Regular Guys
Presidential candidates Barack Obama and John McCain called for more stringent regulations as a financial crisis deepened on Wall Street.
Maybe it's my memory, but I can't recall the last time we regulated our way out of a recession.
(Since all bad things must come from Bush, Obama adds:
The policies of the last eight years caused "the most serious financial crisis since the Great Depression"...
Would that include Sarbanes-Oxley?)
posted by LAGuy @ 12:25 AM
15 Comments:
Actually, Megan Mcardle (no friend of McCain) slapped Obama pretty hard on this one.
That one must've hurt.
So Sarbanes Oxley is to blame for the failure of investment banks and the sub-prime crisis?
Dial back in when you get back to relaity
Sarbanes-Oxley, no. Financial Services Modernization Act, yes. The former was signed by Bush, the latter by Clinton, for what that's worth.
My point about Sarbanes Oxley is regarding the attack being floated around that somehow our financial problems are due to the laissez-faire attitude of the last 8 years. If anything, we've had a proliferation of regulation.
Indeed, there has been a proliferation of regulation on equities markets, corporate balance sheets, and even some debt markets. But the 800lb gorilla in the room that nobody bothered to regulate are credit default swaps. That's where the real turmoil will come from, if things go from bad to worse.
Derivatives may be part of the problem, but they're not the root cause. There will always be economic troubles no matter which direction you move, and the solutions that might have alleviated some of our situation today, even if it they had been foreseen from far enough away to make a difference, would have been anathema to Democrats anyway, and probably would have had people howling for their negative effects.
Oh, you Guys and your facts and your, your, your . . . knowledge.
Just dial in when you get back to relaity.
GoSWMBCg
Relaity? Isn't that the support organization for defrocked priests?
Dear LA Guy -- What "solutions" would have helped today (but would be anathema to Democrats and would have people howling over adverse effects?)
To give the most obvious example, something that would have helped would have been to prevent poorer people, and people with less of a history of steady jobs, from becoming homeowners.
There was a really interesting piece on NPR this morning where the commentator compared our current problem with derivatives to the problems 20 years ago with junk bonds. Then, junk bonds were exotic instruments that wound up abused and almost crashed the system. Now, they're mainstream tools that everyone understands how to use responsibly. He predicted the same would wind up true of derivative products, so long as we again survive our latest "teenage years" of going wild with a toy we don't fully understand. If he's right, any regulation beforehand would likely have been futile -- we wouldn't have understood them well enough to regulate them in a way that would lead to any meaningfully predictable results. Personally, I'll always choose to allow innovation with some risk. Others can reasonably disagree.
I feel surprised by how much I agree with LA Guy's solution -- but I feel strongly that regulations (against predatory or reckless lending) would have been required. (The free market clearly didn't do it.) Other regulations that might have helped would be requirements in packaging mortgages that disclosed more details that would have made bad investments harder to sell (and therefore less worth making in the first place.)
Actually, Anon, nothing would work better than the free market in dealing with problems associated with bad lending practices.
So what exactly was missing from the free market in this case? The players all seem to have been quite freewheeling and pursuing the short-term dollar with gusto. Let me know what government regulation stood in the way of protecting poor credit prospects from mortgages they couldn't afford, etc.
Regular government regulation would put a damper on business overall and not necessarily stop bad investments since no one knows where they're coming from. A free market (freer than we had in fact) would make lenders and others wary, and those who pursue "short term" gain, as you call, will fall to the wayside while other learn how to handle the situation. If the market can't teach them this lesson, how is it the government will recognize the problem before it even happens (out of the millions of problems that might happen) and prevent it from happening, without completely sitting on the economy and slowing down everything, especially for those not well off enough to maneuver much. (And this is assuming no corruption.)
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