Markets Fail When Humans Are Unregulated

[Contumacious]

Former Federal Reserve chairman Alan Greenspan answered that he had placed his trust in a flawed theory

Fascism is indeed a flawed theory. How many agencies were regulating Bernard Madoff?


The zombified never cease to amaze me.

Apparently none.

The one that was supposed to be, the SEC, was undermanned, and Bernie had one of them in his pocket.

"Peter Schiff, president of Euro Pacific Capital in New York, also raised concerns about the SEC’s auditing of the firm. “Of course, the fact that the SEC routinely audited Madoff’s investment company and found nothing wrong is further proof that government regulation of the securities industry is ineffective and has done more harm than good,” he said. “Rather than protecting investors, it merely lulls them into a falls sense of confidence. If government stayed out, private-sector due diligence would do a much better job of ferreting out such massive and poorly conceived scams."

 

[Vast LWC]

Who should regulate the market? Should it be the government or the people in the market who knows what's in their best interests?

It should most certainly be an agency that does not have a vested interest in making sure they make a profit from the market.

That's either the government (as a relatively impartial party), or an independent agency made up of people who don't invest and don't have family members who invest.

Since no-one seems to be stepping up to form such an agency, and even if they did, there'd be no way to enforce their decisions, the burden falls to the government.

What's DAMN sure at this point is that the markets will not regulate themselves. We now see what happens when we allow that to happen. Of course if we had paid any attention to history at all we would have already known that from 70 years ago.

The problem with this nation is we have become so dependent on government that people just assume everything is alright without doing any sort of fact research. We all think that no matter what happens someone will bail us out so we can take risks we wouldnt normally make if we realized we couldnt. We live beyond our means. We are dishonest.

While some of what you say is true in some circumstances, in this case it is certainly the job of government to protect consumer interests and uphold the law.

And that pretty much somes up the problem. We, as a society, are dishonest. We lie to ourselves. We lie to others. Most of us are still in complete denial about what is going on in our lives. We want to blame others. It's the other guys fault. It's always there fault. Or it's God's fault. Or it's Life's fault. It's everyones fault but your own.

Maybe all of us just need to sit down and do an inventory of our lives and start being honest with ourselves about our circumstances. Until you recognize the problem, you can't fix it. And government sure can't fix it.

Did you falsify the ratings on the derivatives? Did I?

Did either of us have any idea this was occurring until it blew up in our faces?

The answer to those questions are no, no, and no.

Which is why IN THIS CASE, government regulation is called for, and needed not only for the common good, but for the good of the market itself.

 

[Vast LWC]

"Peter Schiff, president of Euro Pacific Capital in New York, also raised concerns about the SEC’s auditing of the firm. “Of course, the fact that the SEC routinely audited Madoff’s investment company and found nothing wrong is further proof that government regulation of the securities industry is ineffective and has done more harm than good,” he said. “Rather than protecting investors, it merely lulls them into a falls sense of confidence. If government stayed out, private-sector due diligence would do a much better job of ferreting out such massive and poorly conceived scams."

Because Madoff had the person who was responsible for doing the auditing in his pocket. If the SEC had the proper personnel in place, they might have had safeguards in place to make sure that didn't happen.

Instead the SEC had been underfunded and undermanned due to cutbacks by people who didn't believe the market needed regulating.

 

[Vast LWC]

I guess what I"m saying here, in summary is simply this:

Bad mortgages were given out. They shouldn't have been. That is true.

But the bad mortgages are not what caused the crisis.

Sure, if there were defaults, some people would have lost their homes, and the banks might be out a bit of money, but insurance would cover most of the losses.

The hyperinflation of the value of the mortgages, through derivatives, and the credit default swaps associated with them WERE the cause of the crisis.

Fannie Mae and Freddie Mac were at fault for a good number of the problems, but private firms were at fault for a majority of them.

It's just like the derivative trading in the 1920's that led to over-leveraging and the market crash of '29, only in this case it was based on the Real Estate market.

And this was all made possible by the deregulation of the market included in federal legislation in 1999 and 2000.

 

[Oddball]

You're blaming the derivatives traders for the problem, when they merely played with the instruments that were given to them.

This was not the fault of mythical "deregulation" but pressure to give people mortgages based upon political considerations, rather than sound lending practices.

 

[Vast LWC]

You're blaming the derivatives traders for the problem, when they merely played with the instruments that were given to them.

This was not the fault of mythical "deregulation" but pressure to give people mortgages based upon political considerations, rather than sound lending practices.

That's like saying "none of this would have happened if no-one got mortgages in the first place".

I think that the mortgage markets need to be regulated more also. I think that the (mostly) Democrats who allowed sub-prime mortgages to occur were wrong.

But what I'm saying is that this type of crisis could happen in ANY market that uses derivatives, like it did in 1929.

In this case, mortgage derivatives and the associated credit default swaps were just the type of security being used.

The original items used in the derivatives could have been tulip bulbs or fire hydrants, once the tulip bulbs died, or the fire hydrants rusted, or whatever base item it was ceased to have value, the entire upside-down pyramid of derivatives collapses.

If no derivatives existed, and no-one hyper-inflated the values of the securities, the crisis would have never occurred.

 

[Gunny]

Markets Fail When Humans Are Unregulated
Posted By Paul Craig Roberts On February 5, 2010

Former Federal Reserve chairman Alan Greenspan answered that he had placed his trust in a flawed theory when he was called before Congress to explain why he, Goldman Sachs Treasury Secretary Robert Rubin, and Deputy Treasury Secretary Larry Summers prevented Brooksley Born, head of the Commodity Futures Trading Corporation, a government regulatory agency, from doing her job of regulating over-the-counter derivatives.

The efficient markets theory is that unregulated markets are efficient and rational. According to this theory in which Greenspan placed his trust, unregulated markets produce the best possible result. Any regulatory interference worsens the outcome.

Greenspan blamed his own bad judgment on a theory. The theory, or Greenspan’s understanding of it, nevertheless still holds sway as Congress has proved impotent to re-regulate the gambling casino that is Wall Street. Clearly, the theory serves powerful interests.

But what is the truth?
The truth is that markets are a social institution. Their efficiency depends on the rules that govern the behavior of people in markets. When free market economists talk about markets deciding this or that, they are reifying a social institution and ascribing to it decision-making power. Socialists make the same mistake when they blame markets for the results of human action. But, of course, markets do not act or make decisions. People act and make decisions, and markets reflect the decisions and actions of people.

The entire debate over regulation is misconstrued. It is not the market, an efficient social institution, that is regulated. What is regulated is the behavior of people in markets. If you want good results from markets, good regulation of human behavior is a requirement.

The market is like a computer. Garbage in, garbage out.
If people who use markets are not regulated, they issue fraudulent financial instruments.

They leverage assets with absurd amounts of debt. They market their instruments with fraudulent investment grade ratings. They deal themselves aces.

Did Greenspan not know this? Was he a victim of a theory or an enabler of greed unleashed by the absence of regulation?

The way to bring socialists and capitalists together is to recognize that markets are efficient and that self-interested human behavior requires social regulation.

The failure to regulate financial markets has produced enormous losses to all Americans except the super-rich. But the U.S. government is guilty of an even greater failure. Washington has not only permitted but also encouraged the unemployment of its citizens by enabling greed-driven corporations to send American jobs abroad in order to maximize profits for CEOs’ bonuses, shareholders, and Wall Street.

As Ralph Gomory has made clear, economic theory has been shattered, because there is no longer any connection between the profits of American companies and the welfare of Americans. The profits of American companies are derived from the cheap labor in offshored locations and are at the expense of the American work force.

This dispossession of American labor has been heralded by offshoring’s pimps in the major universities as “the New Economy.”
The “New Economy” is a hoax like most everything else the bought-and-paid-for-media feeds to Americans. There is no new economy. There is an unemployed economy. The headlined unemployment rate is just over 10 percent. The real unemployment rate, as measured by the current methodology is 17 percent. The unemployment rate as measured by the methodology of 1980 is 22 percent.

If jobs offshoring is a benefit to America, as the hired pimps of the transnational corporations claim, why is more than one-fifth of the U.S. work force unemployed? Why does the U.S. have the largest trade deficits in world history? Why is the U.S. dollar losing value over time to other tradable currencies?

MORE: Markets Fail When Humans Are Unregulated | Foreign Policy Journal

Try regulating yourself, huh? I can handle my stuff without someone directing me to do what they want. If you need a nanny, move to Europe.

 

[Nosmo King]

He is just covering his own incompetency as Fedd. Chairman, there was a lot of govt. intervention and regulation already involved but capitalism does make a good scapegoat when their own regulations/policies backfire.

If by regulations you mean enforcement, I agree. The Fed turned a blind eye to the derivatives market and look what happened! Those free wheelin' Capitalists pissed in their own beds.

 

[Vast LWC]

Try regulating yourself, huh? I can handle my stuff without someone directing me to do what they want. If you need a nanny, move to Europe.

Well then, next time a broker or bank tells you your assets are worth a million dollars and they suddenly turn out to be worth next to nothing, you have no-one to blame but yourself, since you're apparently the sole regulator of the bank you keep your money in.

 

[Oddball]

He is just covering his own incompetency as Fedd. Chairman, there was a lot of govt. intervention and regulation already involved but capitalism does make a good scapegoat when their own regulations/policies backfire.

If by regulations you mean enforcement, I agree. The Fed turned a blind eye to the derivatives market and look what happened! Those free wheelin' Capitalists pissed in their own beds.

The "freewheeling" was done at the level of the creation of the mortgages the derivatives traders bought and sold, not anything that they did.

Try to keep up here.

 

[Contumacious]

"Peter Schiff, president of Euro Pacific Capital in New York, also raised concerns about the SEC’s auditing of the firm. “Of course, the fact that the SEC routinely audited Madoff’s investment company and found nothing wrong is further proof that government regulation of the securities industry is ineffective and has done more harm than good,” he said. “Rather than protecting investors, it merely lulls them into a falls sense of confidence. If government stayed out, private-sector due diligence would do a much better job of ferreting out such massive and poorly conceived scams."

Because Madoff had the person who was responsible for doing the auditing in his pocket. If the SEC had the proper personnel in place, they might have had safeguards in place to make sure that didn't happen.

Instead the SEC had been underfunded and undermanned due to cutbacks by people who didn't believe the market needed regulating.

The ONLY ones that need to be regulated are the federal bureaucrats who routinely and boldly ignore the Supreme Law of the Land.

.

 

[beowolfe]

Huh?

Do not the same human failings apply to the regulators as those in the markeplace?

Of course it does. But just like you don't get rid of the markets because of human foibles, you don't get rid of the regulations because of human foibles.

 

[Nosmo King]

He is just covering his own incompetency as Fedd. Chairman, there was a lot of govt. intervention and regulation already involved but capitalism does make a good scapegoat when their own regulations/policies backfire.

If by regulations you mean enforcement, I agree. The Fed turned a blind eye to the derivatives market and look what happened! Those free wheelin' Capitalists pissed in their own beds.

The "freewheeling" was done at the level of the creation of the mortgages the derivatives traders bought and sold, not anything that they did.

Try to keep up here.

The damage was done by unscrupulous Capitalists who took advantage of de-regulation, courtesy of Phil "bunch of whiners" Gramm and his dismantling of Glass-Steagall. Thanks!

 

[Vast LWC]

The ONLY ones that need to be regulated are the federal bureaucrats who routinely and boldly ignore the Supreme Law of the Land.

See, the thing about a statement like that is it's just empty rhetoric. AKA a "talking point".

This is because:

• It's not relevant to the conversation.
  
• It's overly accusatory.
  
• It's completely unspecific.

 

[Oddball]

Huh?

Do not the same human failings apply to the regulators as those in the markeplace?

Of course it does. But just like you don't get rid of the markets because of human foibles, you don't get rid of the regulations because of human foibles.

Nice circular logic.

 

[Contumacious]

Who should regulate the market? .

The Marxists.

 

[Contumacious]

The ONLY ones that need to be regulated are the federal bureaucrats who routinely and boldly ignore the Supreme Law of the Land.

See, the thing about a statement like that is it's just empty rhetoric. AKA a "talking point".

This is because:

• It's not relevant to the conversation.
  
• It's overly accusatory.
  
• It's completely unspecific.

That is because you have either not taken US History or failed it miserably.

.

 

[uscitizen]

The high risk mortgages weren't properly collateralized....That was not a fault of regulation, but of the passive-aggressive nature of poverty pimps like Sharpton, Jackson, Frank, ACORN, et. al.

The derivatives market was infused with mortgages that should never have been written up....That's not the fault of the derivatives traders.

those deritives were also rated low risk by moody and S&P.
Then we had deritives insuring derivitives, etc...

Traders should have known you can't get something for nothing.

 

[Oddball]

If by regulations you mean enforcement, I agree. The Fed turned a blind eye to the derivatives market and look what happened! Those free wheelin' Capitalists pissed in their own beds.

The "freewheeling" was done at the level of the creation of the mortgages the derivatives traders bought and sold, not anything that they did.

Try to keep up here.

The damage was done by unscrupulous Capitalists who took advantage of de-regulation, courtesy of Phil "bunch of whiners" Gramm and his dismantling of Glass-Steagall. Thanks!

Bunch of crap.

The derivatives traders only traded in the mortgages available to them, many of which were undercollateralized and written under duress of possible retribution of authoritarian do-gooders, under the phony rubric of "affordable housing".

It's an all-too-familiar refrain since the beginning of the progressive era.....Economic idiot savant political hacks tried playing God in the marketplace, then blame "capitalism" when all their Utopian do-goodery blows up in their faces.

 

[Vast LWC]

The "freewheeling" was done at the level of the creation of the mortgages the derivatives traders bought and sold, not anything that they did.

Try to keep up here.

That's like saying the Dutch "Tulip Bulb Mania" of 1637 was the fault of the tulip bulbs.