Comments on: Why finance can’t be fixed with better regulation A slice of lime in the soda Sun, 26 Oct 2014 19:05:02 +0000 hourly 1 By: OneOfTheSheep Wed, 25 Jul 2012 22:46:40 +0000 @KenG_CA,

Good points I would carry a bit further even if “off-topic”.

Would it not be equally true that “If politicians and bureaucrats believe themselves obligated only to grow government and agencies, then they will make decisions to achieve that result, without thought of the long term interests of “we, the people”? That would explain a lot of what we see today!

By: OneOfTheSheep Wed, 25 Jul 2012 22:40:54 +0000 @fresnodan,

REALLY well put!

By: FifthDecade Tue, 24 Jul 2012 14:10:25 +0000 @fresnodan Best comment on this topic for ages! lol! And it’s so true as well…

By: fresnodan Tue, 24 Jul 2012 09:37:05 +0000 Once you allow someone in a casino, and you say that you can’t possibly allow their wife and children to starve, and that the casino industry is the lifeblood of the economy, the gambler rationally believes the best course of action is to bet, bet, bet, …and bet some more. Soon gamlbers join in, and when they can’t reach the roulette table, they start betting on who at the roulette table will win.

After the gamblers go bankrupt, society than decides the gamblers MUST be GIVEN more money, because after all, their job is gambling, and their wives and children can’t starve, and oh by the way, the casino workers need jobs too! Casinos now make up 17% of the economy.

And just by coincidence (really!) when society is managing the gamblers, and 90% of campaign contributions comes from gamblers, and everyone says what a maestro government is for running an economy based on gambling, and all the winnings are due to sheer brilliance – well, the losses are something that NO ONE COULD HAVE FORSEEN.

How long before people realize that gambling makes one poorer and not richer? That someone has to pay for the bets not won???

By: Matthew_Saroff Mon, 23 Jul 2012 23:26:36 +0000 The problem is that you don’t need smart regulation, you need DUMB regulation.

The genius of Glass Steagal, for exampel was that was straightforward: You take customer money, you do not play the market.

It worked for over 50 years until Alan Greenspan eviscerated it, and Bill Clinton and Phil Gramm then repealed it.

We need dumber regulation that does not accomodate “market innovations”.

By: usagadfly Mon, 23 Jul 2012 19:20:11 +0000 One straightforward way to stop all the shenanigans going on in the financial world is to stop interfering with the market, with the mechanism if risk, profit and loss.

The best method is to dramatically curtail the use of public treasury or any and all other government “insurance” for any and all institutions other than small scale consumer depository institutions. Let every one else fail and their depositors and investors reap the whirlwind. If enough billionaires get cleaned out by a bunch of fraudster “bankers” then there will be a lot less money flooding speculative, manipulative schemes. There will be many fewer Bain Capital type organizations using public money subsidies to harm the country. Just let them fail. Don’t give job reducers subsidies. If they need a subsidy, let them not do it.

This whole mess has been caused by crooked politicians using tax money to pay off their henchmen in financial institutions and then claiming to not know where the money went or who took it. It is purely and simply corruption and fraud at the highest levels of Government and the Courts.

By: realist50 Mon, 23 Jul 2012 19:02:36 +0000 From Surowiecki – “LIBOR, for instance, should be revamped so that it reflects actual market rates, not self-serving guesses”. A line line like this one makes it tough to take seriously anything that Surowiecki says about the details of this issue. If he wants to make broader points about trust and regulation, fine.

The problem, however, is that the goal of obtaining LIBOR in many currencies for several maturities – and obtaining submissions from a significant number of banks for each of them – is fundamentally in tension with using actual market prices for borrowing. There’s certainly more than one way to skin the cat, and there are serious proposals for various combinations of using market rates as a check on individual submissions, expanding the panel of banks, or requiring banks to provide rates at which they would lend to particular other banks (and other ideas that I’m sure I’ve failed to mention). Someone who reads The New Yorker and doesn’t read finance-focused publications or blogs is going to be misled about how easy it is to fix this problem, however.

By: FifthDecade Mon, 23 Jul 2012 18:11:32 +0000 Too big to fail banks are only too big to fail when their failure impacts the wider economy; sever that linkage and it doesn’t matter how big they get.

So, how do they affect the wider economy? In the UK (and much of Europe) it’s because the casino is betting the salaries and risking the mortgages of ordinary folks and if a bet goes significantly wrong, those deposits and mortgages are at risk. Let them play with their own money for a change, and ‘our’ money will be safer. Then banks can get as big as they like or deserve to be, and if they fail, being big won’t be a defense. If it’s possible for them to fail, and harder for them to raise capital, maybe they’ll return to the days of needing to be trustworthy to earn our trust. If they do well, they profit; if they do badly, they fail – and are allowed to. Only then do you have true capitalism, not this Corporatist Neo-Conservative greed which is dressed up as the only alternative to ‘socialism’.

By: Chris08 Mon, 23 Jul 2012 16:56:05 +0000 There was a recent piece arguing that “too big to fail” banks should be nationalized. And then let the smaller ones take care of themselves. Might be worth a try, if possible. (I doubt the GOP would permit).

By: KenG_CA Mon, 23 Jul 2012 16:33:18 +0000 “Most asset managers want to do a good job”. Sure, everybody in the world wants to do a good job. But asset managers don’t really care if they do or not, as they get paid (and paid well) even if they don’t do a good job, as they get paid a percentage of assets they manage, not how much those assets increase or decrease in value. The same goes for corporate executives, whose compensation often lacks correlation with their performance, and rather is more tied to their job title (which they influence via their seats on other company boards).

“..the entire financial-services industry, he says, needs to be restructured so as to create the kind of institutions which thrive on increased trust, rather than on maximized arbitrage of anything from news to interest rates to regulations.”

It’s not just the financial services industry that has this problem, it’s virtually every large publicly traded or private equity-owned corporation that believe its sole purpose is to make money. If the management believes it is obligated only to grow profits, then it will make decisions to achieve that result, without thought of customers or employees interests (or sometimes, the long term interest of shareholders – see banks circa 2003-5). Companies are founded to provide a service or product; the managers that eventually take them over are no more than mercenaries, who view their job as to squeeze as much profit out of that virtual machine. People work their way up to the top levels of the corporate world, usually employing political tactics to win promotions, for the goal of increasing their compensation. They are judged on how much money the company makes, not whether the customers are happy. The financial services industry is no more or less immune to that drug than other industry.

While the mindset of executives in the financial industry is definitely a problem, you’re giving up too easily if you say regulation cannot help. And I don’t even think we need new regulations, as we already have the infrastructure in place to protect society from the self interest if the financial industry executives. Think of the power of insurance companies. You want to put a diving board in your swimming pool? A trampoline where small children will play? Go find someone to insure you.

We have an insurance company for banks. It’s called the FDIC. Every bank that wants to take retail deposits effectively has to offer insurance provided by the FDIC. The FDIC can prevent banks from doing stupid things. They don’t need new regulations, they can just deny coverage to banks who start gambling with depositors money.

And banks themselves have power over other businesses. They can deny loans if they don’t like the way the business is operated. Well, there is bank for banks – it’s called the Federal Reserve. They loan money to banks every night. What’s to stop them from putting conditions on those overnight loans?