows.

RICK PERRY: "Pull back all the regulations. It's the regulatory world that is killing America. ... It doesn't make any difference whether it's the EPA or whether it's the federal banking, the Dodd-Frank or Obamacare, that's what's killing America."
MICHELE BACHMANN: "Our biggest problem right now is our regulatory burden. The biggest regulatory problem we have is Obamacare and Dodd-Frank (financial regulations). I will repeal those bills."
NEWT GINGRICH: "If the Republican House next week would repeal Dodd-Frank and allow us to put pressure on the Senate to repeal Dodd-Frank, you'd see the housing market start to improve overnight."
THE FACTS: It has become an article of faith in the GOP field that regulations are a leading drag on jobs, but Labor Department data show that few companies where large layoffs occur say government regulation was the reason. Just two-tenths of 1 percent of layoffs since Obama took office have been due to government regulation, the data show.
Moreover, there is little evidence that the regulatory burden is any worse now than in the past or that it is costing significant numbers of jobs. Most economists believe there is a simpler explanation: Companies aren't hiring because there isn't enough consumer demand. And economists believe high levels of economic uncertainty are a leading complication for business, arising more from struggles over taxes and spending in Washington than from regulations – an unwelcome quantity, for sure, but a known one.
The National Federation of Independent Business asks its small-business membership each month to name the single most important problem they're facing. Last month, the most common response was "poor sales," cited by 26 percent. Government regulation came in second, at 19 percent.
Bachmann has plenty of company in the GOP field in blaming the regulatory burden of Obama's health care law for economic ills. But the evidence so far is thin; most of the law's provisions don't take effect until 2014.
Indeed, the health care industry has been one of the few reliable sources of hiring during the recession and its aftermath. The industry has added 313,000 jobs in the past year.

source: http://www.huffingtonpost.com/2011/11/10/fact-check-for-gop-debate-mitt-romney_n_1085391.html

And the idea that regulation caused the crash? its obvious that regulations kept idiots from committing financial harikiri... See what the former governor of new Jersey managed to do with his new company in only a matter of months? Leverage it to 400 to 1 and get screwed in the derivatives market...They never learn. And need regulations to save them from themselves.

Ricky, this is what you quoted:

The National Federation of Independent Business asks its small-business membership each month to name the single most important problem they're facing. Last month, the most common response was "poor sales," cited by 26 percent. Government regulation came in second, at 19 percent.

I would think that 19% of small businesses saying that government regulation is their #1 concern would be important. How many said that government regulation is their #2 concern. I don't think you should gloss over that.

Of course sales is the number 1 complaint. Business lives on revenue. But regulation as such a big concern strikes me as an important fact. Facts are stubborn things ...

I would think that 19% of small businesses saying that government regulation is their #1 concern would be important. How many said that government regulation is their #2 concern. I don't think you should gloss over that

Fair. But i'd ask them to illustrate what regulations and how? I beleive there probably are excellent examples where short sighted or overtly beaureacratic regulations are a problem. But how many are reflexively bitching without a concrete answer. Example complaining about health care regulations that don't exist till 2014.
There's a awful lot of generalization and little specification. Asked to name three regulations they'll only come up with two....

I would also point that these are small businesses being polled. They have less ability to deal with government red tape and less political power to influence government regulations than is true with regard to large corporations. I think we are dealing with apple and oranges when we are comparing government regulation of small business as compared to government regulation of Wall Street or the oil companiies, or health care or multi-national companies. We do need to be especially careful with the kinds of regulations that we impose on small businesses, that's for sure