Where did the sub-prime money go?

[FOTD]

Hey, I have a great idea, why don't we reduce the size of government and let private enterprise monitor themselves?  

[YoungTulsan]

quote:Originally posted by FOTD

Hey, I have a great idea, why don't we reduce the size of government and let private enterprise monitor themselves?  

I get what you are insinuating.  Regulating companies to death is not the answer though.

Imagine the amount of corruption that would be eliminated if there were simple rule of law regarding money.  Sound money, meaning money has intrinsic value.  It is the distortion of money, the ability to create false valueations, the ability to shift wealth away from the bottom and towards the top that creates a lot of the corruption.

You couldn't just drop all government regulation of business, but leave everything else the same.  I'm sure that is how you are imagining it.

Before you reduce government regulation, you need to have sound money.  Before you reduce government regulation, you need to have courts that defend the rights of the individual.  If that all came together, we would be better off without the government getting involved in business.

Excessive regulation punishes honest business just as much as it punishes corrupt business.  Giving government power and control over business, just GIVING them the power, sets up an environment where lobbyists can have the rules shaped to benefit their interests.  So in some instances, regulations can cause MORE corruption.  Why should an honest businessman have to shoulder massive compliance costs to meet a bunch of excessive government regulations?  Sometimes regulations can be so massive that it shuts the little guy out of the field, only the big dogs (the ones you undoubtedly think are evil) can compete when the price of entry is so high.  Yes, reduce regulations.

Enforce the rights of individuals!  Take them to court!  We have regulations in place right now where corporations can commit heinous acts, but get away with them by paying FINES that are much lower than the actual damage they are doing to individuals around them.  Refineries GLADLY pay fines from the government, because they know the government is giving them a hell of a deal compared to if they were actually legally obligated to compensate people for their troubles, reduced property values, health problems, etc caused by their pollution.  The companies that are actually doing bad things to people could be punished, but the companies operating honestly will prosper and not have to pay penalties because other players in their industry decided to operate in a different fashion.

You could reduce the size of government, protect the individual, and reduce corruption all at the same time if you employed all of the correct policies together.

[we vs us]

Bravo, YoungTulsan.  An excellent couple of posts.  

+8

[cannon_fodder]

YoungTulsan, to be fair everyone (including AOX) knows that larger governments are corruption free. In spite of his deep hatred of Bush and constant accusation of corruption, more power for Bush is the way to stop the problem.  The countries with the strongest central governments have the least problems (North Korea, Russia, Dubai, Cuba...).

[YoungTulsan]

quote:Originally posted by cannon_fodder

YoungTulsan, to be fair everyone (including AOX) knows that larger governments are corruption free. In spite of his deep hatred of Bush and constant accusation of corruption, more power for Bush is the way to stop the problem.  The countries with the strongest central governments have the least problems (North Korea, Russia, Dubai, Cuba...).

Oh my bad!  I spasmed and accidentally typed all of that anyway.

[cannon_fodder]

And every time I read this line I agree more:

quote:Excessive regulation punishes honest business just as much as it punishes corrupt business.

But I'd step it up a notch.  For every 1 crooked business you punish with regulation you punish 10 honest businesses.  It's akin to "safety" checkpoints looking for drunk drivers - you punish every driver on the road to catch the 5% that are doing wrong.  But in business, instead of 10 minutes it costs tons of money.

Anyone who thinks more regulation is needed has never had to try to comply with the current mass of regulations.

[FOTD]

Time for the government regulators to get back to doing their strict compliance over site that changed under Bushco. What slackers.

"He (and cronies) Got the Gold Mine, We Got the Shaft."

Ok....off to recess(ion).

[cannon_fodder]

quote:Originally posted by FOTD

Time for the government regulators to get back to doing their strict compliance over site that changed under Bushco. What slackers.

Thank you for showing you have NO idea what you are talking about.  

The regulations have gotten so tough trying to undo the harm done in the anything goes 1990's that many financial services have moved to London.  Long, ENGLAND is again the financial capital of the world because there is so much regulation in the good ole' USA.  In the 90's the good times were rolling so no one paid close attention.  Under Bush we uncovered all sorts of fraud, laundering, and other cases of criminal behavior.

As a result the pendulum has swing towards over regulation and it has cost the United States tens of thousands of top notch jobs.  Instead of just enforcing the laws on the books (that would have dealt with the issue being that it was already illegal) we have induced mores punishments for the vast majority of companies that followed the rules.

Financial regulation has gotten stiffer, not more lax under the current administration and Sarbanes-Oxley and enforcement of existing laws has stepped up. You have told me before you have never work in, studied, or even really followed finance.  Why keep making statements that emphasize that point?

[we vs us]

quote:Originally posted by cannon_fodder

quote:Originally posted by FOTD

Time for the government regulators to get back to doing their strict compliance over site that changed under Bushco. What slackers.

Thank you for showing you have NO idea what you are talking about.  

The regulations have gotten so tough trying to undo the harm done in the anything goes 1990's that many financial services have moved to London.  Long, ENGLAND is again the financial capital of the world because there is so much regulation in the good ole' USA.  In the 90's the good times were rolling so no one paid close attention.  Under Bush we uncovered all sorts of fraud, laundering, and other cases of criminal behavior.

As a result the pendulum has swing towards over regulation and it has cost the United States tens of thousands of top notch jobs.  Instead of just enforcing the laws on the books (that would have dealt with the issue being that it was already illegal) we have induced mores punishments for the vast majority of companies that followed the rules.

Financial regulation has gotten stiffer, not more lax under the current administration and Sarbanes-Oxley and enforcement of existing laws has stepped up. You have told me before you have never work in, studied, or even really followed finance.  Why keep making statements that emphasize that point?

Hold up there, CF.  Much of what's gone on with the subprime mess has to do with a complete absence of regulation.  And when I say subprime, I'm meaning that to also include the credit crunch, the collapse of CDOs and other debt-backed securities, liquidity issues around the world, and the recent implosions of bond insurers.  

The entire house of cards -- starting with selling the riskiest buyers big loans and running all the way up to these bond insurers certifying the securities made from those loans -- was underscrutinized and people were allowed to make up their own rules.  They created their own weird investment products, created their own weird credit standards, and weird mortgage terms, and then quite possibly got the private companies who certify the bonds and the insurance and the products to either look the other way or collude entirely with the weirdness.

Consequently -- as rwarn rightly pointed out on this or another thread -- even the guys who came out to appraise the house were in on the scam.  Things were so loosey-goosey (money was so very cheap) that there was incentive all over the place to commit fraud.  And there's some strong circumstantial evidence at this point that it was committed en masse.

I'm not quite sure how "too much regulation" fits into this economic problem.  How would less scrutiny have fixed the subprime crisis?

It's also worth pointing out that regulation on the face of it is not a bad thing.  In fact, ones like SarbOx have a real purpose in the free market, by improving transparency, setting out common rules, and in general reinspiring trust.  Make the playground safe, and everyone can join in.  Let the people with power make the rules, and the bullies will take over.  That's why I really just don't get the knee jerk thing against regulation.  I don't think anyone -- even FOTD -- wants to make it harder for companies to do business just out of spite.  But if the environment is permissive enough to endanger our economy, then heck yeah, time to reign 'em in.

[cannon_fodder]

I was referring to governmental regulation of the economy as a whole.

I was not referring to the subprime issues at all, which we agreed was the result of greed on behalf of originators, lenders, and home buyers.  If the parties on both sides decide it is a good deal, the government should not tell them otherwise.  

How could the government better regulate the subprime market WITHOUT dictating market prices and at the same time continue it's policy of "encouraging" banks to make bad loans to people too poor to afford them?  The government has no business, at all, telling me what my house or anyone else's house is worth.  They have no business telling me how much money I can borrow or how much bank X can lend me.

Such notions go against the basic precepts of a free and open society (which is based largely on property rights).  Under the current system I am free to employ whomever I choose to appraise a house, I am free to ignore that figure, I am free to borrow only a portion of the loan or an amount in excess of the value.  I get to choose, if I make a bad choice I get punished.

If there is fraud involved that is a crime - fraud. Being that it is already illegal why pass more laws addressing the same issue?  If a bank colludes with an appraiser, a title company clears a title that is not, or terms of a note are disingenuous those things are ALREADY illegal. Passing another law is akin to saying it is illegal to murder ones wife and a new law making it illegal to shoot her to death.

What additional regulation would you propose that would not further erode my right to conduct my financial affairs as I see fit?  The vast majority of ideas that I have heard would punish and reduce the rights of the 90% of homeowners who are OK to protect the 10% that made a bad financial decisions.  Keeping in mind that mortgages are already the most heavily regulated financial transaction most people ever undertake.

So the question is NOT how would less scrutiny have fixed it, the question is would more regulation do more to help or to hurt?
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My knee jerk reaction to regulation comes from my understanding of it.  The government's involvement in the economy should be limited to correcting market imperfections.  Not everyone has perfect information, so insider trading is banned.  It is inefficient to have competing utilities each string power lines.  Pipelines in interstate commerce need a common set of guidelines to operate smoothly and safely.

Ever regulation the government passes is a new tax.  Each government form says right on it how long they think it will take to fill it out.  Most companies of any size has a compliance officer for safety, for tax, for environmental, and for DOT regulations.  Even small business owners will tell you most of their time is spent on such nonsense.  And too often the purpose of the regulation is lost in the effort.

Yet another portion of my disdain is that regulation rarely goes away.  With each new regulation we add a new level of ingrained bureaucracy to over come before we can get the job done.  The purposes usually over lap and on occasion contradict each other.  Not only does it cost companies more money to comply, it is doubly so as their taxes increase to cover the new governmental expense associated with it.

quote:f the environment is permissive enough to endanger our economy, then heck yeah, time to reign 'em in.

And that is the heart of the matter.  The government does not PERMIT anything, I do not do business under the grace of our government.  as a government of "limited power" they need to show cause and authority to regulate me.  I do not have to illustrate my right to operate free of additional control.

If my behavior in a free market endangers the economy so be it, the economy will have to adjust.  So long as I am not exploiting a market imperfection the government should leave it well alone.  A more planned economy will have more ups and downs, but it will outperform a more regulated economy in the long run.

I, and most investors, trust the market.  Not the government. As you said, keep the playground safe with vivid enforcement of laws designed to correct imperfections (capitalism is based on the illusion that everyone ha perfect knowledge and equal opportunity, which needs government help) - otherwise leave me well alone.

and for the record, I am of the camp that says SarbOx will do nothing to prevent further snafus.  Existing laws dealt with the previous situation which was already illegal and the new regulation has simply driven many filings over seas and thus, has no effect.  Better enforcement of existing regulation would have been far, far more effective.
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R.I.P. Limited Government.

[Conan71]

The way I see it, the government un-wittingly allowed banks to entrap a new group of previously inelligible buyers into debt by enacting home ownership initiatives without fully understanding how that could be bastardized into something bad for the consumer.

I even have a hard time seeing home-ownership initiatives of the 1990's as even being that altruistic.  I'm sure banks were more than happy to grease the skids to make that a reality.

Wevus, even before the advent of sub-prime, appraisers (at least in the Tulsa area) were made aware of the purchase price of a home.  Every house I've bought, the appraiser was advised of the sale price by the lender.  That pisses me off no end.  It is in everyone's interest, especially the lender for the appraisal to be "blind".  When the agreed-upon purchase price is known, the appraiser does his appraisal knowing he has to please the buyer, seller, and lender.

If it's a blind appraisal, I think it creates far more objectivity.

[cannon_fodder]

I agree that the appraiser thing sucks, but it is less fraud than common knowledge.  The lender is not trying to dupe you into buying a home, a mortgage appraisal really means it is ok to lend XYZ amount on this house - it says nothing of actual value. And you can hire an independent appraiser if you so choose (I did and by his account I stole the house, though it was officially appraised right at the sale price).

If you want to use a "government" figure you can use the one from the county assessors... because clearly they are always on the money. []

[FOTD]

From what you've said here, you will like Sen. Dodd's proposal which sets supervision standards to watchover new regulations on lenders and appraisers AND sets up 20 Billion in financing to help get the housing debacle settled down.

It takes a democrat......but I do worry about the second shoe dropping http://news.yahoo.com/s/nm/20080131/bs_nm/usa_economy_dc_1  .