How Deregulation Lead to the Financial Crisis

[Toro]

From Henry Kaufman

What did the Federal Reserve miss that contributed to today’s crisis? “That financial deregulation still facilitates the creation of debt because it spurs competition and reinforces the drive for new markets and enlarged market standing. Monetary policymakers neither anticipated these realities, nor incorporated them into its policy calculations,” Henry Kaufman, the former Salomon Brothers economist, now president of Henry Kaufman & Co, told a conference today sponsored by the Levy Economics Institute of Bard College.

“The Federal Reserve also failed to grasp early (or, with sufficient clarity, later on) the significance of financial innovations that, by their very nature, facilitate the creation of new credit — innovations that could not have been financed at all using earlier techniques. Perhaps the most far-reaching of these innovations was the securitization of non-marketable obligations. This tended to create the illusion that credit risk could be reduced if the instruments become marketable,” Kaufman said.

“Moreover, elaborate new techniques employed in securitization (such as credit guarantees and insurance) blurred credit risks and — from my perspective many years ago — raised the vexing question, “Who is the real guardian of credit?” Instead of addressing these issues, the Federal Reserve actually was highly supportive of securitization. Alan Greenspan, when he was Fed Chairman, stated that securitization was very beneficial because it helped spread risk over a broader spectrum of the financial markets.”

“One of the Federal Reserve’s biggest blind spots when it comes to structural changes has been its failure to recognize the problems that huge financial conglomerates would pose for financial stability — including their key role in the current debt overload,” he added.

Henry Kaufman: What the Fed Missed - Real Time Economics - WSJ

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[neurosport]

he's right about one thing: creativity on part of finaciers leads to more debt.

couldn’t recognize a credit bubble in advance, though knew what to do when one burst.

how stupid do they think we are ? wake up and smell the conspiracy.

everybody knew Saddam had nothing to do with 911 and everybody saw the bubble.

they had plans for the middle east before 911 and they had plans for "handling" this crisis as well long before it actually happened.

that's the funniest thing about this collapse - they kept denying that it is even possible while it was forming to the point where it was up in everybody's face and then the second they finally admit its real - magically - they already have a solution prepared !

problem - reaction - solution

so they were completely clueless the second before it happened and a second after - they know everything !

same shit with 911 - they were supposedly completely clueless up until the second airplane hit ( had plenty of time to act while the planes were in the air but did nothing, also had all the warnings you may dream about before 911 and also did nothing ) and then as soon as the towers went down they immediately proclaimed they knew who done it !

in fact no investigation was even necessary - they just knew it was Saddam ...

the pattern is hard to miss.

this crisis is a financial 911 = inside job by the FED

 

[garyd]

Mr. Kaufman got it wrong of course like many others. The housing industry triggered this and the housing industry was driven almost entirely by the need to find more and more customers for bigger and more costly homes because state and local regulations virtually compelled such homes to be built at the expense of smaller cheaper homes.

 

[thinking]

Regulation is definitely the key to a more recession proof economy. After the financial reforms of the New Deal, America didn't have any MAJOR economic collapses. Granted, there were still downturns, but no major bank failures like we are experiencing today. We need to stop having the naive belief that the economy regulates itself, the massive problems we are seeing right now are because we let the economy regulate itself.

 

[garyd]

Um 1935, 1937, 1946, 1960-61? The only things driving the economy thoughout the fifties was a housing boom that laid the foundation for the current crisis as more Americans than ever before moved from inner city Apartments to the suburbs, and defense spending which at that time was about 70% or more of the federal budget.

 

[KittenKoder]

Regulation just means it's harder for small business to get started, get going, and stay strong. It drives the costs of licensing up and increases the red tape. It's not as good an idea as people think, it only looks good if you ignore most of it's effects, if you know more of the effects you will see it's a bad idea. Actually, it is part of the reason so much of our economy has become dependent on only a few companies, thus why when one of those companies fails ... it hurts.

 

[garyd]

Exactly kit. In fact that's another reason all the biggies have lobbyists- to make sure that the regulations they do have to put up with hamper competition as much as possible.

 

[KittenKoder]

Exactly kit. In fact that's another reason all the biggies have lobbyists- to make sure that the regulations they do have to put up with hamper competition as much as possible.

Pretty much, over regulation puts control in the big companies and does not protect anyone. I just wish the other lefties could think more ... if they would at least look at all the angles more. I feel more alone in my own political alignment every day.

 

[sealybobo]

From Henry Kaufman

What did the Federal Reserve miss that contributed to today’s crisis? “That financial deregulation still facilitates the creation of debt because it spurs competition and reinforces the drive for new markets and enlarged market standing. Monetary policymakers neither anticipated these realities, nor incorporated them into its policy calculations,” Henry Kaufman, the former Salomon Brothers economist, now president of Henry Kaufman & Co, told a conference today sponsored by the Levy Economics Institute of Bard College.

“The Federal Reserve also failed to grasp early (or, with sufficient clarity, later on) the significance of financial innovations that, by their very nature, facilitate the creation of new credit — innovations that could not have been financed at all using earlier techniques. Perhaps the most far-reaching of these innovations was the securitization of non-marketable obligations. This tended to create the illusion that credit risk could be reduced if the instruments become marketable,” Kaufman said.

“Moreover, elaborate new techniques employed in securitization (such as credit guarantees and insurance) blurred credit risks and — from my perspective many years ago — raised the vexing question, “Who is the real guardian of credit?” Instead of addressing these issues, the Federal Reserve actually was highly supportive of securitization. Alan Greenspan, when he was Fed Chairman, stated that securitization was very beneficial because it helped spread risk over a broader spectrum of the financial markets.”

“One of the Federal Reserve’s biggest blind spots when it comes to structural changes has been its failure to recognize the problems that huge financial conglomerates would pose for financial stability — including their key role in the current debt overload,” he added.

Henry Kaufman: What the Fed Missed - Real Time Economics - WSJ

Please Follow Copyright Guidelines

We need to abolish the Federal Reserve. Take it back from the rich bankers that own it. Yes, OWN it. Some of them aren't even American. In 1913 Rockafellor, JP Morgan & couple other rich dudes bribed congress to let them take over the Federal Reserve. Today its a QUASI private/governmental org. But no one knows exactly how much power the private bankers actually have in making decisions. I remember last year the Fed Res. gave AIG the first bailout without even going through Congress. That's too much power.

Anyways, just like I believe the GOP and Corporate America purposely fucked up the last 8 years so they could bleed the treasury dry, I also believe the Federal Reserve is in on it. They may even be the masterminds behind it. The plan? Socialize all the losses and privatize all the profits. So look back and see the CEO's pay skyrocketed in the last few years, while the system got more and more unstable. Next thing you know the economy crashed and now all the corporations and banks are getting tax payers money?

And all these corporations are going bankrupt so they can renig on pensions.

Its called Desaster Capitalism.

The GOP went way too far deregulating everything. Who asked them to do that? Could it be Bank & Corporate lobbyists?

Just like people want to blame the Democrats for NAFTA because Bill Clinton signed it. Well who came up with NAFTA? Who's benefitting from NAFTA? Who defends NAFTA today? Who made changes to NAFTA after Clinton was out of office that made it even worse for American workers? It sure seems like the answer is the GOP and Corporations.

It sure isn't the middle class. We aren't benefitting from any of this.

 

[jillian]

Regulation just means it's harder for small business to get started, get going, and stay strong. It drives the costs of licensing up and increases the red tape. It's not as good an idea as people think, it only looks good if you ignore most of it's effects, if you know more of the effects you will see it's a bad idea. Actually, it is part of the reason so much of our economy has become dependent on only a few companies, thus why when one of those companies fails ... it hurts.

Regulation means the consumer is assured of certain minimal standards and the shell game that was the last eight years with derivatives wouldn't have happened.

I really can't for the life of me understand the mentality of people who say here... "just rip me off all you want".

it's going against your own self-interest. we've already SEEN the result.. and yet are still concerned that corporations should rape us as much as they can. And you KNOW most of the people who are so terrified that banks might be regulated are the ones who would have benefitted from it most. I DON'T GET IT!

Corporations are not moral... they are amoral... they operate SOLELY IN THEIR OWN SELF-INTEREST.

Why is this so complicated?

 

[editec]

Regulation just means it's harder for small business to get started, get going, and stay strong. It drives the costs of licensing up and increases the red tape. It's not as good an idea as people think, it only looks good if you ignore most of it's effects, if you know more of the effects you will see it's a bad idea. Actually, it is part of the reason so much of our economy has become dependent on only a few companies, thus why when one of those companies fails ... it hurts.

STUPID pointless regulation is clearly stupid and pointless. Who can argue that point?

Good regulations are good.

Amking a blanket statement like:

"Regulation just means it's harder for small business to get started, get going, and stay strong."

seems to me is overstating the case so wildly that it simply doesn't make any sense.

Specific examples of bad regualtions or good ones will actually give us something to THINK about.

Vague theoretical complaints about reegulation or government interference do nothing to really drive the discussion because we've ALL heard and written about these theories ad nauseum.

This isn't SPECIFICALLY addressed at you KK, because we all do the same damned thing.

WHICH regulations are you thinking of, which you believe are counter productive?

 

[Iriemon]

From Henry Kaufman

What did the Federal Reserve miss that contributed to today’s crisis? “That financial deregulation still facilitates the creation of debt because it spurs competition and reinforces the drive for new markets and enlarged market standing. Monetary policymakers neither anticipated these realities, nor incorporated them into its policy calculations,” Henry Kaufman, the former Salomon Brothers economist, now president of Henry Kaufman & Co, told a conference today sponsored by the Levy Economics Institute of Bard College.

“The Federal Reserve also failed to grasp early (or, with sufficient clarity, later on) the significance of financial innovations that, by their very nature, facilitate the creation of new credit — innovations that could not have been financed at all using earlier techniques. Perhaps the most far-reaching of these innovations was the securitization of non-marketable obligations. This tended to create the illusion that credit risk could be reduced if the instruments become marketable,” Kaufman said.

“Moreover, elaborate new techniques employed in securitization (such as credit guarantees and insurance) blurred credit risks and — from my perspective many years ago — raised the vexing question, “Who is the real guardian of credit?” Instead of addressing these issues, the Federal Reserve actually was highly supportive of securitization. Alan Greenspan, when he was Fed Chairman, stated that securitization was very beneficial because it helped spread risk over a broader spectrum of the financial markets.”

“One of the Federal Reserve’s biggest blind spots when it comes to structural changes has been its failure to recognize the problems that huge financial conglomerates would pose for financial stability — including their key role in the current debt overload,” he added.

Henry Kaufman: What the Fed Missed - Real Time Economics - WSJ

Please Follow Copyright Guidelines

We need to abolish the Federal Reserve. Take it back from the rich bankers that own it. Yes, OWN it. Some of them aren't even American. In 1913 Rockafellor, JP Morgan & couple other rich dudes bribed congress to let them take over the Federal Reserve. Today its a QUASI private/governmental org. But no one knows exactly how much power the private bankers actually have in making decisions. I remember last year the Fed Res. gave AIG the first bailout without even going through Congress. That's too much power.

If anyone one is interested, we recently had a thread called "Kill the Fed" in which much of this nonsense was shown false. I'll pass on regurgitating it here.

 

[Iriemon]

Regulation in hindsight sounds like a panacea to the problem. And there is a happy balance for regulation is a capitalist economy.

But I'm not really sure how much more regulation would have done to have avoided the problem.

While there were a very few voices out there that was concerned about the housing market, in truth not many appreciated the risk these "sub-prime" mortgages created, or the extent they permeated throughout financial institutions. It's a little tough to imagine the incredible foresight it would have taken to pinpoint the issue and then be effective about addressing in against the tidal wave of activity that was making lots of folks rich in the real estate/mortgage business.

Everyone will clearly see the warning signs for the next "bubble" too -- after that one has crashed.

I think the more important lesson is to avoid the situation where our economy is beholden to a small number of giant institutions.

For too long the attitude as been "bigger is better" towards businesses. We should bring back anti-trust laws and chop these mega-corps down to size, so the next time some of them take too much risk, they won't be "too big to fail."

 

[Truthmatters]

Um 1935, 1937, 1946, 1960-61? The only things driving the economy thoughout the fifties was a housing boom that laid the foundation for the current crisis as more Americans than ever before moved from inner city Apartments to the suburbs, and defense spending which at that time was about 70% or more of the federal budget.

And in those years we had Glass Steagal which protected us against these markets getting overheated and creating a depression.

Now that its gone it turned into this mess instead of being just a recession.

 

[sealybobo]

From Henry Kaufman



Henry Kaufman: What the Fed Missed - Real Time Economics - WSJ

Please Follow Copyright Guidelines

We need to abolish the Federal Reserve. Take it back from the rich bankers that own it. Yes, OWN it. Some of them aren't even American. In 1913 Rockafellor, JP Morgan & couple other rich dudes bribed congress to let them take over the Federal Reserve. Today its a QUASI private/governmental org. But no one knows exactly how much power the private bankers actually have in making decisions. I remember last year the Fed Res. gave AIG the first bailout without even going through Congress. That's too much power.

If anyone one is interested, we recently had a thread called "Kill the Fed" in which much of this nonsense was shown false. I'll pass on regurgitating it here.

And I have information that proves all of that bullshit as nonsense.

If you have not seen Freedom to Fascism by Aaron Russo, I consider you under informed on the subject.

 

[Truthmatters]

This country has had a boom bust economy every 15 years or so right from the begining.

Once Glass Steagal was in place we went through 70 or so years with only recessions and no huge Boom and Busts.

Once it was gone what happend?

It started to be unraveled and the size of the messes just grew from the Savings and loans debacle, Enron and now this meltdown.

Its is all about lack of regulations folks

 

[sealybobo]

Um 1935, 1937, 1946, 1960-61? The only things driving the economy thoughout the fifties was a housing boom that laid the foundation for the current crisis as more Americans than ever before moved from inner city Apartments to the suburbs, and defense spending which at that time was about 70% or more of the federal budget.

And in those years we had Glass Steagal which protected us against these markets getting overheated and creating a depression.

Now that its gone it turned into this mess instead of being just a recession.

Elizabeth Warren is overseeing the TARP funds. She explained it best on the Daily Show.

Before the Great Depression, our economy went like a roller coaster ride every 10 years. (Good luck with this if you have a 401K). So they put in Regulations and we had a good 50 years of slow steady growth, but no crashes or major problems. Then Reagan got in, and he removed regulations, and then the S&L collapse of the 80's came and then we find out Enron is cooking the books in 2001 until the entire thing collapsed.

She's not giving you an opinion. She's telling you the facts on what happened. And she explained it like any moron could understand.

So truth, why don't these moron's get it?

 

[sealybobo]

This country has had a boom bust economy every 15 years or so right from the begining.

Once Glass Steagal was in place we went through 70 or so years with only recessions and no huge Boom and Busts.

Once it was gone what happend?

It started to be unraveled and the size of the messes just grew from the Savings and loans debacle, Enron and now this meltdown.

Its is all about lack of regulations folks

Are you kidding me? I just said the exact same thing to you!!!! How weird. You must have seen the Daily show.

Yes, Enron is even part of it. Cooking the books. No oversite. Bernie Madoff!!!! Probably hundreds of Bernie Madoff's running around right now as we speak.

 

[Iriemon]

Um 1935, 1937, 1946, 1960-61? The only things driving the economy thoughout the fifties was a housing boom that laid the foundation for the current crisis as more Americans than ever before moved from inner city Apartments to the suburbs, and defense spending which at that time was about 70% or more of the federal budget.

And in those years we had Glass Steagal which protected us against these markets getting overheated and creating a depression.

Now that its gone it turned into this mess instead of being just a recession.

Elizabeth Warren is overseeing the TARP funds. She explained it best on the Daily Show.

Before the Great Depression, our economy went like a roller coaster ride every 10 years. (Good luck with this if you have a 401K). So they put in Regulations and we had a good 50 years of slow steady growth, but no crashes or major problems. Then Reagan got in, and he removed regulations, and then the S&L collapse of the 80's came and then we find out Enron is cooking the books in 2001 until the entire thing collapsed.

She's not giving you an opinion. She's telling you the facts on what happened. And she explained it like any moron could understand.

So truth, why don't these moron's get it?

I think Glass-Segal was repealed during the Clinton administration, with bi-partisan support of both parties.

 

[sealybobo]

And in those years we had Glass Steagal which protected us against these markets getting overheated and creating a depression.

Now that its gone it turned into this mess instead of being just a recession.

Elizabeth Warren is overseeing the TARP funds. She explained it best on the Daily Show.

Before the Great Depression, our economy went like a roller coaster ride every 10 years. (Good luck with this if you have a 401K). So they put in Regulations and we had a good 50 years of slow steady growth, but no crashes or major problems. Then Reagan got in, and he removed regulations, and then the S&L collapse of the 80's came and then we find out Enron is cooking the books in 2001 until the entire thing collapsed.

She's not giving you an opinion. She's telling you the facts on what happened. And she explained it like any moron could understand.

So truth, why don't these moron's get it?

I think Glass-Segal was repealed during the Clinton administration, with bi-partisan support of both parties.

Elizabeth Warren said the S&L scandal of the 80's is when things started going wrong, so it started under Reagan.

I don't know about Glass Segal enough to confirm or deny.

And Clinton did a lot of things I don't approve of. He was a centrist. He worked a little too well with the NEWT/DOLE GOP. Back then it made him look good, but today we see a lot of the things they passed back then are fucking us today. Bankruptsy laws, deregulatins, nafta,

One reason I didn't vote for Hillary.