Massive Financial Reform Passes US Congress

Oh. I thought that states could impose regulations -up to a point- without having to bend to federal agencies. I mean, the Congress or the Supreme Court? Sure, they're supposed to be the core of government and be able to override anyone else, but mere agencies? Really.
 
To address the length of the bill (how laws are written is something I know about), it's written like a bill. Bills aren't written in prose like novels, they're all parts and sub-parts and numbered outlines, amending existing laws and adding new stuff. The more laws there are, the longer bills have to be (to amend all the relevant existing statutes). The length of a bill isn't indicative of anything really -- it's just the bureaucracy expanding to meet the needs of the expanding bureaucracy.

Regarding the substance of the bill, I have absolutely no faith in our political system to address anything meaningful anymore. As Whomp pointed out, regulators totally failed, so the answer they come up with: let's make more regulatory agencies! And I'll bet dollars to donuts that the new agencies will be filled with the same type of people that were "regulating" before.* In fact, I'll bet that they'll be filled with a non-trivial number of the exact same people. In 2010 America, if you reach a certain level of influence, there is simply no penalty for failure. Edit: additionally, there is no reward for competence.

Cleo

*As goes the story from the pre-crisis era: if a regulator came into a bank and could actually figure out the financial alchemy they were attempting to perform, they would simply offer him a job.

The problem with a regulatory scheme like this is that, no matter how it is designed, the design is no better than the people hired to run it and the political leadership that gives it direction.

That said, there is good design, and there is bad design. And this is not good design. But neither OSHA nor EPA are good design either. And for the most part they work well enough.

But what it will come down to in the end is people running it that are committed to the mission, and leaders who don't set out to gut them. The financial crisis came about substantially because the leadership worked hard to make the regulators not work. And that will happen again in the future, regardless of design. And it is at that point that poor design will show the greatest effect. Because poor design allows poor leadership the most latitude.
 
Ok, when are we going to get cracking on making business start hiring people!?
 
Actually, no. States wanted to regulate a lot of what lead to the crisis, but they were pre-empted by federal law / agencies.

Cleo
Actually, your article confirms my point Cleo. Bank mortgage lenders were the responsibility of numerous federal agencies but not mortgage brokers. In fact, one piece I read pre-crisis said there were more federal regulators at Wells Fargo Bank in San Francisco than California had for state regulators for the whole of the mortgage broker industry.

Now the SEC won't be responsible for advisors under $100 million under management? That's a joke since this is likely where the majority of problem advisors will come from as we saw with mortgage brokers.
Hawke blames much of the mess on mortgage brokers and originators who, he says, were the responsibility of states. "I can understand why state AGs would try to offload some responsibility here," he adds. "It's important to remember when people are trying to assign blame here that the courts uniformly upheld our position."

His arguments have some merit. The federal judiciary has bolstered preemption in the name of uniform national rules, not just for banks but also for manufacturers of drugs and consumer products. And state oversight alone is no panacea, as the chaotic state-regulated insurance market illustrates. Inadequate supervision of mortgage companies in some states contributed to the subprime explosion. But the hands-off signals sent from Washington only invited complacency. When some state officials fired warning flares, the Administration doused them.
 
Are the markets down over 2% today as a result of this, or is it just coincedence?
Economic news today was pretty bleak. Consumer confidence and a deflationary CPI number.
 
Oh. I thought that states could impose regulations -up to a point- without having to bend to federal agencies. I mean, the Congress or the Supreme Court? Sure, they're supposed to be the core of government and be able to override anyone else, but mere agencies? Really.

Administrative law is really, really complicated, but the short answer is: Congress passes a law saying, for example, "we want greenhouse gases regulated; EPA, use your expertise to figure out the exact contours of that regulation with goals X, Y, and Z in mind." Then the EPA does it. Agencies can't go beyond Congress's authorization, and they can't choose not to do what Congress tells them to do. The political branch makes the decision, but lacks the expertise to legislate the details.

Cleo
 
How to best enact discipline? I'd say the family unit. But how do you get families to enact discipline? Some parents just honestly don't give a crap about teaching their kids the right ideas.

I agree with that completely. But then again, this is getting off topic...
 
I agree with that completely. But then again, this is getting off topic...

Once again, frugality is really the last thing you want in a major economic downturn. It can actually turn a bad recession into an even worse recession. That's why a lot of economists encourage people to keep buying during a recession rather than sticking all your money in your mattress and not spending any of it.

As for the reform bill. We definitely need more reform on Wall Street, especially against the derivatives market, but, as often happens under the administration, this bill is nowhere near strong enough, and will probably not solve any of the problems it set out to deal with.
 
Actually, your article confirms my point Cleo. Bank mortgage lenders were the responsibility of numerous federal agencies but not mortgage brokers. In fact, one piece I read pre-crisis said there were more federal regulators at Wells Fargo Bank in San Francisco than California had for state regulators for the whole of the mortgage broker industry.

Ahhh, "brokers" and "lenders." I see now. Thanks. :) But note that the article does go on to describe a few cases where the feds bootstrapped mortgage brokers into their purview in order to pre-empt state action.

Cleo
 
Arghhhh, I hate arguing with conservatives, i.e. my father.

I tell him of the new regulations, and he goes on about how the government has no right to tell the banks what to do as the banks have paid their money back. Also how that "trust busting" - as I'll jokingly call it - clause is apparently the cause of dark times.

I even said that the banks are responsible for the recession and so need to be more tightly regulated, and he goes, "No, housing caused the recession." Now, if my understanding is correct:

1. Bunch of people decide "Ah want a big house! :D"
2. Bunch of people go to banks and said banks approve all these risky loans.
3. Many of the bunch default on their loans, causing an economic shock.
4. Other speculative investments by the banks caused bubbles which inevitably broke, creating more economic shock.

Isn't that how the recession started, or am I missing something? So, while we COULD blame the recession on the bunch of people, the real cause would be the banks for approving such risky loans to begin with; if they had never given them out, there never would have been default. Just a bunch of people forced to live within their means. And there'd be no need for more attempts at regulation to try and restrain the banks.

Is that correct? When discussing these regulations, I need an analysis of it all so as to liberally smack the debate partner around.
 
Arghhhh, I hate arguing with conservatives, i.e. my father.

I tell him of the new regulations, and he goes on about how the government has no right to tell the banks what to do as the banks have paid their money back. Also how that "trust busting" - as I'll jokingly call it - clause is apparently the cause of dark times.

I even said that the banks are responsible for the recession and so need to be more tightly regulated, and he goes, "No, housing caused the recession." Now, if my understanding is correct:

1. Bunch of people decide "Ah want a big house! :D"
2. Bunch of people go to banks and said banks approve all these risky loans.
3. Many of the bunch default on their loans, causing an economic shock.
4. Other speculative investments by the banks caused bubbles which inevitably broke, creating more economic shock.

Isn't that how the recession started, or am I missing something? So, while we COULD blame the recession on the bunch of people, the real cause would be the banks for approving such risky loans to begin with; if they had never given them out, there never would have been default. Just a bunch of people forced to live within their means. And there'd be no need for more attempts at regulation to try and restrain the banks.

Is that correct? When discussing these regulations, I need an analysis of it all so as to liberally smack the debate partner around.

Yeah, pretty much.

The banks made the risky loans because they could leave someone else holding the bag. Unfortunately you have to sell mortgages because otherwise you're too far in the hole and can't make more loans until the mortgages are paid back (which takes forever).
 
I think this puts far too much emphasis on the banks, but I have weird views on the recession anyway.

(We all have our narratives...)
 
To presume the banks are the reason, or for that matter the main reason, is faulty logic. Profligate consumers in the U.S. (just look at debt as a per cent of household income going parabolic in the middle of the decade) are really no different than profligate governments in Europe (same story debt/% of GDP). Credit contractions have always been ugly and this one will continue to be no different.

Easy money from the Fed and other central banks, quasi govt. agencies (Freddie/Fannie) booking these loans and receiving the biggest part of bailouts (still not addressed), faulty credit ratings (see Reg FD) on the securities, poor regulatory behavior, investors reaching for yield on the presumption of high quality (again see Reg FD), borrowers believing that up is the only direction of home values and investment banks securitizing the loans that mortgage brokers (specifically) originated all contributed and this is the some of the issues.

Ultimately, the banks are just one piece to the current credit contraction.

Today it's not helping that the current administration is being perceived as anti-business by business leaders and that uncertainty is not helping. He has a lot of work ahead to change that view from the many who helped him get there. Not having any business leaders in this administration is not helping matters and could extend the uncertainty for business well into the next decade.
 
Well, a giant portion of the reason why this wasn't just another bubble-wave is that everyone seemed to be behaving as if housing prices wouldn't go back down. The bad loans wouldn't have had a bad effect on the economy if the holders of those loans hadn't convinced each other that the debt was high quality.

If sophistication is supposed to be higher in finance circles than in middle-income households (and I suggest that it IS supposed to be higher), then the blame can solely rest on those who purchased the debt instruments and then convinced themselves that the debt instruments were high quality. If they'd been held on the books as what they were (low-quality debt with a decent chance of default), then the crisis would have been very different. It would have been just another commodity bubble, with the normal wealth transfer between the dumb and the smart.

This is why the stream-rolling crisis surprised me so much. I didn't imagine that the highest-class banks were out there convincing themselves that the mortgage debt was really good stuff.
 
Then you're blaming the rating agencies instead of the banks. They had inside information the investors did not.
 
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