Deregulation: Catalyst to a Crash- Interesting read

[Mckenzie]

Very Interesting read on Senator Phil Gramm's push for free market reform / deregulation in the USA and how it helped cause the financial melee we see today. Give it a read if you have time.

http://www.gamingthemarket.com/2008/12/deregulation-catalyst-to-crash.html

"Increasingly, institutions were trading the derivatives instruments that Mr. Gramm had helped escape the scrutiny of regulators. UBS was collecting hundreds of millions of dollars from credit-default swaps. (Mr. Gramm said he was not involved in that activity at the bank.) In 2001, a year after passage of the commodities law, the derivatives market insured about $900 billion worth of credit; by last year, the number had swelled to $62 trillion."

Link to source articles for part 1 and 2

http://www.nytimes.com/2008/11/17/business/economy/17gramm.html?_r=3

http://www.portfolio.com/news-markets/national-news/portfolio/2008/11/11/The-End-of-Wall-Streets-Boom

EDIT: The second link to portfolio.com is a fascinating read!

[broken_legs]

Does that article mention how Hank Paulson lobied congress to change the capital lending rules so banks could go from 10 to 1 leverage all the way to 40 to 1?

Yeah and this is the guy in charge of bailing them all out... Nice

[Mckenzie]

There is mention of it in the second article, but not in relation to Hank Paulson:

"No investment bank owned by its employees would have levered itself 35 to 1 or bought and held $50 billion in mezzanine C.D.O.’s. I doubt any partnership would have sought to game the rating agencies or leap into bed with loan sharks or even allow mezzanine C.D.O.’s to be sold to its customers. The hoped-for short-term gain would not have justified the long-term hit."

Wow that second article is mind-blowing. :eek: :banghead:

[in*10*se]

:thumbsup: good read

[finboy]

*waits for "it collapsed because there was too much regulation still" posts*

[Mckenzie]

Originally posted by finboy
*waits for "it collapsed because there was too much regulation still" posts*

Have we not learned our lesson yet about leaving morality to the free market? Unfortunately in the morally and ethically bankrupt society that is wall street, morals must be regulated because greed and personal gain are stronger motivators than the greater good. :dunno:

[finboy]

Originally posted by Mckenzie


Have we not learned our lesson yet about leaving morality to the free market? Unfortunately in the morally and ethically bankrupt society that is wall street, morals must be regulated because greed and personal gain are stronger motivators than the greater good. :dunno:

agreed, but suggesting anything but free market south of the border gets you instantly labeled a pinko commie. i would hope that this melt down would show people that complete de-regulation isn't the best idea, but something tells me it'll go right back to the same situation as soon as things start to change for the better.

[Antonito]

It's always funny when people take economic theory as if it's actually supposed to be used in real life

Yes, please, strictly free markets, because even though the market is not made up of rational actors, and there is not perfect information, all the rest of the ideas will work just fine. The parts meant to protect people aren't necessary
:nut:

[Mckenzie]

Originally posted by finboy


agreed, but suggesting anything but free market south of the border gets you instantly labeled a pinko commie. i would hope that this melt down would show people that complete de-regulation isn't the best idea, but something tells me it'll go right back to the same situation as soon as things start to change for the better.

Yes well the only time the stock market surges is when there is mega greed (1980s saving and loan, 2000 tech bubble, 2008 commodity / sub-prime, etc.). I'm sure wall street will devise a new product soon to sell to the masses- my bet is that it will be green related.



Originally posted by Antonito
It's always funny when people take economic theory as if it's actually supposed to be used in real life

Yes, please, strictly free markets, because even though the market is not made up of rational actors, and there is not perfect information, all the rest of the ideas will work just fine. The parts meant to protect people aren't necessary
:nut:


Agreed 200%. There is no such thing as a perfect market as there is too much noise, complexity and too many externalities that are not accounted for in a supply and demand / other chart. As with many things that come out of academia, they are great theories on paper, but useless in practice. I cannot believe that Milton Freidman still has followers at the University of Chicago that believe and follow his garbage philosophy like the gospel (Rumsfeld, Cheney, Bush, etc etc etc. are all devoted followers of him).

On this subject I recommend Naomi Klein's Shock Doctrine (shameless plug but amazing book).

[finboy]

Originally posted by Mckenzie


Yes well the only time the stock market surges is when there is mega greed (1980s saving and loan, 2000 tech bubble, 2008 commodity / sub-prime, etc.). I'm sure wall street will devise a new product soon to sell to the masses- my bet is that it will be green related.





Agreed 200%. There is no such thing as a perfect market as there is too much noise, complexity and too many externalities that are not accounted for in a supply and demand / other chart. As with many things that come out of academia, they are great theories on paper, but useless in practice. I cannot believe that Milton Freidman still has followers at the University of Chicago that believe and follow his garbage philosophy like the gospel (Rumsfeld, Cheney, Bush, etc etc etc. are all devoted followers of him).

On this subject I recommend Naomi Klein's Shock Doctrine (shameless plug but amazing book).

interesting book, she got a bit repetitive at some points but it does detail many overlooked aspects of america's dealings in foreign government creation.