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Politics : American Presidential Politics and foreign affairs -- Ignore unavailable to you. Want to Upgrade?

To: TimF who wrote (40119)	12/31/2009 3:01:58 PM
From: TimF	Respond to of 71588

...My theory is that we always have an optimal financial regulatory structure--for the previous cycle's financial system. That is, think of financial markets as going through cycles of euphoria, crash, and recovery. Give each round of the cycle a number. For example, the 1930's might be cycle number n. Then the S&L crisis would be n+1. The current crisis would be n+2 (if you ignore other events, like the Penn Central commercial paper crisis of 1970 or the August 1987 stock market crash or Long Term Capital Management or the Dotcom bubble). Note that after crisis n in the 1930's, we created an optimal mortgage finance system, in the sense that we no longer had short-term balloon mortgages. Instead, we created the S&L industry, with a mandate to issue thirty-year fixed rate mortgages. We created an optimal system to prevent bank runs, with deposit insurance, deposit interest rate ceilings, and other regulations. Guess what crisis n+1 consisted of? S&L's going belly-up, because the fixed-rate loans were under water in a high-inflation environment. The deposit insurance system was exposed to be badly flawed, at great expense to taxpayers. Crisis number n+1 was exacerbated because the mortgage loans were not marked to market and because capital requirements were not tied to risk. So we created an optimal regulatory system, consisting of risk-based capital regulations and market-value accounting. Guess what crisis n+2 consisted of? "Toxic" assets created to satisfy risk-based capital regulations (the infamous AAA-rated securities were just what risk-based capital was supposed to encourage), and a vicious spiral caused by market-value accounting, which made everybody have to sell illiquid assets at once. Suppose Henry Paulson and all of the other "experts" get their way, and we create another optimal regulatory structure that would have prevented crisis n+2. Can you guess what crisis n+3 will consist of? econlog.econlib.org

To: TimF who wrote (40119)	1/1/2010 6:38:11 AM
From: DuckTapeSunroof	Read Replies (1) \| Respond to of 71588

Re: "Years later, the extraordinary cost of the 1980s S&L crisis still astounds many taxpayers, depositors, and policymakers." Yep!!!!!!!!!!!!!!!!! (Up until this LATEST FINANCIAL Bubble-Fraud/Crash cycle, the S&L bailout was the largest financial crisis in history....) Re: "The cost of bailing out the Federal Savings and Loan Insurance Corporation (FSLIC), which insured the deposits in failed S&Ls, may eventually exceed $160 billion." When you start adding-in the interest costs of the FEDERAL DEBT issued for the bailouts... then the estimates I've seen suggest a total "cost to the taxpayers" of more like $400 - $500 Billion by the time all the debt is finally paid off in another generation or so.... Re: "...Federal deposit insurance, which was extended to S&Ls in 1934, was the root cause of the S&L crisis.... Much of the time, the “drunk drivers” of the S&L and banking world pay no more for their deposit insurance than do their sober siblings. Those who do pay more still do not pay enough." & "...An incomplete and bungled deregulation of S&Ls in 1980 and 1982 lifted restrictions on the kinds of investments S&Ls could make. In 1980 and again in 1982, Congress and the regulators granted S&Ls the power to invest directly in service corporations, permitted them to make real estate loans without regard to the geographical location of the loan, and authorized them to hold up to 40 percent of their assets as commercial real estate loans. Congress and the Reagan administration naïvely hoped that if S&Ls made higher-yielding, but riskier, investments, they would make more money to offset the long-term damage caused by fixed-rate mortgages. However, the 1980 and 1982 legislation did not change how premiums were set for federal deposit insurance. Riskier S&Ls still were not charged higher rates for deposit insurance than their prudent siblings. As a result, deregulation encouraged increased risk taking by S&Ls." Glad to see your posted article completely agreeing with me about the twin factors creating the occasion for the massive hit to the taxpayers that the S&L Bailout was were: A) Increased Deposit Insurance (without raising premiums for that insurance anywhere NEAR enough), which federalized a guarantee for the ENTIRE INDUSTRY. and, B) Faulty 'deregulation' which allowed here-to-for boring and predictable deposit taking institutions to 'invest' in most any wild-eyed investment scheme that Wall Street could dream up to sell to these rubes (Milkan and his outrageously over-priced junk bonds, sold to the locals for big, big mark-ups), or (often fraudulent) purely SPECULATIVE wild-eyed local investment schemes such as virgin commercial real estate developments (strip malls, office towers, raw land purchases with the idea of eventually building tract housing, or just later 'flipping' the raw land for what was assumed would be profits, etc., etc.) With the EXPANDED FEDERAL GUARANTEE on deposits the S&Ls could attract a steady stream of deposits and, with the deregulations permitting them to invest in most anything they wanted to, the S&L cowboys felt that they could take ANY RISK THEM DAMN WELL WANTED TO and... if it paid off, then they could personally get massively rich and, if the risks blew-up, then the TAXPAYERS would be on the hook for the losses because of the EXPANDED federal guarantee to the depositors! Any of that sound FAMILIAR??????????? It should because it just played out again, (it seems to be in the basic 'DNA' for most all of these generational financial boom/bust cycles), Out-sized Private Profit Opportunities and SOCIALIZED LOSSES if and when the wild schemes come a'cropper..... As the words of the song go: "Second verse, same as the first." Another way of putting the same thing is that "Those who fail to learn from history are condemned to repeat it." (Even if history never repeats itself exactly, though it often 'rhymes'. <GGG>) Re: "State-imposed usury laws limited the rate lenders could charge on home mortgages until Congress banned states from imposing this ceiling in 1980. In addition to interest rate ceilings on mortgages, the due-on-sale clause in mortgage contracts was not uniformly enforceable until 1982. Before, borrowers could transfer their lower-interest-rate mortgages to new homeowners when property was sold. A federal ban on adjustable-rate mortgages until 1981 further magnified the problem of S&L..." So, progressively through the period of 1980-1981-1982 ALL of these problems with mis-matched mortgage maturities and adjustable yields on mortgages were FIXED. (You own article points this out....) There was NO LONGER any systemic problem with the S&L's traditional line of business. (Aside from a completely temporary depression in declared book values of held assets... which automatically righted itself without any further action being required.) And then CONGRESS and the Reagan WH passed the two things which inflated the bubble, and made the crisis and bubble-bust inevitable: "A" and "B"... raised deposit insurance (without raising premiums to finance the 'free' insurance), and lifted the restrictions on risky investments. A 'FREE' TAXPAYER-GUARANTEE, and an open INVITATION TO GAMBLE for private profits and (in the event the gamble doesn't pay off) Socialized Losses.

To: TimF who wrote (40119)	3/6/2012 8:50:17 PM
From: greatplains_guy	Respond to of 71588

Ron Paul and the Fed Armstrong Williams Mar 06, 2012 Ron Paul wants to abolish the Federal Reserve. He may be right; it is hard to see how the Fed has enhanced our US economy. Since 1971, when President Nixon ended the gold standard, the dollar has been more volatile than in any time period before -- not only in immediate, day-to-day volatility, but also over the long run. People often marvel that a loaf of bread used to cost a dime, but they never ask why so much inflation has occurred over these past few decades. There are several reasons, but the biggest of these is undoubtedly the Fed. By devaluing the dollar, like China is doing to the Yuan, the Fed and its technocrats try to encourage our exports. But as we know, the market will not permit distortions, and will punish them. This is bad policy. Quantitative easing, author Louis Lehrman says, is just "a euphemism for money printing or credit creation." These excess dollars go abroad as reserves, and are then invested in US securities to finance the deficit. So, we receive back what we give out: we buy without paying. If economic growth were this easy, why stop printing money? The Fed creates demand for goods and assets without increasing supply. This is a recipe for crippling inflation; it is an insult to hard-working Americans who want to pass down their wealth to their children and not see it turn to worthless paper. Thus has the Fed has not only fed our consumer culture by financing the national debt, and discouraging savings by weakening the dollar, but it has also masked the problem of vanishing American exports, making the situation look better than it really is. How ironic that this veneer of health is actually helping foreign imports! One of the many causes of the Great Recession, from which we are now still struggling to escape, is the seemingly endless Federal Reserve subsidies (that's what they are) to the world banking system. Not only did the Fed help cause the recession, but it has slowed the recovery. By keeping interest rates low they have hurt savers and pension funds, when our nation needs above all more savings. Who wants to save a thousand dollars annually only to receive 25 basis points or $25 a year from their bank? There is a certain irony that the financial recession was caused by over extended lending in the real estate sector and the Fed's solution is to reduce interest rates in that sector of the market. Does the Fed truly want to encourage Americans to borrow more money to invest in real estate? Our money supply has increased about 3 times. Is this not an inflation nightmare waiting to happen? Ron Paul deserves credit (if you pardon the pun) for raising the question of monetary policy among the general electorate. We must examine the wisdom of its independence from Congressional oversight. A more moderate view, one we should all be able to agree on, is that the Federal Reserve must be subject to a public audit of its activities. Surely no one on either side of the aisle thinks it wise to put so much power in the hands of so few without any check or balance. Steve Forbes, investing and business genius, says that it is almost inevitable that the United States return to the gold standard, which would completely take away the power of the Fed to manipulate the market and, thus, manipulate our lives. Another irony is that it is our friends on the Left who fear this change and wish to preserve the status quo, afraid of the consequences of restoring convertibility to gold simply because we haven't done it before. By taking away the Fed’s power and giving it to the free market, we will all benefit. The market knows best how to allocate resources, even better the brightest and most well-connected of our technocrats. Representative Paul is 76, and if John McCain was too old to be president, then so is Paul. But he has already accomplished a tremendous legacy of energizing young people about liberty, and awakening us all to the quiet power of unelected men and women who tinker with our lives. He will be a symbol for years to come. townhall.com