The GOP has always been against market regulations, and the most convincing argument for what we are seeing involves the repeal of regulations (at the behest of the credit industry) that had been in place since the 1930′s. I seem to remember something important from history class about the 1930′s. . . now what was it . . . ?

That was a great link. I particularly like the point about Greenspan’s Fed rate being a major component.
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It seems as though there was a lot of fraud along the way that was and is illeagal. Could the enforcement of existing laws put the brakes on this mess, without having to resort to excessive new regulation?

With regards to profit motive, isn’t profit supposed to be tempered by risk, and why didn’t that happen? Unless, they (bankers) believed either a: the loans really weren’t that risky (bad decision), or b: the risk would be ameliorated by the government (market distortion).

It seems to me that the public is letting Washington off easy compared to Wall St. Not that Wall St. is faultless mind you.

1. I have no idea if present regulations are sufficient if enforced sufficiently. Thats an incredibly complicated question.

2. A. Bad decision. The system for assessing risk was broken, because the people who bore the risk were greatly abstracted from the people who assessed it, and the people who assessed it were not required to do a very good job. Basically, loan originators wouldn’t be held responsible for defaults on loans unless it occurred within the first 6 months of the loan, but the loans were often option ARMs with really low teaser payments that reset with huge increases after a few years. The loans were packed into mortgage backed securities that were given AAA ratings, meaning low risk, when in fact they were high risk.

Basically, the market was unleashed to create innovative securities products, and the products they created just blew up in everyone’s faces. People with money trusted the wall street institutions, and those institutions utterly failed to protect them. They are simply not going to be given the same amount of trust again in the future. Those who are still chanting “laissez faire” have little to no credibility in the face of these events. These institutions, whats left of them, are going to be reigned in.

3. There were several facets to McCain’s failure in the recent election but the economy was certainly one of them. In effect, the entire management of the executive branch of the federal government was just fired. What else do you want? A fillibuster proof majority for Dems in the Senate is the only thing left in the box. Its an almost total political reversal from the situation 4 years ago.

Black hole sun
Wont you come
And wash away the rain
Black hole sun
Wont you come
Wont you come

that was a really cogent reply, thanks.

on point 3,

I’m not sure if a repudiation of the Bush Administration gets to the heart of the matter. The major banking deregulation occured under Clinton, yet Bush is the one being blamed since it happened under his watch. I’m not saying he is blameless, just that the blame should be assessed in a less partisan way. It seems as though people are paying more attention to the rhetoric from the politicians that lay blame at the feet of the other side. This would be in contrast to an argument that would lay blame with excessive government manipulation in general, which seems to be completely out of favor right now. (the argument not the manipulation)

But privatized money would be a great thing. We’re funding our wars and hiding our defecit with the extra money that the Fed is printing at the cost of the dollar’s worth, which only exacerbates the situation. I’d rather have at least 2 private companies issue their own money at their own risk and with no temptation to degrade their own money than to have a perpetual cycle of recessions and real wages always dropping because Cheney wants to give expensive no-bid contracts to Halliburton.

Decius @13: Bravo. Good link.

SKR:

Could the enforcement of existing laws put the brakes on this mess, without having to resort to excessive new regulation?

No. Essential regulations were dismantled. What we’re now seeing are the results of that deregulation.

The same thing happened in the 1980s with the Savings and Loan Crisis: financial institutions were set loose to develop creative, new, unsupervised lines of business. Business ballooned, then collapsed. Then the U.S. taxpayers got stuck paying for it. It was hideously expensive, and a lot of innocent people suffered.

The Savings and Loan Crisis is why I have no sympathy for the deregulators and balloonists who caused the current crisis. They watched it all happen during the 80s, then turned around and did the same thing again.

I’m betting that they all fall back on the same “I was stupid and incompetent” defense used by Enron’s executives. Our legal system is merciful to the stupid and incompetent, and it’s very difficult to prove that someone was actually competent and had criminal intentions.

So yes, you can blame it on the Bush administration

I read the 1st draft bailout bill (3 pages), skimmed the second (102 pages) and threw up my hands in disgust at the third (looked to be around 600, although officially it was 450 something).

The first bill was obviously designed to create a market panic and was not supposed to pass (although it almost did, because our representatives have stopped even pretending to represent us (and we re-elect them anyway)). Go read it, and then try to tell me that was supposed to pass while keeping a straight face.

The petro-dollar is dead; there’s no resurrecting it at this point, so there’s no reason for the rest of the world to keep US dollars as a reserve currency, so the non-producing aristocracy who are *currently* rich need to triple or quadruple their dollar holdings in order to *remain* rich when the international value of the dollar is set for a decade of decline.

George W. Bush is one of the most successful Presidents in US history; he has done more of what he and his constituency (Texas oil moguls) wanted to have done than anyone else has ever dreamed would be possible. You’ll notice that currently they are busily gutting endangered species protections. Even that traitor Reagan was less successful, although obviously he set the ball up for W. and his cronies.

Poor President Hoover, um, I mean Obama – he’s been set up by Coolidge, um, I mean Cheney, to take a mighty big fall.

I’d assert that it has more to do with the Community Reinvestment Act and the existence of such enterprises as Fannie Mae and Freddie Mac than with deregulation. It was indeed foolish for those who purchased toxic mortgages as though they were money in the bank to do so, but it was foolish as well for those mortgages to have been granted in the first place. By putting people who cannot afford houses into houses, the government (you can argue that FNMA and FDMC are private, if you wish; I will disagree) began to lay the foundation for this house of cards long ago.

How about the government that incentivized risky mortgages? How about the government that gave Fannie/Freddie a bailout guarantee? How about decade after decade of deficit spending, expensive wars, and expensive entitlement programs causing massive devaluation of the dollar? The problem wasn’t inadequate regulation of banks. The problem was that the government was simultaneously trashing our currency and encouraging risky investments. It’s the government that needs more regulation.

The public cannot simultaneously let Washington off less easily and in a less partisan way. The public has a big red/blue switch and they flip it when they aren’t satisfied with the status quo. Our present arrangement doesn’t afford them greater granularity, particularly in regard to Administration policies.

Nevertheless, the Republican party sells itself as the party of Wall Street, the party of deregulation, and the party of “laissez faire” capitalism. In general, the public cannot repudiate deregulation by voting for the party that represents it.

The deregulation of the banking industry that you reference was largely architected by Republican Phil Gramm. It was passed by a Republican House and a Republican Senate, with the Democratic President threatening to veto it through to the final hours of negotiation.

Furthermore, Bush Administration officials are responsible for directly opposing attempts to contain the housing bubble and stop the predatory lending.

Certainly, there were Democrats in the Clinton administration who embraced deregulation and there were Republicans, particularly at the state level, who voted for bills that attempted to stop predatory lending. But, in this case, by and large, the binary red/blue switch that the public has is punishing the right people.

Blaming the housing crisis on the CRA and the GSEs is a partisan talking point that has been mostly discredited.

See this article.

The core point is that by 2005 only 20% of subprime loans were being made by institutions that were subject to the CRA.