Obama's Regulatory Tsunami

[Raoul_Duke]

Eliminate, cut, deregulate. I still want to know what regulations he cut. So far all you have pointed out is Congress rewriting the the FHA down payment requirements and a long winded rant about an agency he had no control over doing something you do not like.



In order to back it up with facts you have to show that the regulations that existed were ignored, weakened, or unenforced by something Bush did. You have not even shown that there were any regulations involved in what the fed did or did not do.



This is more like it. Not sure it lives up to what you are claiming it does since it uses an existing federal regulation to usurp state authority, but at least we can say this was something Bush had control over.

Unfortunately, it seems that the OCC was actually enforcing existing federal regulations and laws, and claiming that those laws preempted state laws and regulations.

OCC issues predatory lending guidelines

I hate to say it, but if we follow current legal precedent, they are right. Still don't see any real evidence of Bush deregulating anything.

I'm satisfied that I made the case here that Bush deregulated the financial system. people can look at my version of the facts and your version and decide which ones they like best.

You provided one actual link to someone under Bush enforcing an existing regulation and that somehow proves that Bush deregulated an entire industry? You have no version of the facts, you have wild accusations and a massive conspiracy, the only thing you are missing is a trail of dead bodies to hide the evidence.

Who is making the wild accusations here? The fund manager I quoted who called the bubble and the bust or the New York Attorney General, or Bush himself making a speech where he says that no deposit loans to people with risky credit histories will now be allowed? Like I said, people can read my version of the facts and your version and decide which one they like best.

 

[Toddsterpatriot]

Did it help that the banks could use depositors' money to make risky investments? It certainly added to the socialised losses, didn't it?

Which risky investments do you think they lost money on?

The only socialized losses so far are Fanny and Freddie.

Banking giant Citigroup could collapse under a wave of sub-prime losses totalling £13.3billion, financial experts warned today.

[...]

Citigroup has been one of those hardest hit by the financial crisis, losing at least £13billion in the last year alone from its failed bets on 'toxic' U.S. mortgages.


Citibank could collapse due to £13.3billion losses, warn financial experts | Mail Online


Citi Reports $8.3B Loss, Will Break Into Two Companies | Fox Business Archives - FOXBusiness.com

and so on.

Wow! A 3 year old story?

The Treasury made money when Citi paid back their loans.

Allow me to repeat myself....The only socialized losses so far are Fannie and Freddie.

 

[Raoul_Duke]

QW is right about this. The deregulation that led to the financial crisis did not occur under President Bush. The principle piece of it, the Gramm-Leach-Biley Act that repealed the Glass-Steagall Act, was passed in 1999 and signed by President Clinton. But the trend towards deregulation had been in effect to some extent since the Carter Administration and in full swing since the Reagan Administration. To place all of the blame on Bush doesn't make any sense.

I agree with that. Most of this is not on Bush.

However, there is substantial evidence from around the world that financial deregulation leads to excess credit creation and asset bubbles. That doesn't mean deregulation is necessarily bad, but to say it is always good under all circumstances is just ideology.

It really wasn't deregulation. Congress rewrote laws to allow banks to do things that were previously illegal. If we were debating the merits of those laws I can see making a case for either side. Mostly I have been trying to get Duke to show me specifically what regulations Bush ignored or changed that led to the housing bubble, which actually started before he was in office.

In other words, I am here being a jerk because I can.

Congress rewrote laws to allow banks to do things that were previously illegal? That can't be considered deregulation?

 

[Quantum Windbag]

The OCC was not enforcing regulations against abusive mortgage practices. The OCC oversaw banks that lent across state lines, and they were told specifically to back off enforcement by the government - i believe by Greenspan - around 2004. This was a big bone of contention by the regulators at the time.

Well there's that Toro and then there's Barney Frank intimidating the Fan/Fred regulators.

From all of that -- you've got to take away from it that we HAVE enough regulators and regulations.. We just need better politicians and admins...

Yeah, I'm not excusing Frank of the GSEs of anything.

Here is a link on Greenspan and the OCC. Of course, it wasn't just Greenspan. However ...

A former colleague says Mr. Greenspan blocked a proposal to increase scrutiny of subprime lenders under the Fed’s broad authority. That added scrutiny might have helped curtail questionable lending practices now blamed for soaring defaults by mostly low-income borrowers. Democrats in Congress are now turning up the heat on regulators, especially the Fed, for failing to do more to stamp out those practices, and the Fed appears increasingly likely to overhaul its approach.

Edward Gramlich, who was Fed governor from 1997 to 2005, said he proposed to Mr. Greenspan in or around 2000, when predatory lending was a growing concern, that the Fed use its discretionary authority to send examiners into the offices of consumer-finance lenders that were units of Fed-regulated bank holding companies.

“I would have liked the Fed to be a leader” in cracking down on predatory lending, Mr. Gramlich, now a scholar at the Urban Institute, said in an interview this past week. Knowing it would be controversial with Mr. Greenspan, whose deregulatory philosophy is well known, Mr. Gramlich broached it to him personally rather than take it to the full board.

“He was opposed to it, so I didn’t really pursue it,” says Mr. Gramlich, a Democrat who was one of seven Fed governors.

EconoMonitor : Nouriel Roubini's Global EconoMonitor » WSJ: Greenspan Added to Subprime Woes by Blocking Crackdown on Predatory Lending and Preventing Further Supervision of Lenders

This is the part Greenspan admitted he was wrong about. He believed that banks would be smart enough not to load their asset sheets with bad debts, he forgot human nature and the bonuses that banks pay to people that create business for the bank. Couple that with political and community pressure to get more people into houses, and we have a problem that will only get worse.

It would have been nice for the fed to step in and actually double check, but them not doing so was not a matter of Bush making a decision to not enforce a regulation. It wasn't even the Fed not enforcing one, it was just them not stepping up to the plate to make sure no one was actively breaking the law.

I have no problem spreading the blame around, there is more than enough for everyone. There were a few politicians on both sides of the aisle who warned about what was happening, but they were all kooks. It turned out the kooks were right all along.

 

[FA_Q2]

This is silly. Logic and reason are not on your side here.

Sure they are, or if not, you haven't shown it.

I'm done with your games

They were your games, friend, not mine, but I'm glad you're done with them.

but tell you what, why you tell us exactly how adding expenses to a business has no detrimental effect on hiring. That IS what you said. Let's hear it.

Fine.

A business hires the people it needs to in order to produce the products or services it thinks it can sell. If it's obvious that it can't sell all of what it's producing, and efforts to generate more sales (e.g. advertising) don't remedy the problem, then it lays people off. On the other hand, if it's obvious that it can't produce enough to satisfy its customers, then it hires more people so as to be able to produce more. (Either that or it cedes the business to its competitors, which of course it doesn't want to do.)

Note that neither of these decisions has anything to do with the cost of doing business.

What does a business do when costs go up? Assuming the demand is there for all of the products/services it can put on the market with the staff it has, laying off people is the LAST thing it will do. It will, instead, cut costs elsewhere, or raise prices. (Note that for most cost increases, including all of those imposed by government action, all of its competitors are facing the same choices, so raising prices probably won't hurt it, as its competitors will be doing the same.)

Now, to be sure, if a business can find ways to put the same amount and quality of product on the market with fewer employees, it will do that, but it will do that regardless of costs, just because that's sensible. But if laying someone off means cutting back on the quality or quantity of what it has to sell, then it will ONLY do that if the market isn't there to absorb the current production and it is suffering from unsold inventory.

Oh, and of course if it can get cheaper labor without sacrificing quality, then it may replace all or part of its current workforce. But that's not the same as laying people off.

That's what I was saying.

Now, if you still think that's "stupid," then it's incumbent on you to say why.

What you fail to address is the fact that price (raised because of excess regulation) has a DIRECT impact on demand and, therefore, jobs. As a matter of fact, you can completely wipe out demand if you artificially inflate prices to high. So, yes, overregulation and the cost of adding employees does, in fact, directly impact job creation. Add to that fact that increasing production costs here drives competitive companies overseas and you have a recipe for destroying jobs. Unfortunately, that is a circular effect. Fewer jobs -> less demand -> more layoffs -> even less demand and so on. That is why regulations can have a very stark impact on job creation.

Now, I have said why... care to counter?

 

[Quantum Windbag]

I agree with all that. But the whole thing couldn't have got started if the mortgage industry had been supervised even to 2001 standards during 2002-8. You've got to give a fair chunk of the blame to the people who allowed all the bad debt to be created.

It's too bad Barney Frank and his minions in Congress thwarted the attempts to tighten regulations over Fannie Mae and Freddie Mac in 2003.

Bush adviser warns of Fannie Mae, Freddie Mac risks - MarketWatch

Fannie and Freddie didn't write one single bad loan.

They had no problem guaranteeing them.

 

[Raoul_Duke]

I don't understand which part of your explanation proves your claim that before Bush, banks held their mortgages until maturity.

After Bush changed some regulation, banks could suddenly sell their mortgages at anytime.

Or, instead of proving your claim, you could admit you lied.
Or admit you were wrong.

I can't make my explanation any clearer than I already did. I'm sorry you couldn't understand it.

Much of what you wrote was clear BUT one point remains unproven and that is Bush somehow changed when the loans were resold (and hence the risk moved) to another entity. THAT combined with the deregulation would put far more blame on Bush's shoulders.

Banks used to hold a percentage of their loans to maturity so that they had some skin in the game and wouldn't go hog wild writing bad loans and selling them on. Over the years they could either keep actual mortgage paper or buy securities constructed out of the mortgages they'd written, it depended on the agreements individual banks had with (normally) Fannie and Freddie. Over a long period of time, decades, mortgage lending standards were gradually relaxed but they were basically suspended altogether around 2002 when the Fed and other regulators effectively stopped enforcing them. Banks and other mortgage originators no longer had to worry whether the debt they were writing would be repaid. All they had to do was make sure the mortgagee made the monthly payment for the first three or six months, then the mortgage was the problem of whoever they'd sold it on to.

 

[Raoul_Duke]

It's too bad Barney Frank and his minions in Congress thwarted the attempts to tighten regulations over Fannie Mae and Freddie Mac in 2003.

Bush adviser warns of Fannie Mae, Freddie Mac risks - MarketWatch

Fannie and Freddie didn't write one single bad loan.

They had no problem guaranteeing them.

Neiher did anybody on Wall Street either. They had even less problem guaranteeing them, so much so that F and F were losing huge amounts of market share to the private securities firms during the bubble years.

 

[Toddsterpatriot]

I can't make my explanation any clearer than I already did. I'm sorry you couldn't understand it.

Much of what you wrote was clear BUT one point remains unproven and that is Bush somehow changed when the loans were resold (and hence the risk moved) to another entity. THAT combined with the deregulation would put far more blame on Bush's shoulders.

Banks used to hold a percentage of their loans to maturity so that they had some skin in the game and wouldn't go hog wild writing bad loans and selling them on. Over the years they could either keep actual mortgage paper or buy securities constructed out of the mortgages they'd written, it depended on the agreements individual banks had with (normally) Fannie and Freddie. Over a long period of time, decades, mortgage lending standards were gradually relaxed but they were basically suspended altogether around 2002 when the Fed and other regulators effectively stopped enforcing them. Banks and other mortgage originators no longer had to worry whether the debt they were writing would be repaid. All they had to do was make sure the mortgagee made the monthly payment for the first three or six months, then the mortgage was the problem of whoever they'd sold it on to.

"Banks used to hold a percentage of their loans to maturity"

I thought you said 100%? Until Bush.
Change you mind?

 

[Quantum Windbag]

I agree with that. Most of this is not on Bush.

However, there is substantial evidence from around the world that financial deregulation leads to excess credit creation and asset bubbles. That doesn't mean deregulation is necessarily bad, but to say it is always good under all circumstances is just ideology.

It really wasn't deregulation. Congress rewrote laws to allow banks to do things that were previously illegal. If we were debating the merits of those laws I can see making a case for either side. Mostly I have been trying to get Duke to show me specifically what regulations Bush ignored or changed that led to the housing bubble, which actually started before he was in office.

In other words, I am here being a jerk because I can.

Congress rewrote laws to allow banks to do things that were previously illegal? That can't be considered deregulation?

I suppose it could, I just don't. Anyway, it was not Bush that did it, and your argument is that Bush deregulated the industry somehow. It did not even happen when Bush was in office.

 

[Quantum Windbag]

I can't make my explanation any clearer than I already did. I'm sorry you couldn't understand it.

Much of what you wrote was clear BUT one point remains unproven and that is Bush somehow changed when the loans were resold (and hence the risk moved) to another entity. THAT combined with the deregulation would put far more blame on Bush's shoulders.

Banks used to hold a percentage of their loans to maturity so that they had some skin in the game and wouldn't go hog wild writing bad loans and selling them on. Over the years they could either keep actual mortgage paper or buy securities constructed out of the mortgages they'd written, it depended on the agreements individual banks had with (normally) Fannie and Freddie. Over a long period of time, decades, mortgage lending standards were gradually relaxed but they were basically suspended altogether around 2002 when the Fed and other regulators effectively stopped enforcing them. Banks and other mortgage originators no longer had to worry whether the debt they were writing would be repaid. All they had to do was make sure the mortgagee made the monthly payment for the first three or six months, then the mortgage was the problem of whoever they'd sold it on to.

Banks used to be neighborhood institutions, and held mortgages to maturity because they actually knew the people who were buying the house. No regulation changed that, the realities of the world did.

 

[Raoul_Duke]

It really wasn't deregulation. Congress rewrote laws to allow banks to do things that were previously illegal. If we were debating the merits of those laws I can see making a case for either side. Mostly I have been trying to get Duke to show me specifically what regulations Bush ignored or changed that led to the housing bubble, which actually started before he was in office.

In other words, I am here being a jerk because I can.

Congress rewrote laws to allow banks to do things that were previously illegal? That can't be considered deregulation?

I suppose it could, I just don't. Anyway, it was not Bush that did it, and your argument is that Bush deregulated the industry somehow. It did not even happen when Bush was in office.

How about this then?

A lot of laws, regulations and standards along with actual regulatory supervision relating to the financial sector of the US economy were variously relaxed, reduced, not enforced or ignored during the time that George Bush was in office. These actions could be said to be a consequence of Bush's/the GOP's general and well-documented preference to reduce regulation on US business.

 

[Raoul_Duke]

Much of what you wrote was clear BUT one point remains unproven and that is Bush somehow changed when the loans were resold (and hence the risk moved) to another entity. THAT combined with the deregulation would put far more blame on Bush's shoulders.

Banks used to hold a percentage of their loans to maturity so that they had some skin in the game and wouldn't go hog wild writing bad loans and selling them on. Over the years they could either keep actual mortgage paper or buy securities constructed out of the mortgages they'd written, it depended on the agreements individual banks had with (normally) Fannie and Freddie. Over a long period of time, decades, mortgage lending standards were gradually relaxed but they were basically suspended altogether around 2002 when the Fed and other regulators effectively stopped enforcing them. Banks and other mortgage originators no longer had to worry whether the debt they were writing would be repaid. All they had to do was make sure the mortgagee made the monthly payment for the first three or six months, then the mortgage was the problem of whoever they'd sold it on to.

Banks used to be neighborhood institutions, and held mortgages to maturity because they actually knew the people who were buying the house. No regulation changed that, the realities of the world did.

Since (at least) the financial architecture of the country was redesigned during the Depression banks have had the option to sell mortgages onto agencies like Fannie Mae. To do that they had to agree to certain lending standards*. One of these was that they hold a certain amount of their mortgages to maturity. Over the years this was altered depending on a lot of stuff, the prevailing conditions in the economy, housing market, the individual circumstances of the bank etc.

*Of course there were other reasons they had to agree to various lending standards, this was just one of them.

 

[Raoul_Duke]

Much of what you wrote was clear BUT one point remains unproven and that is Bush somehow changed when the loans were resold (and hence the risk moved) to another entity. THAT combined with the deregulation would put far more blame on Bush's shoulders.

Banks used to hold a percentage of their loans to maturity so that they had some skin in the game and wouldn't go hog wild writing bad loans and selling them on. Over the years they could either keep actual mortgage paper or buy securities constructed out of the mortgages they'd written, it depended on the agreements individual banks had with (normally) Fannie and Freddie. Over a long period of time, decades, mortgage lending standards were gradually relaxed but they were basically suspended altogether around 2002 when the Fed and other regulators effectively stopped enforcing them. Banks and other mortgage originators no longer had to worry whether the debt they were writing would be repaid. All they had to do was make sure the mortgagee made the monthly payment for the first three or six months, then the mortgage was the problem of whoever they'd sold it on to.

"Banks used to hold a percentage of their loans to maturity"

I thought you said 100%? Until Bush.
Change you mind?

I said that banks no longer had to hold mortgages to maturity, I didn't say all mortgages.

 

[Quantum Windbag]

Congress rewrote laws to allow banks to do things that were previously illegal? That can't be considered deregulation?

I suppose it could, I just don't. Anyway, it was not Bush that did it, and your argument is that Bush deregulated the industry somehow. It did not even happen when Bush was in office.

How about this then?

A lot of laws, regulations and standards along with actual regulatory supervision relating to the financial sector of the US economy were variously relaxed, reduced, not enforced or ignored during the time that George Bush was in office. These actions could be said to be a consequence of Bush's/the GOP's general and well-documented preference to reduce regulation on US business.

Deliberately vague and noncommittal, I love it.

 

[Raoul_Duke]

I suppose it could, I just don't. Anyway, it was not Bush that did it, and your argument is that Bush deregulated the industry somehow. It did not even happen when Bush was in office.

How about this then?

A lot of laws, regulations and standards along with actual regulatory supervision relating to the financial sector of the US economy were variously relaxed, reduced, not enforced or ignored during the time that George Bush was in office. These actions could be said to be a consequence of Bush's/the GOP's general and well-documented preference to reduce regulation on US business.

Deliberately vague and noncommittal, I love it.

Do you agree with it then?

 

[Toddsterpatriot]

Banks used to hold a percentage of their loans to maturity so that they had some skin in the game and wouldn't go hog wild writing bad loans and selling them on. Over the years they could either keep actual mortgage paper or buy securities constructed out of the mortgages they'd written, it depended on the agreements individual banks had with (normally) Fannie and Freddie. Over a long period of time, decades, mortgage lending standards were gradually relaxed but they were basically suspended altogether around 2002 when the Fed and other regulators effectively stopped enforcing them. Banks and other mortgage originators no longer had to worry whether the debt they were writing would be repaid. All they had to do was make sure the mortgagee made the monthly payment for the first three or six months, then the mortgage was the problem of whoever they'd sold it on to.

"Banks used to hold a percentage of their loans to maturity"

I thought you said 100%? Until Bush.
Change you mind?

I said that banks no longer had to hold mortgages to maturity, I didn't say all mortgages.

What was the old regulatory requirement? 90%? 80%? 70%?
What was the new requirement when Bush "deregulated"?
50%? 40%? 0%?

Or were you mistaken? Lying?

 

[Quantum Windbag]

How about this then?

A lot of laws, regulations and standards along with actual regulatory supervision relating to the financial sector of the US economy were variously relaxed, reduced, not enforced or ignored during the time that George Bush was in office. These actions could be said to be a consequence of Bush's/the GOP's general and well-documented preference to reduce regulation on US business.

Deliberately vague and noncommittal, I love it.

Do you agree with it then?

Do I agree that those actions can be said to be the consequence of Bush's desire to deregulate? Yes, but I would also agree they can be said to be the consequence of Barney Frank running a bordello in his apartment.

 

[FA_Q2]

I can't make my explanation any clearer than I already did. I'm sorry you couldn't understand it.

Much of what you wrote was clear BUT one point remains unproven and that is Bush somehow changed when the loans were resold (and hence the risk moved) to another entity. THAT combined with the deregulation would put far more blame on Bush's shoulders.

Banks used to hold a percentage of their loans to maturity so that they had some skin in the game and wouldn't go hog wild writing bad loans and selling them on. Over the years they could either keep actual mortgage paper or buy securities constructed out of the mortgages they'd written, it depended on the agreements individual banks had with (normally) Fannie and Freddie. Over a long period of time, decades, mortgage lending standards were gradually relaxed but they were basically suspended altogether around 2002 when the Fed and other regulators effectively stopped enforcing them. Banks and other mortgage originators no longer had to worry whether the debt they were writing would be repaid. All they had to do was make sure the mortgagee made the monthly payment for the first three or six months, then the mortgage was the problem of whoever they'd sold it on to.

Which leads me right back to my earlier - and unaddressed - point that is was not the deregulation that was the problem. It was the fact that the government was taking the risk that was the underlying problem. To me, that created more problems and was a bad idea from the get go BUT it was only when it was coupled with the deregulations that it became such a large financial mess.

You cite the fact that the market was deregulated that caused the bad loans but in reality those loans would not have been written had the actual companies writing them been exposed to the risk. That was the underlying problem. They deregulated the market while conveniently forgetting that the government was taking the risks. If the government simply got out of the way to include NOT TAKING THE RISK then the deregulation would not have been a problem as the companies would create their own standards so they would not be defaulted on themselves.

Certainly - this is a rather simplified version but the core of the point still stands - companies do not need to be over regulated if they are exposed to the risk of their decisions. If we take that risk upon the public and remove it from the company creating the loans in the first place, deregulation is disastrous. So obviously disastrous that I have no idea how our government fell for it...

 

[Raoul_Duke]

"Banks used to hold a percentage of their loans to maturity"

I thought you said 100%? Until Bush.
Change you mind?

I said that banks no longer had to hold mortgages to maturity, I didn't say all mortgages.

What was the old regulatory requirement? 90%? 80%? 70%?
What was the new requirement when Bush "deregulated"?
50%? 40%? 0%?

Or were you mistaken? Lying?

It depended on the individual circumstances of the bank. Then this happened ;

During a five year period (2002-07), the basis for making mortgages was NOT the borrowers ability to pay – rather, it was the lender's ability to sell a mortgage to firms that securitized them.

This represented an enormous change from the past.

These new unregulated mortgage brokers no longer cared about a standard 30 year mortgage being repaid over time. In the new world of repackaged loans, all that mattered was that the loan did not come back to the originator. By contract, this was typically 90 or 180 days. As long as the borrower did not default in that period of time, it could not be put back to the originator.

The Big Picture