Somewhere in the last 30 years, to your point, the American people were sold the idea that regulation is the diametric opposite of "freedom," that trust-busting is "socialist," and other such nonsense. We need a modern-day Teddy Roosevelt, who can articulate in capitalist terms the importance of regulation and antitrust activity as vitally important to the health of the competitive, free market.
Fact is, the market should have punished the malfeasors in the 2007 financial crash, as it should be punishing the malfeasors in the Libor scandal. Shareholders should be abandoning these banks, and the banks' access to capital should be severely restricted by sheer virtue of nobody's willingness to lend to them (or to lend to them at typical rates). But that couldn't happen in 2007, because, Lehman Bros aside, everyone got propped up, dusted off, and given a fresh coat of paint via taxpayer dollars. Because the banks were "too big to fail," and not bailing them out would have been catastrophic. Because nobody had ever stopped them from growing so big, and so systemically integrated, in the first place.
The failsafes that should have prevented banks from being so directly tied to the macroeconomies of nations were not in place, and are still not in place. There is literally nothing in place right now that will prevent anything about the 2007 crisis from occurring again, and that is deeply troubling.
> Fact is, the market should have punished the malfeasors in the 2007 financial crash, as it should be punishing the malfeasors in the Libor scandal.
Yes, it should have, but the regulators didn't want that to happen.
However, you're missing a very important part of the story. Regulators were part of the problem leading up to these disasters.
In the LIBOR case, UK regulators knew about the rigging and tacitly encouraged it because they thought that the rigging stabilized the market. (US regulators knew about and accepted said rigging.) That's understandable - many of you want them to stabilize the market and the rigging probably did have that effect. However, if you're looking for an honest market....
Things are even worse wrt the 2007 problems. Regulators were in that up to their eyeballs on both the mortgage and securities sides. (In fact, securitization was encouraged by regulators.) Fannie and Freddie were especially bad because they reported bogus stats that threw off everyone's risk analysis.
Until we start punishing regulators and the politicians who push these policies....
Punishing regulators? Sure. What about punishing the people who snuck it by the regulators?
I absolutely cannot stand the libertarian line on this. For decades, it was all "don't regulate the banking sector, you're hurting freedom, they should have the ability to combine investment and consumer banking, don't regulate them", and then when they fuck up the economy?
"Oh, you should have let them fail. That would have been free market."
Great, that's a lot of help. We should've let your ideology destroy the modern economy. You know how much it burned non-libertarians to have to bail those banks out, after listening to all this crap from you guys for decades about how deregulation was the way to go? But we still supported it, because we're adults, and didn't want to flush the economy down the toilet.
So here we are in 2012. Still hearing that the banks shouldn't be regulated. They're the "free market". Sure.
> What about punishing the people who snuck it by the regulators?
You're missing my point - "they" didn't sneak anything by regulators. Regulators (and policy makers) wanted "the market" to do certain things. Those things blew up.
For example, "real" LIBOR values would have spooked the market during 2007 and probably caused the collapse of various banks. What should a regulator tasked with stability do in that circumstance?
Add in the fact that many regulators (and policy makers) are, in fact, tools of the folks they're supposedly regulating, and regulation can't do what you want it to do, especially if you're unwilling to punish regulators and policy makers.
> We should've let your ideology destroy the modern economy.
Now you're just babbling.
Either you want stability, which will require things like the LIBOR "fraud". or you're going to have to let banks fail. You can't have no failures and no fraud. (You can have both fraud and failures.)
As to "too big to fail", surely the same applies to govts as well. After all, regulation is, by definition, systemic risk. If everyone plays by the same rules, you've got a problem when those rules don't work....
> all this crap from you guys for decades about how deregulation was the way to go
The problems didn't come from deregulation. (Besides, there actually wasn't significant deregulation, apart from the repeal of Glass-steagal, which actually helped a great deal during the crisis.)
The problems came from govts "encouraging" (and subsidizing) bad economics to accomplish social goals. They got out of hand in part because GSEs lied.
Opposing fraud and for the "free market" (aka laissez faire) are mutually exclusive. Just wishful thinking.
On open market requires regulation. For instance, we need contract law, transparency, fair and impartial court system, for the market to work efficiently and effectively.
Are you saying that, for practical reasons, fraud cannot be effectively punished without more regulation than most libertarians would support? This is a coherent claim that may or may not be valid, but I would be interested to hear support of it rather than simple assertion.
On the other hand, if you are asserting that most libertarians oppose a court system in which people can (at least in principle) be tried and convicted when they commit fraud, then I think you are incorrect in your assessment of the position of most libertarians. Even anarcho-capitalists (per the wikipedia article) seem to view fraud as something that can be responded to with force - they just don't want it to be a "government" that does so.
That depends on which "libertarian utopia" you're talking about.
The American Libertarian Party would probably say that the court system is paid for by government revenues from taxes and tariffs like the Constitution says.
Anarcho-capitalists would say that it's paid for by whatever revenue stream Courts, Inc[1] develops; they wouldn't presume to enforce a single business model, you see (I assume).
In the case of "left libertarian" thought, it again depends on the particular society envisioned - I don't really have enough understanding of the various models to give a clear answer, but most left libertarian utopias are even further from our modern situation than the right libertarian ones. Of course, most wouldn't have the financial infrastructure at the heart of this particular case anyway.
This is not to say that I have any high degree of confidence that any of the models discussed or glossed over above would actually work (well or at all), but disagreement does not sanction misrepresentation.
[1] Although I think some of them are opposed to limited liability, so it might or might not be "Incorporated"...
The regulators, themselves are also bankers. Or have strong tires to bankers. Kind of hard to ask the SEC (for example) to come down hard on say, Goldman, when most of the executive staff at the SEC worked and have their own positions at Goldman.
(I'm only using Goldman as a example).
But the opposite is also true. The best regulator is a experienced regulator. And you get that experience by working in the field.
A better approach is punishment. Look I used to trade (on the CMO floor at Kidder), and the more important thing is not to lose money. If traders (actually everyone in banking) don't lose money nothing changes. I mean, why ruin a good thing, right? Just that simple.
It used to be easier, because before 1999 investment banks were a sort of a partnership - if you lost money the firm lost money. Now so these days. Why even care? Traders take such stupid risks cause it's not their money. And now, we all know, they don't even face any sort of punishment. In fact, most of the banks MADE money, in the form of TARP (and cheap loans from the Fed).
And now we have Libor. No trader has gone to jail. No executive has gone to jail (and I doubt anyone will). The bank (in this case Barclays) might have to pay a fine, which is peanuts compare to their profits.
So what's the message? Steal, loot, lie. And until people are made to pay, personally, it will remain so.
> In fact, most of the banks MADE money, in the form of TARP (and cheap loans from the Fed).
Claiming the banks made money off of TARP is like claiming I made $600k last year because I took out a mortgage. TARP provided loans to banks that were paid back with interest.
Actually up front you are correct. BUT the banks also used those loans (which by the way, were granted with VERY favorable terms at VERY low rates) to pay bills due to other banks
Take AIG for example.. Banks made billions on payouts from AIG. Where did the money for those payouts come from? Us. The American taxpayer. So not only did the banks get their bad debts marginalized (at our expense. example: look at the sale of Bear Stearns to JP. Who assumed most of Bears' junk debt in that deal.. that's right, the tax payer.); they also got cheap cash at cheap rates; and all the inter-banks fees were paid.
In other words, the whole mess was a giant shell game. I have no doubt that some bankers knew exactly what they were doing during the whole mess. They played the Fed, Treasury and us.
And the got away with it. And they will again.
Make no mistake, the game is rigged. And not in your (the masses) favor.
Until we start punishing regulators and the politicians who push these policies...
Hate the game, not the players.
The correct answer is, and has been, to have a balance of powers. The forging of the US Constitution has been described as an "orgy of mistrust". Having mutual antagonists playing off each others, preferably in a three way fight, is the best medicine devised thus far.
> Because the banks were "too big to fail," and not bailing them out would have been catastrophic. Because nobody had ever stopped them from growing so big, and so systemically integrated, in the first place.
If these banks are too big to fail (and thus shouldn't exist), what does that imply about large state govts (such as CA) and the US federal govt?
Note that regulation is, by definition, systemic risk.
Somewhere in the last 30 years, to your point, the American people were sold the idea that regulation is the diametric opposite of "freedom," that trust-busting is "socialist," and other such nonsense. We need a modern-day Teddy Roosevelt, who can articulate in capitalist terms the importance of regulation and antitrust activity as vitally important to the health of the competitive, free market.
Fact is, the market should have punished the malfeasors in the 2007 financial crash, as it should be punishing the malfeasors in the Libor scandal. Shareholders should be abandoning these banks, and the banks' access to capital should be severely restricted by sheer virtue of nobody's willingness to lend to them (or to lend to them at typical rates). But that couldn't happen in 2007, because, Lehman Bros aside, everyone got propped up, dusted off, and given a fresh coat of paint via taxpayer dollars. Because the banks were "too big to fail," and not bailing them out would have been catastrophic. Because nobody had ever stopped them from growing so big, and so systemically integrated, in the first place.
The failsafes that should have prevented banks from being so directly tied to the macroeconomies of nations were not in place, and are still not in place. There is literally nothing in place right now that will prevent anything about the 2007 crisis from occurring again, and that is deeply troubling.