I could only bring myself to watch a little of this Frontline about Alan Greenspan. It made me sick to my stomach. He wanted banking and financial fraud to be unregulated and investigated. "Let the market handle it", he said.

Well, we can see how well that worked out.

http://www.pbs.org/wgbh/pages/frontline/warning/

Yep, blame everyone but the people actually responsible!

I could only bring myself to watch a little of this Frontline about Alan Greenspan. It made me sick to my stomach. He wanted banking and financial fraud to be unregulated and investigated. "Let the market handle it", he said.
Yeah, because hearsay testimony of someone who worked with someone who had lunch with him must be accurate.

If Greenspan's sentiment was true, feel free to show me Greenspan's intensive lobbying against the anti-fraud provisions in Sarbanes-Oxley, which were the strongest passed since FDR (SOX was passed in 02.)

Also:

Saying derivatives are unregulated is a bit misleading. They're legally binding contracts, subject to court enforcement if necessary. That is a form of government intervention, and courts the primary form of regulation in this nation.

What most people mean when they say regulation in the media is 'pre-emptive' regulation. What would pre-emptive regulation look like for derivatives? It would mainly take the form of reserve requirements, which is the center piece of any insurance regulation.

Now, in case you weren't aware of this, Bush appointees lowered the reserve requirements for large chunks of the financial sector. So even if she did get her regulations in, they would've likely just have been weakened under Bush.

Lastly:

It's rather disingenuous to indict only the US administration on this, given that just about all major financial centers don't have the regulations on derivatives she was pushing for.

Lehman's biggest counterparty on derivatives was a Japanese Bank (and btw Japan has the most regulated financial sectors in the first world.)

hmm... I was wondering besides the tech slowdown at the end of the nineties, what was causing the softening in the economy in that time period. But, also given that agency they introduced, The CFTC, I think it was with what they were charged with looking into agriculture...... I guess I got someone to blame there for the subsidies into meats, not so much veggies and fruits.

quote"He wanted banking and financial fraud to be unregulated and investigated. "Let the market handle it"

Or the angry peasants with pitchforks and torches method, but that is so cliche and passe as an archaic method of social justice.

Then, the 575 trillion dollars being thrown around in derivatives....... that number really got me sick...... considering the US only has physical 5 trillion dollars, or around that. Totaling up the other countries involved in stuff like that, while some of it is basically derivative trading, shifting from one to another trying to scam it back, plus some....... there is alot of funny money in that total.

Then, the 575 trillion dollars being thrown around in derivatives....... that number really got me sick...... considering the US only has physical 5 trillion dollars, or around that. Totaling up the other countries involved in stuff like that, while some of it is basically derivative trading, shifting from one to another trying to scam it back, plus some....... there is alot of funny money in that total.

Funny is not quite how I would describe it, not even if I wanted to be sarcastic. The problem is that economists and analysts (and the economic weather forecasters) treat this immense bubble of money as if it is more real than the actual products and services being produced annually. In reality it is just the central bank of all the countries delegating the on switch of the money printing press to the investment bankers, hedgefunds and other similarly unregulated companies.

Simplified the economy is like an icecream factory in winter. It needs to produce a store of icecreams to sell in the summer, but has no income from sales. Once upon a time the factory would loan money from a bank and pay back that loan at the end of summer after its store of icecreams was all sold.
Nowadays the factory does not take a loan but sells the right to sell those icecreams at a fixed price in six months time. During a hot summer the options would be profitable because increased demand would drive up prices above the agreed upon price, but a cold summer would lower the prices but still force the buyer of the options to pay the agreed upon price to the factory. If that were all it would still be fairly simple and not that much different from taking a direct loan. The problem starts to arise when people subsequently start trading these options as goods themselves, and every time it is bought or sold the full amount of traded value is added to the entire economy figure (i.e. if they sell the exact same option 10 times for 5 million dollar the economy is said to grow by 50 million, even if in fact the underlying value has not increased at all). This inflated number is then taken as real money and forms the basis of new transactions. (even though there is only 5 million worth of goods, banks get to play with 50 million worth of money. In other words they just printed 45 million worth of money that has no basis in real goods or services, but that they can then use to yank around the actual manufacturing and services. Which is essentially what investment banks and hedge funds do: they take this virtual money market money and use it to buy and sell (and destroy and combine) actual production companies).
Things really tanked when even the banks themselves did not know anymore where in that huge balloon of self-printed money was the real tangible value. They only realised that there was no way they could cover all the commitments they had made from the things that actually were tradeable in reality instead of just imaginary numbers on a computer screen.
And they have not only refused to accept their own responsibility in this fiasco, they are not even understanding what went wrong as they are treating all those government supplied billions as a new source of free money they can inflate and sell to each other. I expected the next crash to come in five years, but now I think it will come sooner as the banks treat those emergency credits and zero interest rate policy as permanent sources of money instead of as loans that will have to be paid back. The fact that they are able to produce hundreds of billions of dollars in half a year time while the economic production is still pretty much crashed and burned shows that it is the banks that control the printing press and not the government. They simply switched on the printer till it had produced a nice and tidy pile of money and gave that back to the government with a 'thank you and now f*** off until we need you to bail us out again'. This economic 'recovery' is no different from the Zimbabwan central bank trying to get out of its debts by printing ever more money that had increasinly little relation to anything of value. Yes, the American economy is toying with hyperinflation (the only reason it has not started is because most of the world is tied directly or indirectly to its currency so everybody moves up and down with the USA. You have to look at the countries not linked so directly and see their exchange rates steadily go up against the dollar to see the actual inflation rate of the USA economy. The inertia of China, much of southeast asia, south america, the oil trade and so on has dragged the inflation of the dollar down, but the upward pressure is relentless and is showing no sign of abating).


Eri

The CFTC, I think it was with what they were charged with looking into agriculture...... I guess I got someone to blame there for the subsidies into meats, not so much veggies and fruits.
The department of agricultural is charged handling with farm subsidies etc.

The CFTC was designed to handle to futures contracts, which includes agricultural commodities, oil, metals, etc. Since future contracts includes futures on financial indices, currencies, etc, the "c" in "cftc" became less important overtime.

The fact that they are able to produce hundreds of billions of dollars in half a year time while the economic production is still pretty much crashed and burned shows that it is the banks that control the printing press and not the government.
That's the common argument to defend central banking. "The central bank only controls a small portion of the money in the financial sector, so the role they play can't be that big."

But that ignores how a central bank gets the money out in the system. Central banks are "lenders of last resort." Healthy institutions can't access a discount window non-stop. They must deplete their reserves below a certain level before the central bank will help them out.

The very purpose of having low central bank interest rates is to encourage banks to 'utilize their capital' because they get a gold star (free money) if they make lots of loans/investments etc.

Under normal circumstances, it would be against banks self interest to do this, because accessing the overnight window (central bank money) would be looked down upon by other financial institutions. But the government not only does not requires transparency, it requires secrecy. You deplete your capital, the central bank replenishes it without telling anyone (even the government), and by the time your 10-k report is filed you make it appear as if nothing happened, and no one will know what happened until years later (believe it's 5 years for such transactions, but I don't feel like looking it up ;p.)

That is what I was talking about Eri with funny money, the actual money does not exist. They are treating it as if it does. If, they actually physically totaled up all the worlds money and converted to dollar amounts, it would not come close to that figure. They are doing similar in the federal reserve of the US with the M0 funds, which is the actual physical assets, last time I knew around 4 trillion in physical currency . Then, you have the public deficit at 10-12 trillion dollars of stuff we have to pay back. Last time, I knew the total of the M1, M2, and M3 debts total to 69 trillion. While some of that total I wouldn't be worried about, the interest rates would take care of some of it...... they are acting like the first few lines of the Federal Reserve Act of 1913 that say backed by full faith and credit, relax guy, we got this.

ore or less I am worried when someone hits the 200 trillion mark and decides, now would be a good time to cash out and they find that the actual money just does not exist. Like say the boomers when they go to cash out their 401k's for retirement..... but, those guys are small potatoes.

Or the angry peasants with pitchforks and torches method, but that is so cliche and passe as an archaic method of social justice.
Inevitably this is what ultimate deregulation will lead to. As people get raped over and over again there will be a backlash. You can think of socialism or communism as the ultimate angry villager scenario. What conservatives don't realize is that ultimately they may benefit the rich fat cats for a short while but raping and pillaging will definitely cause the villagers to revolt and go far, far left.

Inevitably this is what ultimate deregulation will lead to. As people get raped over and over again there will be a backlash. You can think of socialism or communism as the ultimate angry villager scenario. What conservatives don't realize is that ultimately they may benefit the rich fat cats for a short while but raping and pillaging will definitely cause the villagers to revolt and go far, far left.

Quite a laughable post.

Us switching from a FDR regulatory climate to an European regulatory climate is hardly 'ultimate deregulation.' The Ayn Rand nonsense is a red herring. Our banking system has always had a moderate-to-heavy amount of financial regulation for the industrialized world. So your 'ultimate deregulation' theory has little basis in reality.

The country with the most financial regulation in the industrialized world is Japan, and Japan had one of the biggest asset bubbles of the 20th century even with such regulation. So the left wing/Keynesian myth that regulation can prevent any and all bubbles has little basis in reality.

Lastly, the whole "rich people always want and benefit form deregulation" talking point has no basis in reality. Rich people want a mix of regulations and deregulations that benefit them, and rich people (even within a given industry) will have conflicting interests on how to achieve that.

For example, when Reagan deregulated savings and loans, he allowed Savings and Loans to take bigger risks, but he didn't take away the explicit government guarantee. It's stuff like THIS that the rich people really want. If Reagan truly deregulated savings and loans, ie, got all government out of them completely, rich people would've lobbied against him.

Quite a laughable post.

Us switching from a FDR regulatory climate to an European regulatory climate is hardly 'ultimate deregulation.' The Ayn Rand nonsense is a red herring. Our banking system has always had a moderate-to-heavy amount of financial regulation for the industrialized world. So your 'ultimate deregulation' theory has little basis in reality.

I am sorry Kamion, but you are quite wrong here. American people have effectively lost trillions of dollars these past years. The fact that they clamour so hard for a cap to bonus payments is a warning. As far as pitchfork and torches go it is quite moderate, but it is the same reaction. All around them they see increasing poverty and they hear about a few bankers who already earn more per day than they will earn in their lifetime totaled who will be receiving record bonuses in the same year that they first needed to be rescued by tax money. This causes a lot of resentment and if it ultimately only leads to them demanding a cap to those bonus payments the bankers may count themselves very lucky indeed.
And it is no surprise that for about 50 years since the economic depression of the 30s the economy has been relatively stable and bubble free, but as soon as Reagan and every president since has allowed those little regulations and oversight organisations to go away almost immediately these inflatory (or rather fraudulent) bubbles started to show up and each iteration got worse as investment banks got less and less accountable for what they did. There used to be rules and government agencies that enforced them against how many times you can lend out your own money (the bubble that caused the depression was banks loaning each dollar they owned hundreds of times). That requirement has been quietly written out of the books. There used to be rules for profitability before a company could get an ipo. Gone too, as is the agency that should guard against misconducts. The dangers of collateral debt obligations and credit default swaps were noticed as early as late 80s, but instead of regulations being tightened the existing requirements of how much 'good' money a bank had to have for each 'bad' loan silently got removed, the people responsible for trying for tighter restrictions got quietly replaced by those more amenable to support the banks in this. The rules regarding futures trading did not need to apply to a bank if they knew who to ask for a secret exemption letter, allowing them to pretty much do as they pleased with futures trading, including price fixing. And if you have more money than the USA itself (on paper at least) you can do that kind of thing on a planetary scale).
Government is not exempt from creating the mess, but the fact that all those regulations and oversights being put in place after 1929 were quietly dismantled since 1980 are the direct cause for the reckless behaviour of banks since that year.


The country with the most financial regulation in the industrialized world is Japan, and Japan had one of the biggest asset bubbles of the 20th century even with such regulation. So the left wing/Keynesian myth that regulation can prevent any and all bubbles has little basis in reality.


Japan is a classic case of mismanagement on a governmental level. All the regulation in the world is not going to do anything good if the government responsible for enforcing them is the one behaving irresponsibly.


Lastly, the whole "rich people always want and benefit form deregulation" talking point has no basis in reality. Rich people want a mix of regulations and deregulations that benefit them, and rich people (even within a given industry) will have conflicting interests on how to achieve that.

For example, when Reagan deregulated savings and loans, he allowed Savings and Loans to take bigger risks, but he didn't take away the explicit government guarantee. It's stuff like THIS that the rich people really want. If Reagan truly deregulated savings and loans, ie, got all government out of them completely, rich people would've lobbied against him.

This certainly is correct. But the net effect is still that the richest few percent of the population is increasingly collecting all the wealth of the country, and of the rest of the world I might add. The simple truth is that the average income in the USA has barely exceeded inflation since 1980, but the total wealth of the country has multiplied. All that money did for the most part end up with a very few companies and people. What every bursting bubble does is draining away the middle class. The poorest can not really be made any poorer, but they also can not realistically get any richer either. The American dream of a beggar becoming a millionaire is pretty much just that: a dream. And every time a bubble bursts a couple of million people move from the ranks of the middle class to that of the poor, and some more of the poor move to destitute. If you go by relative distribution of wealth the USA is well on its way to the the kind of numbers normally seen only in third world dictatorships. The saving grace is that the USA is so unbelievably rich that even somebody who is poor in the USA is still relatively wealthy. But this is predicated on the fact that nobody knows how to untangle the dollar from the world economy.


Eri

I am sorry Kamion, but you are quite wrong here.
Ok. You said that, and then went on to talk about something completely unrelated.

Really. You need to understand just how regulated our financial system is. To say that the US financial system was at a point of 'ultimate deregulation' is just factually wrong. Our financial system was exponentially more regulation than places like Hong Kong and Singapore, for example. Our system was also more regulated than supposedly progressive European countries like the UK, Germany, and Sweden.

Reagan and every president since has allowed those little regulations and oversight organisations to go away
The biggest deregulator in our history was Jimmy Carter. He signed more deregulation into law than Reagan, Bush Sr, Clinton, and Bush Jr combined. And Jimmy Carter was president before Reagan.

Jimmy Carter also passed some onerous regulations at the same time; he didn't preference one side over the other. The tide in the world in the 1970s was for less regulation, and you see this play out throughout the entire world; even inside of the Soviet Union.

Reagan was different because 1) he was more vocally supportive of it and 2) he made it into a partisan issue, when before Reagan it had bipartisan support. But if you look at concrete legislative history, Reagan really didn't accomplish much when it came to deregulation.

I'm not sure if you know this or not, but the United States operates under the laws on the books, not the ideas in the heads of Presidents. Just because Reagan wanted lots of deregulation doesn't mean it happened, and guess what, it didn't.

Government is not exempt from creating the mess, but the fact that all those regulations and oversights being put in place after 1929 were quietly dismantled since 1980 are the direct cause for the reckless behaviour of banks since that year.
Again, you need to read what I said:

Us switching from a FDR regulatory climate to an European regulatory climate is hardly 'ultimate deregulation.'
ost European economies didn't do nearly as much to regulate their financial sectors during the depression as the US.

Even after the Reagan supposedly turned us into an Ayn Rand Dreamland, we still had considerably more financial regulation than the financial centers of Europe. In the 1990s, most of the biggest banks in the world were in Europe, and the Financial Services Modernization Act of 1999 was essentially us making our financial system more similar to Europe's; get everything under one roof and give the central bank a bigger role in regulating. The argument for passing the law at the time was based on national pride; "We need to be competitive in today's world economy."

------------


Erianiel,

If you go through and look at actual concrete deregulations that actually took place, you'll find out that the vast majority of what happened in the US was already allowed in the UK.

quote"But this is predicated on the fact that nobody knows how to untangle the dollar from the world economy."

I have a way. Suggested a few times, but, in the current climate isn't really viable. Maybe, 20 years or so down the road. It wouldn't really untangle the dollar from the world economy, but, it would equalize other currency with the dollar. Deflate out of it, instead of the current economic method of expand out of it.

quote"But this is predicated on the fact that nobody knows how to untangle the dollar from the world economy."

I have a way. Suggested a few times, but, in the current climate isn't really viable. Maybe, 20 years or so down the road. It wouldn't really untangle the dollar from the world economy, but, it would equalize other currency with the dollar. Deflate out of it, instead of the current economic method of expand out of it.

Untangling the dollar is not the problem. Keeping the world economy from crashing after you do is though.


Eri

The idea would go like this. Obviously, with the public deficit at around 11 trillion, with the private debts of the US at 69 trillion last I knew, deflating now would not be in the best interests of the world economy. After a significant portion of that is paid off it would be a viable way to go. Deflating would be slow and gradual taking out 20% maybe 30 % of the dollar out of the economy. There would be alot of that 20-30% being redistributed all over in various programs. What would happen though is the dollar would increase in value, more bang for your buck with it, but also other countries monetary value would go up as well from no longer having to inflate to keep up with the US.

This would essentially open up many economies particularly the Asian market as well as African markets for developement as well as consumers and producers in those markets. The other thing that would happen is if the US economy, or any other economy, would tank for awhile, it would not have the catastrophic impacts on the world economy as bad as the current economic climate, should the US go down.

The idea would go like this. Obviously, with the public deficit at around 11 trillion, with the private debts of the US at 69 trillion last I knew, deflating now would not be in the best interests of the world economy. After a significant portion of that is paid off it would be a viable way to go. Deflating would be slow and gradual taking out 20% maybe 30 % of the dollar out of the economy. There would be alot of that 20-30% being redistributed all over in various programs. What would happen though is the dollar would increase in value, more bang for your buck with it, but also other countries monetary value would go up as well from no longer having to inflate to keep up with the US.

This would essentially open up many economies particularly the Asian market as well as African markets for developement as well as consumers and producers in those markets. The other thing that would happen is if the US economy, or any other economy, would tank for awhile, it would not have the catastrophic impacts on the world economy as bad as the current economic climate, should the US go down.

The problem is bigger though than only the USA deficit, huge as it is. All the oil producing countries have their entire wealth infested in dollars and they are not eager to see that evaporate. The entire Chinese economy is based on the semi-fixed exchange rate with the currency of the world's biggest spender. The deficit of the USA is the surplus of China, and they would rather keep that money to buy foreign industries with. There are all the stocks and futures that are measured in dollars that will resist any change.

The long term solution would require a Euro-like deal applied world-wide, but with real teeth when it comes to enforcing participating countries to abide by the financial rules. The chances of anything like that happening within the next millennium are pretty slim though, considering that countries would have to give up their own financial and monetary policies to an anonymous burocracy in orbit around the planet (good luck trying to find a place on earth that all countries could agree on as neutral...)

But, despite all the drawbacks and problems associated with the Euro, it has been very very good that it exists, or the Goldman-Sachs of the world would already have done what they did before: speculating against the currency of entire countries, forcing them deeper into recession by draining billions of dollars out of their economies. (Some of these investment banks have enough money to buy most even first-world countries were they for sale. That is all money created by shoving papers at each other at ever increasing value (thus reducing the solvability and (or?) liquidity of those loans) does not seem to matter in the perpetual race to ever bigger numbers).
I am fairly certain that those big banks are looking sharply at countries that have tied their currency with the dollar. Soon as the dollar goes up again you can expect to see them moving at them.


Eri

Burried on the back pages of the economic news today. Brazil has announced that is will impose a 2 pct tax on money entering the country, and that several other countries are considering to do the same.
The reason for this is that its economy, which is not doing badly even in the current economic climate, is being mangled between the soft dollar and the Chinese yuan. Because of the linkage between the two currencies as the dollar drops to ever lower depths in exchange rates so does the yuan. This means that other countries effectively see their currencies devalued, even though they would not chose to do so if given a choice. Brazil has tried to buy dollars in an effort to keep its exchange rate down relative to the dollar and retain some of its competitive power to the point that it holds the world's third biggest dollar reserve outside the USA. Obviously no single country in the world can buy up 11 trillion dollar of deficit and Brazil is now in a position that it needs to raise its interest rate to pay for the huge dollar debt it purchased, but by doing so they would only hasten the rise of its own currency and further weaken their competitve power relative to China.

What needs to be done is that China unlinks its currency from the dollar and that the USA starts paying off its debt, but neither country is in any hurry to do so. For the USA a weak dollar means that its debt simply inflates out of existence, or at least towards more manageable sizes (at the expense of the other countries in the world who see the value of their loans to the USA evaporate and end up paying for it through their own stunted economic growth). China does not want to unlink its currency because then it would immediately start to climb, undermining its economic growth and threatening its position as worlds cheapest manufacturer. The Chinese government does not want to run the risk of a economic depression which they fear will lead to domestic unrest.

The result is an economic bubble being inflated fueled by increasing debt of the USA and China soaking up that money to pay for its economic growth. The position of the dollar and the inability of the rest of the world to do something about this linkage means that the rest of the world is paying the price. And if no way can be found to let the air out of this bubble nice and slow, then the crash is going to be bad when it bursts.


Eri