Mac1958
Diamond Member
- Dec 8, 2011
- 117,808
- 117,302
No, CMO's, CDO's and all other derivatives would just have to go through a strong initial vetting process before making it to market. Most of them, especially the CDO's, should never have existed in the first place. When people simplistically scream about the market being a casino, they can point to derivatives, and they're right.You're making my point for me; the lack of regulation wasn't the problem since the "regulators" didn't even understand what was going on, heck nobody in the regulatory state was sounding any alarm bells prior to the crash, quite the opposite, everybody (including the Top Banker at the Fed at the time) was assuring the public that all was rosey. The only people sounding alarm bells were independent analysts and a handful of Wall Street execs (Schiff comes to mind) and they were largely laughed at when they predicted the crash.Believe me, I'm neck-deep in regulations as an advisor, but they're uneven.Try being a bit more specific... I'm not arguing anything from a partisan basis since I don't believe any party is actually interested in addressing any of the structural issues within our economy, they're only interested in keeping the current ponzi scheme going for as long as possible because the power brokers in the political parties are the ones that benefit from it.Some of this stuff drives me a little nuts. These arguments are so shallow and partisan-based that I don't even know if they're serious.They're not Mac, they're actually the smallest part of the picture but they're also the easiest to fix (get rid of them). The (vastly) larger issues are the insanely excessive costs of the existing regulatory regime and a debt driven monetary system that puts complete control of where money flows and where it doesn't into the hands of private banks (for further clarification see the "Crash of '08" and how bankers shoveled money into the housing sector creating a speculation bubble and unsustainable debt levels that eventually burst).Corporate tax rates can't be the only part of the overall picture. They don't stand by themselves in this equation.
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What do you think is driving money into derivatives? Might it have something to do with the fact that it's more profitable to speculate on future price action than to invest in productive enterprise? and might that be because our current regulatory regime, tax policy and monetary system tend to penalize production and reward consumption and speculation?Yes, indeed, we're awash in (often redundant) regulations right now, and that has to be a part of this process. However, volume of regulations (more or fewer) is less important than efficiency and effectiveness. We can't go too far in de-regulation either, as that was a big part of the problem with derivatives. And still is.
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I'm not arguing for de-regulation just for the sake of de-regulation; this can be done solely on the basis of cost-benefit where each and every regulation on the books is examined to determine whether the benefits outweigh the negative economic consequences and if they don't eliminate it. We don't do that today, we book regulations and then constantly add more regulations in an attempt to "fix" all the negative consequences of previous regulation; just look at this "health care law" imbroglio if you want a current example, more regulation (Obamacare) --> unintended negative consequences --> more regulation to "fix" those (Trumpcare or whatever the fuck they end up calling it) --> unintended negative consequences..... welcome to the hamster wheel.
CMOs and their evil twin CDOs were largely unregulated, and even Greenspan himself strongly argued against them - even though he admits that, with his extensive background in mathematics, he didn't understand them! And they're being sold to investors, hedge funds, charities, states and municipalities globally?
The root of the problem is that the risk-reward for speculation is a better bet than the risk-reward for investing in actually building things and providing services that benefit consumers and until you fix that all the regulation in the universe isn't going to do any good (actually it just makes things worse), especially given that our system is rife with moral hazard where losses on speculation are socialized and profits are privatized while any "penalties" imposed for regulatory malfeasance directly benefit regulatory agencies (they get to keep any "penalty money" while the poor customers and investors of whatever entity was "penalized" get to foot the bill for 'em).
We had regulations and that didn't do any good, those responsible for writing regulations don't understand the interaction of the variables that the regulations they write are altering and those enforcing the regulations either don't know what the hell is really going on or look the other way because it's in their own best interests to do so, remember Madoff? Regulators were warned specifically about what he was doing TEN YEARS before they actually did anything about it, regulators were warned about the impending crash of '08 three years before it happened and didn't raise a peep, so what good would more regulations have done?That is financial malfeasance of pretty much the worst sort. That's why regulations that are both efficient and effective are so badly needed.
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And, given the fact that global investors were trusting the paid-off "ratings" agencies when they invested millions, that is another massive situation that should never have happened. If regulated properly, ratings agencies would have to abide by strong foundational standards requirements across the board.
And let's not forget, the SEC and FINRA were badly, comically understaffed, and we know how that happens.
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