"level the playing field"? [Archive]

apeiron

Nov15-11, 05:05 PM

I think there are three key things to say:

1) The playing field was in fact radically levelled post-WW11 in Western nations as the result of civil rights movements and serious social change. Women and minorities saw a real and lasting opening up of opportunity.

2) Since then, some new inequalities of opportunity have been locked in with the emergence of an underclass (multigenerational welfare coupled to breakdown of community in neoliberal consumer economic model). And also the development of an elite or "overclass".

Social mobility stats in US, UK, etc support that there is less movement. One of the things people can buy is a more certain future for their kids. There are network effects that limit opportunities for "outsiders".

But is this a big or small problem as yet? Arguably, the social change to level the playing field still far outstrips the unlevelling due to the institutionalisation of both fecklessness and privilege. :smile: And certainly, there is a freer flow of the technocrat class internationally. Less migration internally is compensated for by a lowering of barriers to actual outsiders. So the actual problem comes back to what to do with the underclass - given the extent that it is seen as a drag on national performance.

3) Then the bigger question. If the playing field is relatively level, do we still want to play the same game? If it was levelled to create equal access of opportunity for "wealth and consumption", then that is one choice. But societies can make other choices.

Bhutan, for example, is framing its national goal in terms of a "gross national happiness" index.

So "level playing fields" has a double implication I believe. It says everyone should be actively in the game (playing a part to the best of their energies and capabilities). But also that everyone should be playing the same game (as the game determines the nature of the playing field to be levelled).

You can appreciate this fact from the recent history of neoliberal consumerism - riding the curve of fossil fuel burning and natural resource consumption. If that is the chosen game, then the "levelling" process quite naturally includes stripping away every kind of structural impediment to the free playing of that game.

rootX

Nov15-11, 05:49 PM

It's about not letting people to
- cheat or bribe
- gain positions based on their ethnicity or gender

but I certainly don't think it's about
- making positions exclusive to minority/aboriginals
- giving out scholarships to minority/aboriginals/women

IMO.

Sometimes some positions are offered only to certain group of people and I think debunking or favoring these actions need some legitimate research (1) not personal opinions.

(1) e.g. on how giving a job to a poor will lead to a catalyst effect resulting in changes to the lives of far more people than giving a job to a rich person.

WhoWee

Nov15-11, 06:23 PM

I want you to think that I'm somehow in an unfair position, usually politically. I also realize that this statement is ambiguous, and that is precisely the reason I use it. Sorry, but a detailed explanation of what I want when I use this phrase would require me to list every instance in which I believe my opponent has an unfair advantage. That would take much too long, and I don't think it would help you.

If I had an opponent with a list of unfair advantages so long they couldn't be listed - I might find another event in which to compete.

DoggerDan

Nov15-11, 06:30 PM

I think there are three key things to say:

1) The playing field was in fact radically levelled post-WW11 in Western nations as the result of civil rights movements and serious social change. Women and minorities saw a real and lasting opening up of opportunity.

Check.

[qupte]2) Since then, some new inequalities of opportunity have been locked in with the emergence of an underclass (multigenerational welfare coupled to breakdown of community in neoliberal consumer economic model). And also the development of an elite or "overclass". [/quote]

I find these assertions somewhat ridiculous, as a third of the folks in my masters classes have been from such "multigenerational welfare" groups. They're among the better students, too, as they know what it took for them to get there.

Is it more difficult? Yep. Is it impossible? Nope.

I'm one of those who made it. I also saw a lot of folks from high school whom I left in my wake who're among those most vociferous about "leveling the playing field." Whenever I run into them, I don't tell them what I did or whether I'm retired, for fear of them putting me in their "1% bad-hats" bucket, even though I'm nowhere near the top 10% category, wealth-wise.

Social mobility stats in US, UK, etc support that there is less movement. One of the things people can buy is a more certain future for their kids. There are network effects that limit opportunities for "outsiders".

I think network effects make things more difficult. They do not block movement, and like all hurdles, they become the scapegoats to the real problem of entitlement mentality where people are more willing to work towards entitlements (OWS) than they are willing to work for pay. No job is beneath one's dignity when it means putting food on the table.

But is this a big or small problem as yet?

I think you've mis-ID'd the problem.

3) Then the bigger question. If the playing field is relatively level, do we still want to play the same game?

I don't. Didn't want to play that game when I first heard of it back in the 60s. Certainly don't want to play it now.

If it was levelled...

It is level, opportunity-wise. What will never be level is the fact that just as some folks are smarter than others, and so find most things easier (making grades), other folks have the benefit of parents who earn more, so than can more easily afford school. Again, I had neither of these advantages. Just a guy who was sick and tired of working landscaping, mowing lawns, and painting houses.

Dembadon

Nov15-11, 07:13 PM

If I had an opponent with a list of unfair advantages so long they couldn't be listed - I might find another event in which to compete.

Indeed. The definition is actually quite simple, as others have succinctly demonstrated, but I had fun trying to avoid answering the question directly. :devil:

apeiron

Nov15-11, 07:16 PM

I find these assertions somewhat ridiculous, as a third of the folks in my masters classes have been from such "multigenerational welfare" groups.

That is great news then and shows welfare support must work! :smile:

On the other hand, there is plenty of research on the issue of the underclass that may trump your annecdotal claims here.

Yes, escaping poverty/disadvantage can be a strong spur in life. Just as being born to privilege can be demotivating too.

But peer-reviewed research rather than annecdote may be necessary to tell us which is actually the exception, and which the rule.

It is level, opportunity-wise. What will never be level is the fact that just as some folks are smarter than others, and so find most things easier (making grades), other folks have the benefit of parents who earn more, so than can more easily afford school. Again, I had neither of these advantages. Just a guy who was sick and tired of working landscaping, mowing lawns, and painting houses.

Again, I agree that the opportunities are remarkably level in broad historic terms. But what I think OWS represents is people daring to question whether we are all playing the right game.

"Work hard, get rewarded" may be the just the mantra of a particular society at a particular moment in history. The future mantra might be work smart, or work co-operatively. The rewards might be having a sustainable future rather than an uncertain one, living in society less divided into winners and losers, etc.

ginru

Nov15-11, 08:02 PM

Again, I agree that the opportunities are remarkably level in broad historic terms. But what I think OWS represents is people daring to question whether we are all playing the right game.

"Work hard, get rewarded" may be the just the mantra of a particular society at a particular moment in history. The future mantra might be work smart, or work co-operatively. The rewards might be having a sustainable future rather than an uncertain one, living in society less divided into winners and losers, etc.
Ah, I was itching to say this but I knew I'd just launch into another rambling, incoherent rant so thank you for expressing it so concisely.

Evo

Nov15-11, 08:28 PM

Apeiron's post made me think of this.

http://www.breitbart.tv/bill-whittle-to-occupywallstreet-grow-up/

WhoWee

Nov15-11, 08:40 PM

Apeiron's post made me think of this.

http://www.breitbart.tv/bill-whittle-to-occupywallstreet-grow-up/

That was great!:approve:

rootX

Nov15-11, 09:27 PM

Apeiron's post made me think of this.

http://www.breitbart.tv/bill-whittle-to-occupywallstreet-grow-up/

I wasn't really impressed how he seem to misuse the Solow growth curve concept[1 (http://www.lhendricks.org/econ420/growth/Solow_SL.pdf)] and provided conclusion of being grateful to corporations. It's the first time ever I heard that I should be thankful to people who sell me things I need.

I noticed in my HS there was lots of rewards for just making efforts (as he said in the video) but this didn't turn out to be true in University.

I didn't really pay much attention to wall street people so can't really tell if they need to be sent to woods.

Evo

Nov15-11, 09:30 PM

I wasn't really impressed how he seem to misuse the Solow growth curve concept[1 (http://www.lhendricks.org/econ420/growth/Solow_SL.pdf)] and provided conclusion of being grateful to corporations. It's the first time ever I heard that I should be thankful to people who sell me things I need.That's a poke at the complaint that corporations are bad.

The whole thing is tongue in cheek, while at the same time pointing out the unreal feelings of entitlement that seems to be so pervasive among those that are unhappy. :biggrin:

rootX

Nov15-11, 09:50 PM

That's a poke at the complaint that corporations are bad.

My sister emailed me this picture a while ago
http://images.sodahead.com/profiles/0/0/0/0/0/0/0/0/2/Occupy-Wall-Street-Evil-Corporations-58225120265.jpeg
:rofl:

Evo

Nov15-11, 09:54 PM

My sister emailed me this picture a while ago
http://images.sodahead.com/profiles/0/0/0/0/0/0/0/0/2/Occupy-Wall-Street-Evil-Corporations-58225120265.jpeg
:rofl:
Ahahaha!!!! That's a good one!!

apeiron

Nov15-11, 10:54 PM

The whole thing is tongue in cheek, while at the same time pointing out the unreal feelings of entitlement that seems to be so pervasive among those that are unhappy. :biggrin:

OWS is just one face of things. And indeed, you could level at them the same charge of self-indulgent brats that was levelled at, oh say, their baby boomer hippy or Gen X punk parents.

IMO, an unreal sense of entitlement has been around a good 50 years now. Boomers in particular seem wedded to the belief that they are entitled to ever increasing personal freedom coupled to an ever rising material consumption.

But if you dig into the future of political thought, the Gen Y response to life is much more interesting than this kind of cheap shot bunch of kiddy whiners "analysis" might suggest.

For example, there are many who believe they can reform the world via social entrepreneurship. So that is about attaching a new set of values to free market principles. It is a well-articulated response (though still debatable how well it will work in practice).

See for example, http://tedxyse.org/

Then there are the more traditional greenie and sustainability responses going on. Like for example, http://www.transitionnetwork.org/

A lot of people judge political change in terms of what they know from the past. Communism, facism, neoliberalism, other historical experiments which seemed right for the time. It is then not easy to recognise the changes that are ushering in the future.

So yes, Gen Y does feel entitled. But while we are making the sweeping generalisations, we should also say empowered, upbeat, concerned by issues such as social equality.

Here is a little summary of the generational differences. And the world shaped to the tastes of baby boomers can't last forever.

Baby Boomers (1946 to 1964)
Defined by civil rights, Vietnam War, sexual revolution.
Grew up with stay-at-home moms, narrow gender roles, stable families.
Personality style is narcissistic, judgmental, intellectually questioning.

Generation X (1965 to 1979)
Defined by AIDS, recession, Cold War, soaring divorce rates
Grew up with divorce, latchkey kids, loose adult supervision.
Personality style is sceptical, searching, confrontational, individualistic,

Generation Y (1980 to 1994)
Defined by digital age, terrorism, globalisation.
Grew up with involved parents, cultural freedom but physical restrictions.
Personality style is disciplined, educated, competitive, upbeat, entitled.

Source: 2006 Cone Millennial Cause Study

Evo

Nov15-11, 11:02 PM

A lot of posters I see are calling for socialism. I don't think these kids have any clue what that means. I Believe that they truly think the answer is to take everything way from the rich and divide it amongst themselves and then all will be a "level playing field". :rolleyes:

WhoWee

Nov15-11, 11:18 PM

A lot of posters I see are calling for socialism. I don't think these kids have any clue what that means.

Anyone want to experiment?

http://www.snopes.com/college/exam/socialism.asp

Oltz

Nov16-11, 07:37 AM

Ok so Part 2

How do we achieve this leveling you all want?

How level do you want it ? Should the government raise eevry child and support them the same and feed them the same and force them to only learn the same things until age 25? so its fair adn they all have the same qaulifications?

Do we agree that everyone is equal under the law and at birth?

Do we agree that a majority will take advantage of a minority given the chance?

Do you think maybe the "rich" would not use their money to control poitics if they were not afraid the masses would simply take what they have worked for if they did not?

Ryan_m_b

Nov16-11, 07:59 AM

Ok so Part 2

How do we achieve this leveling you all want?
This utterly depends on the situation one is talking about. If the issue is the one I highlighted earlier (a disproportionate number of people from a certain background being accepted to certain schools) you could introduce tougher rules on how decisions are made. If the situation is that people of different sexual orientations are finding themselves discriminated when applying to certain jobs you could remove the legislation blocking them.

For many problems though the change required is going to be cultural rather than legal. It's pretty hard to influence that.
How level do you want it ? Should the government raise eevry child and support them the same and feed them the same and force them to only learn the same things until age 25? so its fair adn they all have the same qaulifications?
I don't think anyone would argue that. What most people want (and certainly what I want) would be to live in a society where anyone regardless of wealth, sex, ethnicity, class, background etc had the same opportunities as everyone else. That doesn't mean that if you have two people applying for a job they should be treated as equals, it means that they should be treated on their capabilities alone. Something that would aid this scenario is removing the obstacles that are in place for some groups in areas like getting an education.

I'm not saying that everyone should automatically get everything given to them on a platter not that people shouldn't work hard or anything like that. What I'm saying is that there are no barriers in the way of people doing things like getting an education or getting a job except capability.
Do we agree that everyone is equal under the law and at birth?
What do you mean by "equal"? We all deserve equal rights and treatment under the law yes. I don't know how much further that statement can go currently.
Do we agree that a majority will take advantage of a minority given the chance?
No.
Do you think maybe the "rich" would not use their money to control poitics if they were not afraid the masses would simply take what they have worked for if they did not?
There are more groups in the world than rich and poor. Elitism comes in many forms and wealth is just one of them. I think it is naive to simply say that "the masses" are champing at the bit to steal from the rich and that the rich spend a lot of what they have protecting themselves from everyone else.

I'm not sure what you are trying to say but I think you are suggesting that wealthy people influence politics as a means of protecting themselves from everyone else stealing their wealth? No I don't think that is the case, I think the majority of people the majority of the time would like to have political influence in their favour and some people are capable of exercising this.

WhoWee

Nov16-11, 08:20 AM

I don't think anyone would argue that. What most people want (and certainly what I want) would be to live in a society where anyone regardless of wealth, sex, ethnicity, class, background etc had the same opportunities as everyone else. That doesn't mean that if you have two people applying for a job they should be treated as equals, it means that they should be treated on their capabilities alone. Something that would aid this scenario is removing the obstacles that are in place for some groups in areas like getting an education.

my bold

Currently, tax policy favors companies that hire minorities, veterans, felons, welfare recipients, and women (basically everyone except white males that haven't served time in prison or the military) - how would you restructure these initiatives?

Ryan_m_b

Nov16-11, 08:48 AM

my bold

Currently, tax policy favors companies that hire minorities, veterans, felons, welfare recipients, and women (basically everyone except white males that haven't served time in prison or the military) - how would you restructure these initiatives?
No idea (also I'm not from your country and I don't know if such tax policies exist in mine). What I will say is that I doubt hiring quotas are a good thing.

AlephZero

Nov16-11, 01:29 PM

I don't think these kids have any clue what that means.

An earler version of the Snopes link joke (original source lost in the mists of time)

Socialist athletics team: 8 people who can all jump 1 foot and run 100m in 80 seconds.

Capitalist athletics team: 1 person who can jump 8 feet, 1 person who can run 100m in 10 seconds, 1 project manager, 1 management accountant, 1 PR consultant, and 3 lawyers.

ginru

Nov16-11, 01:47 PM

Currently, tax policy favors companies that hire minorities, veterans, felons, welfare recipients, and women (basically everyone except white males that haven't served time in prison or the military) - how would you restructure these initiatives?

Personally, I'd like to move away from discriminatory incentives like those ones along with unemployment benefits and welfare altogether. Instead, shift the underclass labor towards being a dynamic freelance workforce constantly engaged in learning, teaching, and working. Internship/training programs for unemployed workers would be vital in maintaining practical skills and experience between projects, and then compensation for such would be minimal to avoid conflict with the fully-employed workforce. Perhaps taxes would be raised on corporations that outsource overseas but then we could likewise give equivalent tax breaks to those that engage in domestic training systems.

In addition, there would be local nonprofit unions to act as both a talent agency and a consumer block that effectively coordinates work/training programs with local businesses, ensure transparent fairness, and create marketing incentives to get consumers to buy from those businesses.

Honestly, I don't see why it's so difficult to figure out creative ways to make use of large numbers of young or laid-off workers, especially as there's currently a greater aptitude in this generation for things like crowdsourcing and other cooperative models.

For example: Under older models, the logical path would be to have a kid work hard at cleaning toilets all day for min wage. This generation is perhaps too self-entitled for that but also their potential is more dynamic in that they'd show a keener resourcefulness in organizing a flash mob to come and clean all the toilets in 30 minutes, tap their phones together to compensate the freelance workers, and then move onto the next project. This grouped-freelancing aptitude mixed with access to technology is their competitive edge over cheap immigrant labor.

Also, I think it's unproductive to simply dwell on the notion of leveling the playing field because the real issue, IMO, is figuring out the best ways to tap into the Potential of underclass workers. It doesn't help to brush large groups aside by looking down on them as ignorant slobs incapable of anything useful. That only breeds more resentment and factional extremism, which in turn leads to them supporting retaliatory unfairness in the form of reverse discrimination or forced redistribution.

russ_watters

Nov16-11, 02:25 PM

Frankly, I don't think anyone clearly described/defined the analogy and any useful discussion must start with such clarity:

The game is life and the goal is to live long and prosper.

To conservatives and as intended by the Constition (minus the now corrected racist and sexist caveats....), "a level playing field" is a set of rules that apply equally to all. In the Constitution, that's "equal protection" under the law.

Liberals take a broader view of what is encompassed by "the playing field" which often includes the results on the scoreboard (as shown by wealth inequality discussions). But to me the analogy gets strained by an improper definition of "the playing field", as also discussed previously in the difference between "equality of opportunity" and "equality of outcome". In essence, though, most liberals to one extreme or another, seek an improved level of equality on the scoreboard, not just an equality on the playing field. Or, rather, some presume that an equality on the playing field will result in an equality on the scoreboard. For example:

1. Taxes and redistribution. Trying to fit this to "the playing field" part of the analogy seems difficult to me. It looks to me like every time the "team" that is "ahead" scores, you take a fraction of their score and give it to the "team" that is "behind".

2. Healthcare. Healthcare is a consumer service - something you buy with money. So you could simply analyze it according to #1. Or seeing it separately, nationalizing it would mean removing the goals from the field and simply assigning everyone an equal score for the game.

3. Minimum wage. Someone mentioned some OWS protestors favor a $20/hr minimum wage. So then the rule would be that at the start of the game, you assign everyone a minimum score. Oh, and at the same time the OWS protestors want to cap the maximum score too.

4. College admission for underpriveledged and often underqualified kids. In sports, there are many things that go into being a good player. Genetics, equipment quality, training effort, training quality. Many of these are derived from our parents. Liberals often find it desirable to try to level-out these factors in the "real world" (such as, again, in education). That's difficult to do quantatatively, but I suppose one "fair" way would be to make each player wear a backpack full of enough weights for all to run at the same speed. And this would be an effective way of fostering the goal of leveling the score as well.

Oltz

Nov16-11, 02:48 PM

Personally I do not think any applications to jobs or schools should include any personal information simply a Social security number and an Address to send the result to. No Age, Race, Sex, Religion, Sexual preference None of it. Then they make the choices based on what the resume says for itself not on what percent of the workforce your "peers" make up.

Has anyone else noticed all of the "level the playing field" people from the OWS thread have not stepped forward to actually explain what that means? At least 3 poeple actually said that phrase during the thread and none would ever define that other then "the rich get richer the poor get poorer" or "income inequality equals social mobility so we need to fix it"

How?

Multiple other threads have shown how poorly "social mobility" stats actually represent anything.

Maybe give it another 2 days for somebody to present an actual answer (not a conservative or moderate guessing but something they actually want to see happen) then abandon this thread as another substanceless exchange of what we think they mean and why we do not understand how they could want that.

Jimmy Snyder

Nov16-11, 02:48 PM

Perhaps they mean that when the last trillionaire standing collects that last stray dollar so that all of the money is in the hands of a single individual, then we will have a kind of level playing field. Or perhaps it means that everyone has the exact same amount of money. This is difficult to maintain since someone might get hungry enough to buy some food with their money and upset the level. Here is the same story I have posted on several occasions in the past.

My neighbor and I are equal in almost all things. We each have an apple. However, there is a slight difference in that he likes to eat his apple in the morning and I like to eat mine in the afternoon. One day the OWS crowd happened by just at noon. What they saw was that I had an apple and my neighbor did not. That's not a level playing field they said. So they cut my apple in three, one for me, one for my neighbor, and one for themselves. Level.

ginru

Nov16-11, 06:25 PM

I take it as just an expression for wanting to achieve a more balanced, idealistic society in which everyone is skilled, educated, active and reasonably content. Simple but complex as well.

Evo

Nov16-11, 07:05 PM

In addition, there would be local nonprofit unions to act as both a talent agency and a consumer block that effectively coordinates work/training programs with local businesses, ensure transparent fairness, and create marketing incentives to get consumers to buy from those businesses.

Honestly, I don't see why it's so difficult to figure out creative ways to make use of large numbers of young or laid-off workers, especially as there's currently a greater aptitude in this generation for things like crowdsourcing and other cooperative models.You mean like this?

Find A Job

Find Jobs, Training Opportunities, and Career Information
Jobseekers
Programs, resources and online tools help workers in all stages of the job and career development

Worker Reemployment Portal
Employment, training, and financial help during job transition
Youth
A variety of career resources available specifically for youth

Job Corps
Helps young people ages 16 through 24 get a better job, make more money, and take control of their lives.

Jobs for Veterans Act

http://www.doleta.gov/

Many differnet job/training programs listed.

http://www.google.com/search?sourceid=navclient&aq=0&oq=work+training&ie=UTF-8&rlz=1T4GGLL_enUS339US339&q=work+training+programs

ginru

Nov16-11, 09:19 PM

You mean like this?
Not quite, as I see that as still following the typical system from which many are frustrated. I'm saying the future should be about transitioning them to a mobile, freelancing workforce; always engaged, learning and actively challenged. This reflects the technological evolution and offers people a work model suited to their potential. A freelancer is less of a victim of downsizing and more a predator hunting for projects. That shift in self-perception is critical as it gets them away from feeling at the mercy of economic boom-bust cycles and rather more confident, adaptive, and in control of their fate.

This article kind of describes a little of what I mean:

http://businessonmain.msn.com/browseresources/articles/smallbusinesstrends.aspx?cp-documentid=30876276#fbid=
************************************************
"Essentially we’ve created a contingent, freelance economy. There’s still money to be made, innovations to be marketed and ideas to be harvested. The difference is that many businesses today are choosing to hire on an as-needed basis, relying on a freelance workforce. But rather than being traditional freelancers, many of these people have become freelance entrepreneurs, crafting businesses out of projects."
************************************************** **

I also think it's important to invest in local relationships between businesses and community in order to lessen any need for government involvement (making conservatives happy). Perhaps use something like the union/agency option I mentioned earlier as a way to foster closer bonds in the production-marketing-consumption cycle.

But anyways getting back to the OP, "Level the playing field" is likely just a simple expression of frustration that some may feel in the sluggish system. If we figure a way to get everyone (or at least most everyone) actively and progressively engaged in contributing to a fulfilling system (feeling empowered and challenged as one would expect as an entrepreneur), then I think much of the complaining would quiet down.

ThomasT

Nov16-11, 11:10 PM

Will somebody please give a detailed answer of what you want when you ask for this ?Yeah, I have no idea. If I get your drift, you don't either. I think what might be done to realize equality of opportunity has pretty much been done/realized.

Now, from my personal experience as an employer, of course we discriminated against certain groups. So what? That's the way the world works. We, all of us, discriminate. If the people that we discriminated against were to be put in positions of power, then they'd discriminate.

The 'playing field' changes, but it's never level, and it's never going to be. That's life, that's us.

MIght as well lock this thread, imho. All you're going to get wrt 'levelling the playing field' is some wishful thinking about how we human beings might behave if we weren't so, uh, selfish and self centered. Maybe there are some truly altruistic humans out there. I don't know. I've never dealt with one.

Evo

Nov16-11, 11:56 PM

Yeah, I have no idea. If I get your drift, you don't either. I think what might be done to realize equality of opportunity has pretty much been done/realized.

Now, from my personal experience as an employer, of course we discriminated against certain groups. So what? That's the way the world works. We, all of us, discriminate. If the people that we discriminated against were to be put in positions of power, then they'd discriminate.

The 'playing field' changes, but it's never level, and it's never going to be. That's life, that's us.

MIght as well lock this thread, imho. All you're going to get wrt 'levelling the playing field' is some wishful thinking about how we human beings might behave if we weren't so, uh, selfish and self centered. Maybe there are some truly altruistic humans out there. I don't know. I've never dealt with one.
Couldn't agree with you more. I believe that oltz was trying to say that people that are for OWS keep saying that they want a "level playing field" but they can't explain what that would be or how it would be achieved.

ThomasT

Nov17-11, 12:09 AM

I believe that oltz was trying to say that people that are for OWS keep saying that they want a "level playing field" but they can't explain what that would be or how it would be achieved.Yeah, the people who are actually involved in the OWS encampments are, imho, generally a sorry lot, though there are some sincere and knowledgeable people involved. I'm for the demonstrations only insofar as they might focus attention on what seem to me to be basically underhanded dealings of the financial sector, structural problems related to those, and the inordinate importance and control that the financial sector has gained in the last decade or so -- which has, I think most would agree, been bad for the general economy and bad for the US, imo. OWS demonstrations by themselves won't change any of that.

If people actually want to change the status quo, then they have to stop voting for political candidates who represent it.

BobG

Nov17-11, 07:31 AM

Frankly, I don't think anyone clearly described/defined the analogy and any useful discussion must start with such clarity:

The game is life and the goal is to live long and prosper.

To conservatives and as intended by the Constition (minus the now corrected racist and sexist caveats....), "a level playing field" is a set of rules that apply equally to all. In the Constitution, that's "equal protection" under the law.

Liberals take a broader view of what is encompassed by "the playing field" which often includes the results on the scoreboard (as shown by wealth inequality discussions). But to me the analogy gets strained by an improper definition of "the playing field", as also discussed previously in the difference between "equality of opportunity" and "equality of outcome". In essence, though, most liberals to one extreme or another, seek an improved level of equality on the scoreboard, not just an equality on the playing field. Or, rather, some presume that an equality on the playing field will result in an equality on the scoreboard.

Leveling the playing field is a sports analogy. You only have to look at how sports level the playing field to know what the analogy means.

The NFL & NBA have salary caps. Major league baseball imposes a tax on teams that have too high of a salary.

All 3 sports have a draft to select the best incoming players so even the teams with little money have a chance of acquiring the best players.

The NFL shares TV revenue equally among its teams so even small town teams, such as Green Bay, have a chance to win the Super Bowl.

League rules in all three sports are set to attain equality on the scoreboard to at least some extent, because equality on the scoreboard raises the level of revenue for all.

American sports are not at all like those capitalist British soccer leagues where not only are the weak left to fend for themselves, but the weakest of the week get demoted right out of the Premier league.

From your post, one wonders if conservatives have ever watched American sports.

WhoWee

Nov17-11, 09:01 AM

Leveling the playing field is a sports analogy. You only have to look at how sports level the playing field to know what the analogy means.

The NFL & NBA have salary caps. Major league baseball imposes a tax on teams that have too high of a salary.

All 3 sports have a draft to select the best incoming players so even the teams with little money have a chance of acquiring the best players.

The NFL shares TV revenue equally among its teams so even small town teams, such as Green Bay, have a chance to win the Super Bowl.

League rules in all three sports are set to attain equality on the scoreboard to at least some extent, because equality on the scoreboard raises the level of revenue for all.

American sports are not at all like those capitalist British soccer leagues where not only are the weak left to fend for themselves, but the weakest of the week get demoted right out of the Premier league.

From your post, one wonders if conservatives have ever watched American sports.

The leveling you've described would require Wall Street firms to have an equal balance of talent - surely you're not suggesting the fans share in the profits - correct?

russ_watters

Nov17-11, 01:30 PM

Well gee, Bob, there are a lot of different sports and different levels at which you can play, so I guess I hadn't considered that the analogy would be specifically referring to American professional sports. It would seem an odd choice for liberals, to me, considering all four leagues enjoy some level of anti-trust law exemption. I also think it makes application of the analogy difficult because in the professional sports based analogy (as you indicated), the purpose of playing the game is no longer to win/get a high score but rather to profit from the fans. So I think your focusing on the money at first glance appears to make the analogy more direct but in actuality makes it miss the point. Some specifics

-In the pro sports based analogy, who are the players, owners, and fans? The owners are the 1%, the players the 99%? I hope the fans aren't the 3rd world workers we are exploiting for our profits... In an amateur sports analogy, there are no owners or fans and everyone is involved in the game.

-The NFL's revenue sharing (stricter than the MLB's luxury tax) is credited with giving the NFL the most marketable product of all the pro sports leagues, thus enabling them to extract the maximum amount of revenue from their fans. To me, this use of the analogy better fits a price-fixing ring, such as how the airlines used to do it (hence, the sports leagues' anti-trust exemptions). The teams are the airlines, the NFL is the group of airline company execs setting up the price fixing and the NFLPA are the airline workers, trying to get their maximum share of the pie. And the fans are the passengers, screwed out of their money by illegal collusion....

...then again, perhaps the fans are the ordinary citizens, the players are the communist party members, the owners are the central committee members and the refs the KGB? :D

WhoWee

Nov17-11, 02:13 PM

...then again, perhaps the fans are the ordinary citizens, the players are the communist party members, the owners are the central committee members and the refs the KGB? :D

:rofl:

DoggerDan

Nov17-11, 03:23 PM

That is great news then and shows welfare support must work! :smile:

No. They're from the multi-generational welfare groups. They're not in them. They worked hard to get out of them. Most work for other companies. A few own their own businesses.

Yes, escaping poverty/disadvantage can be a strong spur in life.

It was for them, and me.

Just as being born to privilege can be demotivating too.

I can see that.

But peer-reviewed research rather than annecdote may be necessary to tell us which is actually the exception, and which the rule.

Might you have any links to such research?

Again, I agree that the opportunities are remarkably level in broad historic terms. But what I think OWS represents is people daring to question whether we are all playing the right game.

I believe there is responsible wealth creation and irresponsible wealth creation, and that a lot of what wall street is about is creating wealth any way possible, regardless of the costs to others or to society as a whole. In that sense, I think some changes in order.

Good luck getting them. Wall street's campaign contributions are huge.

"Work hard, get rewarded" may be the just the mantra of a particular society at a particular moment in history. The future mantra might be work smart, or work co-operatively. The rewards might be having a sustainable future rather than an uncertain one, living in society less divided into winners and losers, etc.

The number one problem I see here in the U.S. is both people and our government living well beyond their means. Had I lived like most of those with whom I worked over the years, I never would have been able to retire when I did.

apeiron

Nov17-11, 04:28 PM

I believe there is responsible wealth creation and irresponsible wealth creation, and that a lot of what wall street is about is creating wealth any way possible, regardless of the costs to others or to society as a whole. In that sense, I think some changes in order. Good luck getting them. Wall street's campaign contributions are huge.

Agreed. Finance was meant to be the lubricant of the system of production, but has become predatory. There was always an element of this - read the history of Goldman Sachs - but due to a lack of suitable regulation, has become spectacularly uncontrolled.

The number one problem I see here in the U.S. is both people and our government living well beyond their means. Had I lived like most of those with whom I worked over the years, I never would have been able to retire when I did.

Agreed again. The problem is that being financially prudent leaves you feeling that you are likely to be the one now helping with the bailing out. Your savings earn next to nothing, and you are just waiting for governments to inflate away that debt any time soon.

People talk about leftist "levelling the playing fields", but there is the right's version too. Neoliberals like Thatcher made a virtue of home ownership, adjusting policy settings to increase it. Everyone should enjoy this "right". And so the lax lending and housing speculation took off, ending up in subprime.

Of course it is a more complex story. The smart growth policies adopted by many local authorities - voted for by baby boomers who already had their houses and now wanted to protect their neighbourhoods - created constraints on land supply, driving house prices to unsustainable multiples of annual income.

But left or right, the modern story is of a basic unreality when it comes to economics. Neither side wants to make the voter-unfriendly suggestion that the planet might need to live within its means.

So as I say, level playing fields are always a good principle, but are not really the issue here. The playing fields, so far as access to playing the neoliberal game, is indeed pretty level.

But that game has indeed changed in the lifetime of some of us. I share the old-fashioned ethic of work hard, be productive, get rewarded. And I really disliked the more recent game plan of "borrow large, invest speculatively, make out like a bandit (so long as you cash out before the bubble bursts".

This is predatory finance. The game was democratised so even the average joe could clamber aboard and get a McMansion on a ninja loan. On the face of it, a triumph of the neoliberal dream. But really, it was just getting a lot of suckers to take on ludicrous debt (disguised as an appreciating asset). Then selling this liability on to other suckers (Icelandic banks, pension funds, etc). And when it all goes phut, well the suckers get left with the hurt, to the extent they can't transfer it to the general public in terms of cut-backs, bail-outs, debt forgiveness. The Goldman Sachs get to walk away with the loot.

So yes, it is good to see scruffy, angry mobs camping on the front lawns of the institutions. They may be baffled as to what actually happened, and how things might be changed, but at least they are clear something wrong did happen.

Justice would seem to demand that the financially prudent (you and me!) should be properly rewarded, that our children should not have their futures already taken away from them (they may be whiney and entitled, but this neoliberal mess-up happened on our watch), and that the Goldman Sachs of this world feel some real pain (even though what they did of course was "completely legal" due to the wildly irresponsible lack of regulation).

mheslep

Nov17-11, 06:39 PM

Whatever. Goldman Sachs down ~50% over ten years, or $50B of "loot" gone.
http://www.google.com/finance?hl=en&cp=5&gs_id=k&xhr=t&q=goldman+sachs&tok=yfs3AqvSiUEao8GnLRvfXA&gs_sm=&gs_upl=&bav=on.2,or.r_gc.r_pw.r_cp.,cf.osb&biw=1280&bih=899&um=1&ie=UTF-8&sa=N&tab=we

WhoWee

Nov17-11, 06:55 PM

Justice would seem to demand that the financially prudent (you and me!) should be properly rewarded, that our children should not have their futures already taken away from them (they may be whiney and entitled, but this neoliberal mess-up happened on our watch), and that the Goldman Sachs of this world feel some real pain (even though what they did of course was "completely legal" due to the wildly irresponsible lack of regulation).

The financial sector is highly regulated. However, people find ways to violate those rules. Case in point - the 8th(?) largest financial collapse in history is happening currently. MF Global - headed by former Democrat Governor John Corzine (President Obama campaigned for him against Chris Christie in 2010). my bold

http://www.foxnews.com/politics/2011/11/17/once-hailed-for-financial-prowess-corzine-takes-steep-fall-after-mf-global/
"Now, critics, are saying Corzine brought that same level of risk to his management of MF Global -- a company that crashed in spectacular fashion last month after it disclosed a $6 billion exposure to Eurozone nations like Italy and Portugal.

The former Goldman Sachs CEO’s penchant for juggling finances was once considered an asset. During the tumultuous early months of the Obama administration -- as it faced the immensity of recession -- Vice President Joe Biden hailed Corzine as a wise financial sage. At a campaign stop in October 2009 in support of Corzine's gubernatorial re-election bid, Biden recalled that time and Corzine's counsel.
"I literally picked up the phone and called Jon Corzine and said, 'Jon, what do you think we should do?'"
Just two years later, as the country struggles with recovery, Corzine sits atop the wreckage of MF Global. Its demise is the subject of at least six investigations, including by the FBI and Commodities Futures Trading Commission.
In addition to its bankruptcy filing and lay-offs of more than 1,000 employees, MF Global has told investigative authorities that $600 million of customer money is missing. The shortfall was withheld from investigating authorities for five days -- an apparent violation of the law, according to the head of the Commodities Futures Trading Commission. "
*****

Aside from FOX and WSJ, there doesn't seem to be much coverage of this fiasco?

http://online.wsj.com/article/SB10001424052970204517204577044481154710176.html?m od=googlenews_wsj
"Regulators have unearthed new details indicating MF Global Holdings Ltd. shifted hundreds of millions of dollars in customer funds to its own brokerage accounts in the days before its bankruptcy filing, according to people familiar with the matter.

Such moves could violate regulations stipulating that commodities brokers can't mix customer funds with brokerage funds. Brokerage funds often are used to back proprietary trading positions."

************

Actually, Reuters and Huffington carried this story - made it sound as though the missing money would be returned - until you read the entire story and realize they still haven't found the missing funds but might return other money that didn't disappear?:rolleyes:

http://www.huffingtonpost.com/2011/11/17/mf-global-layoffs-workers-customers_n_1099130.html

"MF Global May Return Money To Customers As It Lays Off More Workers"

"A bankruptcy judge on Thursday will consider a request by James Giddens, the trustee supervising the liquidation of the MF Global Inc broker-dealer unit, to release $520 million associated with 23,300 commodity customer accounts that contained only cash.

The amount represents 60 percent of the $869 million of cash that had been frozen, Giddens said in court papers.

Late on Wednesday, Giddens said if the transfer is allowed, distributions to nearly all of MF Global's roughly 38,000 customer account holders will be made "within three weeks" of MF Global's bankruptcy filing. That would mean November 21, based on the company's having sought court protection on October 31.

Commodities traders and exchanges have clamored for the release of the money. They contend that the freeze punished customers who amassed the cash by liquidating their trading positions prior to MF Global's bankruptcy.

Customers may still get a payout even as investigators continue their pursuit of about $600 million that has gone missing from customers' futures accounts at MF Global.

The Commodity Customer Coalition, a group of former MF Global customers, on Wednesday said Giddens should be distributing even more money, saying the trustee has access to more than $1.4 billion."
******

Where is the outrage in the press over this breach of trust? Where is the outrage over the lack of media attention? Where is the outrage amongst pro-Occupiers?

This did not happen because of a lack of rules - the rules are clear. This happened because people broke the rules - and stopped (by regulators) before the remaining $869 million was lost.

apeiron

Nov17-11, 07:05 PM

Whatever. Goldman Sachs down ~50% over ten years, or $50B of "loot" gone.

Yeah, those executives are crying all the way to the bank aren't they? :smile:

Goldman Sachs has set aside $10 billion for compensation and bonuses this year, it announced on Oct. 19 -- the same day it reported a third-quarter loss of $428 million...The $10 billion figure is 24 percent less than the bonus pool at this time last year, but if the bonus pool actually fluctuated based on the company's profits, it would have decreased by 70 percent, because that's how much Goldman Sachs's profits have declined since 2010.

http://www.ibtimes.com/articles/235626/20111021/goldman-sachs-bonuses-executive-compensation-lloyd-blankfein-third-quarter.htm

And meanwhile OWS types keep getting the numbers wrong.

They made a big deal that the CEO earns in an hour what a minimum wage worker earns in a year. What fools. It takes Blankfein at least two hours to earn that!

http://www.politifact.com/rhode-island/statements/2011/oct/26/occupy-providence/occupy-providence-protester-says-goldman-sachs-ceo/

WhoWee

Nov17-11, 07:15 PM

Good news - Goldman is hiring.
http://www2.goldmansachs.com/a/data/jobs/search.html

apeiron

Nov17-11, 07:52 PM

The financial sector is highly regulated. However, people find ways to violate those rules.

So, over-the-counter derivatives, rating agencies, mortgage brokers, non-bank lenders, hedge funds - these are all "highly regulated" aspects of the financial sector in hindsight?

And if people find it easy/rewarding to break what rules there are, does "highly regulated" mean anything in practice? Regulation = rules + enforcement.

WhoWee

Nov17-11, 07:59 PM

So, over-the-counter derivatives, rating agencies, mortgage brokers, non-bank lenders, hedge funds - these are all "highly regulated" aspects of the financial sector in hindsight?

And if people find it easy/rewarding to break what rules there are, does "highly regulated" mean anything in practice? Regulation = rules + enforcement.

In reference to my link:
"In addition to its bankruptcy filing and lay-offs of more than 1,000 employees, MF Global has told investigative authorities that $600 million of customer money is missing. The shortfall was withheld from investigating authorities for five days -- an apparent violation of the law, according to the head of the Commodities Futures Trading Commission."

Former Democrat Senator and New Jersey Governor (and close Obama/Biden associate) John Corzine's company MF Global ran afoul of regulators for 5 days before they were shut down. It seems 60% of the investor funds were saved by regulators.

Evo

Nov17-11, 08:02 PM

We've gotten off topic.

ginru

Nov18-11, 02:48 PM

:redface: I tend to go off topic myself as I always see interconnected issues between different threads and then rant about comprehensive solutions to all of them.

Anyways, this is quoted from a youtube post (http://www.youtube.com/watch?v=kWgkr7aCgIk):
"It's time to level the playing field, and begin treating working Americans as partners again, rather than rented mules."

From this sentence (and putting aside the government's role), I'd gather that the OWS frustration is somewhat connected to a breakdown in working relationships between community and business. Granted, this is a two-way street so the betrayal can be seen on both ends. For example, Consumers can sell out local trust with small business by switching to megastores (Wal-mart), but likewise businesses have opted for profit over community by using cheap overseas labor.

Either way, we're all just serving our bottom lines and I feel there are repercussions for recklessly following that path. This frustration may get expressed or interpreted as anti-capitalism/anti-corporations but I think the issue goes deeper than that.

I also want to add the explanation of "level playing field" from wikipedia (http://en.wikipedia.org/wiki/Level_playing_field):
************************************************
"A level playing field is a concept about fairness, not that each player has an equal chance to succeed, but that they all play by the same set of rules. A metaphorical playing field is said to be level if no external interference affects the ability of the players to compete fairly. Although some may view "government interference" to slant the field in reality the level playing field is created and guaranteed by the implementation of rules and regulations."
**************************************************

I'm reminded of the last World Cup of Soccer in which an African team (Ghana) had the chance to progress to the Semifinal for the first time, but a player on the Uruguay team handled the ball off the line to prevent a sure goal. Proper procedures were taken, he was expelled and a penalty kick was given but Ghana missed it and then lost on the following shootout.

Now granted, the ref followed procedures by the book, but the final result still left many people bitterly feeling like the thief had been caught, punished, and STILL got away with the goods. And this is a pervasive issue that goes beyond a particular sport where diving and bending the rules to gain advantage is rampant because of the same justification used by ThomasT earlier (Everybody Does It). It's brutal Competition, of course, but then there's also Cooperation needed to ensure that people feel the game is worthy of participation. Public confidence in a system is critical as we all suffer if people start opting for extreme alternatives.

Personally, part of me accepts that the field is marked with holes, bumps and dips aplenty as the cold reality of life but then another part wants to encourage the younger generation in not accepting our cynicism as an excuse.

Oltz

Nov18-11, 02:53 PM

therefore I favor ideas that encourage balance in both individual and collective economic relationships.

Such As?

ginru

Nov18-11, 04:57 PM

Such As?
Ahh, you quoted me before I deleted that part as I knew I wouldn't have time to explain this all thoroughly (I'm behind schedule on a few things). Besides, I'd just be rambling through a mix of crazy ideas from a half dozen threads that nobody's really interested in rehashing now so let's just forget it. :tongue:

Diracula

Nov19-11, 09:47 AM

Such As?

Personally I like the idea of a "National Dividend", with some modifications. The basic idea is presented about halfway down this page:

http://www.whywork.org/rethinking/whywork/rawilson.html

WhoWee

Nov19-11, 10:42 AM

Personally I like the idea of a "National Dividend", with some modifications. The basic idea is presented about halfway down this page:

http://www.whywork.org/rethinking/whywork/rawilson.html

The National Debt just passed the $15,000,000,000,000 mark - are you prepared to share this obligation?

Diracula

Nov19-11, 10:56 AM

Don't we pretty much have to anyway?

WhoWee

Nov19-11, 10:59 AM

Don't we pretty much have to anyway?

Given a $15 Trillion debt - sustained with $.40 of every $1.00 spent in additional borrowings - why would anyone expect a "dividend" (we're bankrupt - the credit line just hasn't been shut off).

Diracula

Nov19-11, 11:25 AM

WhoWee

Nov19-11, 11:38 AM

Are you suggesting the government has stopped spending money because of its debt?

(Just a thought: we may need a restructuring of government and a reallocation of resources given the situation we are in. I'm not suggesting implementing a National Dividend would be a magical switch we could flip to fix our problems by tomorrow.)

Perhaps the US should cut spending by 40% and allow the people receiving benefits to sign personally for the cash borrowed from China - eliminate the US as middleman on the debt?

Here's a link for anyone interested in setting up a personal line of credit with the bank of China.
http://www.boc.cn/en/

The offer quite a few different options.
http://www.boc.cn/en/bcservice/bc1/

For VIP's:
http://www.boc.cn/en/pbservice/pb2/200806/t20080625_1324002.html

ThomasT

Nov19-11, 12:50 PM

WhoWee

Nov19-11, 02:47 PM

Good points, imho. Wrt the thread topic, it seems that 'levelling the playing field' would entail sufficient regulation/oversight and enforcement to prevent the sorts of atrocities that financial institutions have visited upon us.

Actually, none of those points were supported (we'll excuse the derivates from the list) and the meaning of "highly regulated" was never clarified.

As for "the sorts of atrocities that financial institutions have visited upon us" - perhaps you'd like to clarify a bit?

ThomasT

Nov19-11, 03:53 PM

Actually, none of those points were supported (we'll excuse the derivates from the list) and the meaning of "highly regulated" was never clarified.Good points, imho. :smile:

As for "the sorts of atrocities that financial institutions have visited upon us" - perhaps you'd like to clarify a bit?Isn't it common/accepted knowledge that financial institutions caused, more or less, the economic crash? Money was lent, eg., to buy homes, to people who likely would not be able to keep up with payments, especially increased payments. Then those loans were bundled in a way that made them extremely difficult to sort out. Then those bundles were sold in derivatives markets, and knowledgeable insiders bet against them ... making billions of dollars in the process ... while the general economy, the housing market, and tens of millions of ordinary people were affected adversely.

Yes, government 'pressure' on lenders to lend, and breaks for unqualified buyers to buy, had a lot to do with it. But, why did the government do that? My guess is pressure (incentives) from the financial lobby.

Many financial institutions weren't just overleveraged, they were absurdly overleveraged -- and this is something that sufficient regulation and enforcement could have prevented.

So, a small percentage of people got a lot richer, while the rest of the country suffered the consequences of the actions of that small percentage who got a lot richer.

But, yeah, you can chalk some of it (a lot of it ... most of it?) up to the greed of average folks also. We all seem to be alike in that regard, whether rich or poor. Hence, the need for tight(er) governmental regulation and enforcement regarding financial wheeling and dealing, IMHO.

Of course, it could be argued that there would have been an economic downturn anyway (albeit perhaps not so abrupt, and not requiring trillions of dollars to bail out financial institutions). That is, if people who can't afford (or be trusted) to pay back relatively large loans (most Americans, I suspect) like home mortgages weren't extended this credit in the first place, then there wouldn't have been an inevitably bursting bubble for some in the financial industry to take undue advantage of, but there would still remain the inevitable steady decrease in the buying power of most Americans -- which results in downsizing and layoffs, and in turn less buying, and more downsizing and more layoffs, and so on, and there doesn't seem to be any way to reverse that sort of downward spiral.

WhoWee

Nov19-11, 04:34 PM

Good points, imho. :smile:

Isn't it common/accepted knowledge that financial institutions caused, more or less, the economic crash? Money was lent, eg., to buy homes, to people who likely would not be able to keep up with payments, especially increased payments. Then those loans were bundled in a way that made them extremely difficult to sort out. Then those bundles were sold in derivatives markets, and knowledgeable insiders bet against them ... making billions of dollars in the process ... while the general economy, the housing market, and tens of millions of ordinary people were affected adversely.

Yes, government 'pressure' on lenders to lend, and breaks for unqualified buyers to buy, had a lot to do with it. But, why did the government do that? My guess is pressure (incentives) from the financial lobby.

Many financial institutions weren't just overleveraged, they were absurdly overleveraged -- and this is something that sufficient regulation and enforcement could have prevented.

So, a small percentage of people got a lot richer, while the rest of the country suffered the consequences of the actions of that small percentage who got a lot richer.

But, yeah, you can chalk some of it (a lot of it ... most of it?) up to the greed of average folks also. We all seem to be alike in that regard, whether rich or poor. Hence, the need for tight(er) governmental regulation and enforcement regarding financial wheeling and dealing, IMHO.

Of course, it could be argued that there would have been an economic downturn anyway (albeit perhaps not so abrupt, and not requiring trillions of dollars to bail out financial institutions). That is, if people who can't afford (or be trusted) to pay back relatively large loans (most Americans, I suspect) like home mortgages weren't extended this credit in the first place, then there wouldn't have been an inevitably bursting bubble for some in the financial industry to take undue advantage of, but there would still remain the inevitable steady decrease in the buying power of most Americans -- which results in downsizing and layoffs, and in turn less buying, and more downsizing and more layoffs, and so on, and there doesn't seem to be any way to reverse that sort of downward spiral.

My bold No, it's not that simple. Much of the financial crisis was (and is) rooted in Europe. We've discussed the amount of money that was routed to European institutions in other threads.

As for the housing market. When people were signing for no-doc and $0 down loans - as much as the bank would lend - with the hopes of buying a house they couldn't afford with the expectation of appreciation - was the bank the "good guy" if they said "no" - or was the bank the "bad guy" trying to keep the poor person down?

As for the bundling and resale of mortgages - we didn't learn anything from the S&L crisis a decade earlier (and neither did Congress) - IMO.

apeiron

Nov19-11, 05:12 PM

As for the housing market. When people were signing for no-doc and $0 down loans - as much as the bank would lend - with the hopes of buying a house they couldn't afford with the expectation of appreciation - was the bank the "good guy" if they said "no" - or was the bank the "bad guy" trying to keep the poor person down?

Apparently they were highly regulated, so the dilemma could not occur. :smile:

There were liquidity ratios set by Basel, etc, that "tightly controlled" on balance sheet lending. Of course banks could not just make dumb loans according to whether they were feeling generous or mean that week.

But, whoops, then there was the off balance sheet derivative casino where - with a mixture of moral corruption and incompetence - the ratings agencies, mortagage brokers, investment banks, could allow the banks to freely write any stinker loan they wanted (ie: any loan that paid their bonus that year).

Do people still not understand what the credit crunch was all about?

People were persuaded to bid up the cost of their housing far beyond economic sense. They bought mortgage debt believing it to be a gold-plated asset. And the intermediaries made out like bandits in this fools' game. The public have been left covering the losses. The intermediaries - unless they were particularly dumb as well - are retired to nice places with their loot.

The fact that the victims include some hick European banks (as well as many other financial institutions in many other countries) just shows how incompetent they were, and how opaque/unregulated the derivative scams were.

WhoWee

Nov19-11, 07:08 PM

But, whoops, then there was the off balance sheet derivative casino where - with a mixture of moral corruption and incompetence - the ratings agencies, mortagage brokers, investment banks, could allow the banks to freely write any stinker loan they wanted (ie: any loan that paid their bonus that year).

Do people still not understand what the credit crunch was all about?

People were persuaded to bid up the cost of their housing far beyond economic sense. They bought mortgage debt believing it to be a gold-plated asset. And the intermediaries made out like bandits in this fools' game. The public have been left covering the losses. The intermediaries - unless they were particularly dumb as well - are retired to nice places with their loot.

The fact that the victims include some hick European banks (as well as many other financial institutions in many other countries) just shows how incompetent they were, and how opaque/unregulated the derivative scams were.

Why don't you support your comments?

apeiron

Nov19-11, 07:44 PM

Why don't you support your comments?

Surely you of all people are not objecting to people expressing an opinion? :smile:

WhoWee

Nov19-11, 08:07 PM

Surely you of all people are not objecting to people expressing an opinion? :smile:

Sorry - I didn't notice any "IMO" labels.

Is this an opinion - the word "fact" confused me? my bold

"The fact that the victims include some hick European banks (as well as many other financial institutions in many other countries) just shows how incompetent they were, and how opaque/unregulated the derivative scams were."

Diracula

Nov19-11, 08:14 PM

IMO everything in the financial industry was on the up-and-up. It's not like some people in finance got rich off the economy nearly collapsing. They are all suffering like the rest of us.

apeiron

Nov19-11, 08:18 PM

Sorry - I didn't notice any "IMO" labels.

Is this an opinion - the word "fact" confused me? my bold

"The fact that the victims include some hick European banks (as well as many other financial institutions in many other countries) just shows how incompetent they were, and how opaque/unregulated the derivative scams were."

What, are you disputing this as a fact - the victims included hick European banks? You are instead claiming that they were competent and street-wise banks? Help me understand where your confusion lies. And you're welcome to support your claim if you like.

WhoWee

Nov19-11, 08:27 PM

What, are you disputing this as a fact - the victims included hick European banks? You are instead claiming that they were competent and street-wise banks? Help me understand where your confusion lies. And you're welcome to support your claim if you like.

If this is a "fact" then please support - if it isn't, please label as opinion.

ThomasT

Nov19-11, 11:46 PM

No, it's not that simple. Much of the financial crisis was (and is) rooted in Europe. We've discussed the amount of money that was routed to European institutions in other threads.

As for the housing market. When people were signing for no-doc and $0 down loans - as much as the bank would lend - with the hopes of buying a house they couldn't afford with the expectation of appreciation - was the bank the "good guy" if they said "no" - or was the bank the "bad guy" trying to keep the poor person down?

As for the bundling and resale of mortgages - we didn't learn anything from the S&L crisis a decade earlier (and neither did Congress) - IMO.Your points are taken. But to keep this on topic wrt what "levelling the playing field" might entail, I'm just assuming that tighter regulation of the financial industry would be an important component of that. Do you agree or disagree with that assumption?

To elaborate, there have been a few ('scapegoat' ?) prosecutions related to the financial meltdown, and certain financial corporations have failed or are in trouble, but from what I read in the mainstream press (I subscribe to The Week, Newsweek, and Time, and read other sources online) the impression I get is that most commenters think that there hasn't been much significant change for the better.

The playing field obviously isn't level, imo. (For example, you pointed out in another thread that members of congress are exempt from certain laws governing the rest of us regarding certain actions related to 'insider' or 'privileged' information.)

And, I doubt that it ever could be made 'level' in any sense that would satisfy everyone. The thing is that, even given the status quo, there are still 'innumerable' (imho of course) ways to make money in America. Still, I think it would be a good thing for most everybody, ie., for America and Americans in general, if some of the obvious abuses of power and position were systematically constrained.

And, afaik, the only way for most average citizens to contribute to a 'levelling of the playing field' is to simply stop voting for major party candidates.

apeiron

Nov20-11, 01:07 AM

If this is a "fact" then please support - if it isn't, please label as opinion.

Your demand for support can only be trolling here. Were you seriously suggesting this is a fact in doubt?

But to feed the troll :wink:...

http://en.wikipedia.org/wiki/IKB_Deutsche_Industriebank

After the crash of its shares, the German financial watchdog BaFin and the Ministry of Finance opened an investigation into allegations of reporting and accounting misconduct. Although no charges were brought against the bank, four of the five executives of IKB stepped down between 1 August and 1 November 2007

IKB was mentioned by the U.S. Securities and Exchange Commission (SEC) in court fillings when it sued Goldman Sachs and one of Goldman's CDO traders on April 16, 2010.[14] The SEC alleges that IKB was on the wrong side of the CDO instruments Goldman was creating and that Goldman defrauded both IKB and ABN-Amro in failing to disclose that the CDOs that IKB was purchasing were not assembled by a third party, but instead through the guidance of a hedge fund that was counterparty in the CDS transaction. This hedge fund, Paulson & Co., stood to earn great benefit in the event of default.[15] The suit by the SEC alleges that IKB lost US150,000,000 which Paulson gained.

ThomasT

Nov20-11, 01:57 AM

Your demand for support can only be trolling here. Were you seriously suggesting this is a fact in doubt?

But to feed the troll :wink:...

http://en.wikipedia.org/wiki/IKB_Deutsche_IndustriebankApeiron, I don't honestly think that WhoWee is in any way a troll (although it might seem so wrt to certain nitpicking wrt his requests of substantiantion regarding certain contentions). He has certain opinions, a certain world view, as all of us do. Of course, as you should know from my posts, I respect your command of logic, and your knowledge of many factual issues. So, from a layman's limited education and perspective (mine), I'm interested in reading what you and WhoWee have to say on issues relevant to this thread topic (as well as many others).

My basic question is, assuming that people in positions of power (including the very rich, even if not 'public' officials) are 'unfairly gaming' things, then what can be done about it?

apeiron

Nov20-11, 02:47 AM

My basic question is, assuming that people in positions of power (including the very rich, even if not 'public' officials) are 'unfairly gaming' things, then what can be done about it?

This is also off-topic so perhaps you might want to start up a thread. But clearly, regulate for transparency.

The problem was that over-the-counter trades - the deals that produced the toxic debt vehicles - were outside the regulated environment of the public exchanges.

Well, this is perhaps on-topic, as open trading is precisely about creating level playing fields as far as trading information goes. It is a set of constraints, imposed socially, to maximise individual choice. People can do what they like - be risky, be conservative - knowing that they are not making decisions on any less information than anyone else.

Anyway, abuses happen in the shadows. Market regulation is far from perfect. Goldman Sachs ramping of dotcom stocks is well documented. Insider trading is going to happen. But the way to minimise this gaming is commonsense.

GS was one of those who paid lobbyists to argue long and hard that "highly regulated" finance was in fact stifling creativity, which led to liberalisation of the rules on derivatives. And very rapidly that led to low grade debt being packaged up as AAA.

The "highly regulated" conventional banks (and pension funds, and every other fool) were only permitted by their rules to buy AAA grade debt. And here were these magical CDOs paying a percent or two more than regular AAA debt. They couldn't stop themselves being greedy.

These fool "highly regulated" banks weren't helped by the fact that they had set up their own trader desks (as a result of deregulation) and were paying big bonuses to the people who bought these instruments (the people who were either morally corrupt or spectacularly incompentent - both probably). Then if anyone questioned the pedigree of the gift horse, the higher yields were credited to "financial cleverness" - Wall St engineering, the genius of a bunch of Phds, that somehow improved on the dull old regular bonds that any idiot could understand. And so junk that should have sold for 20% rates to cover the risk was sold for 6%, leaving a fat margin for the intermediary and a timebomb for the dupes.

ThomasT

Nov20-11, 03:03 AM

@ apeiron,
I'm not sure I understand everything you've said (the last paragraph in your last post in particular). I don't care if I appear to be ridiculously ignorant. I am ignorant. And, I suppose that both you and WhoWee know a lot more about this stuff than I ever will.

My simple question is: what, in your and WhoWee's, and anyone elses opinion, can the average person do to help 'level the playing field' or at least mimimize the negative effects that abuses of power and position can have on the general economy?

WhoWee

Nov20-11, 10:08 AM

Your demand for support can only be trolling here. Were you seriously suggesting this is a fact in doubt?

But to feed the troll :wink:...

http://en.wikipedia.org/wiki/IKB_Deutsche_Industriebank

This game is tiresome, but you can't have it both ways.

First you stated Surely you of all people are not objecting to people expressing an opinion? "" which sounded a bit condescending.

Then I posted "Sorry - I didn't notice any "IMO" labels.

Is this an opinion - the word "fact" confused me? my bold

your quote
"The fact that the victims include some hick European banks (as well as many other financial institutions in many other countries) just shows how incompetent they were, and how opaque/unregulated the derivative scams were.""

Then your response was "What, are you disputing this as a fact - the victims included hick European banks? You are instead claiming that they were competent and street-wise banks? Help me understand where your confusion lies. And you're welcome to support your claim if you like."

Asking me to support a claim I didn't make is a bit tiresome also-IMO. Here is the problem. You've both claimed your post was an opinion - then you said it was a fact - so which is it?

Accordingly, my response was "If this is a "fact" then please support - if it isn't, please label as opinion."

Now, your response "Your demand for support can only be trolling here. Were you seriously suggesting this is a fact in doubt?

But to feed the troll ...

http://en.wikipedia.org/wiki/IKB_Deutsche_Industriebank
"

Rather than answer the question (opinion or fact to be supported) you call me a troll and post a wiki article.

Again, this game is tiresome.

apeiron

Nov20-11, 01:05 PM

Again, this game is tiresome.

So are you telling us now that posts cannot be a mix of opinion and fact? Really?

WhoWee

Nov20-11, 01:12 PM

So are you telling us now that posts cannot be a mix of opinion and fact? Really?

I said no such thing - merely asking you to clarify fact or opinion. Claims labeled "fact" require support - opinions should be labeled opinion.

apeiron

Nov20-11, 01:16 PM

I said no such thing - merely asking you to clarify fact or opinion. Claims labeled "fact" require support - opinions should be labeled opinion.

Yes, and I supported a fact. So what are you trolling complaining about now? :cry:

WhoWee

Nov20-11, 01:29 PM

Yes, and I supported a fact. So what are you trolling complaining about now? :cry:

Are you standing by the wiki article regarding IKB Deutsche Industriebank to support this statement?

"The fact that the victims include some hick European banks (as well as many other financial institutions in many other countries) just shows how incompetent they were, and how opaque/unregulated the derivative scams were."

I don't consider IKB a "hick European bank" or incompetent (this is an opinion).
http://ikb.de/content/en/index.jsp

rootX

Nov20-11, 01:33 PM

Just out of my own interest I found a story related to IKB.

http://www.soldonapn.co.nz/wp-content/uploads/2009/11/NZHA19APR10B016.pdf

Goldman Sachs knows that not
every asset manager would be willing
to work with Paulson, according to
the complaint. In January 2007,
Goldman approaches ACA
Management, a unit of a bond insurer.
ACA agrees to be the manager in a
deal, and to help select the securities
for the deal with Paulson.
Goldman never tells ACA or other
investors that Paulson is shorting the
securities, and ACA believes that
Paulson in fact wanted to own some
of the riskiest parts of the securities.
Goldman puts together a deal
known as a “synthetic collateralised
debt obligation” designed to help IKB
and Paulson get the exposure they
want. IKB takes US$150 million of the
risk from sub-prime mortgage bonds
in April 2007. ABN Amro takes some
US$909 million of exposure as well,
and buys protection on its exposure
from ACA Management affiliate ACA

ThomasT

Nov20-11, 01:35 PM

apeiron

Nov20-11, 01:46 PM

I don't consider IKB a "hick European bank" or incompetent (this is an opinion).

So what is the basis for this opinion? You'll have to explain why you can hold it.

ThomasT

Nov20-11, 01:48 PM

Just out of my own interest I found a story related to IKB.

http://www.soldonapn.co.nz/wp-content/uploads/2009/11/NZHA19APR10B016.pdfHas anything come of the SEC's looking at Goldman Sachs? Is part of the problem with the financial industry that, even though some of its dealings might not be quite 'kosher' and might even be harmful to America, those questionable dealings aren't, technically, illegal?

WhoWee

Nov20-11, 02:00 PM

I see that apeiron and WhoWee are online now, so I'll ask:

@ WhoWee,
Do you generally agree with apeiron's statements in post #79?

@ apeiron,
Yes, regulating for transparency would seem to contribute to levelling the playing field. Is it realistic to suppose that legislation to that effect will be passed? Can sufficient transparency and the prevention of financial catastrophes be achieved without legislation?

@ WhoWee and apeiron,
Take a time out from your current argument. I think that both of you are pretty knowledgeable. Moreso than me anyway. So, I'm just interested in hearing your opinions (as well as those of other knowledgeable commenters). And if you present your opinions with documented 'facts', then that's even better.

ThomasT , I've posted many times across a variety of threads that derivatives need to be regulated (IMO). I do agree that derivatives trading is comparable to a big casino and further believe it siphons investment capital away from more productive uses.

I can't find the link right now, but Warren Buffet a few years ago in a letter to his shareholders provided an interesting overview of derivatives. To summarize, he indicated that he wasn't comfortable trading heavily in that market.

Last, while I'm in favor of developing regulations for derivatives and organizing an exchange, I don't think any regulations should be imposed upon existing contracts. Instead, IMO, the regulations should start at a specific future date and cover new contracts from that point in time forward.

Evo

Nov20-11, 02:01 PM

So are you telling us now that posts cannot be a mix of opinion and fact? Really?
The rules require that opinion be stated as such and claims of fact must be backed up. I haven't given you any infractions yet for those posts in this thread, but those are the rules.

apeiron

Nov20-11, 09:10 PM

The rules require that opinion be stated as such and claims of fact must be backed up. I haven't given you any infractions yet for those posts in this thread, but those are the rules.

Yeah, so I was asked to support...

The fact that the victims include some hick European banks (as well as many other financial institutions in many other countries) just shows how incompetent they were, and how opaque/unregulated the derivative scams were.

I cited a very famous specific case, subject of ongoing court action. So how is this not good enough?

If whowhee wants to side with Goldman Sachs and claim that IKB was a "sophisticated investor", then sure, let him/her make the case. One that is more than his/her opinion.

But in the meantime...

From the Economist - http://www.economist.com/node/15955490

“WHO’S on the other side, who’s the idiot?” is the question posed by one of the characters in “The Big Short”, Michael Lewis’s new book on those few investors who bet against the subprime-mortgage market. “Düsseldorf. Stupid Germans,” is the answer they keep getting. “They take rating agencies seriously. They play by the rules.”
For Düsseldorf, read IKB Deutsche Industriebank, a bank that plays the role of hapless victim in the SEC’s complaint against Goldman Sachs and a strong contender for the title of leading chump in the financial crisis...

...IKB was far from being the only German bank to burn its fingers doing so...Most German Landesbanken suffered from poor governance. “All these toxic assets seem to have accumulated in those places where oversight was poorest, and the risk-return ratio was ignored,” says Jörg Rocholl of the European School of Management and Technology in Berlin. Yet even by these dismal standards, IKB stands out.

Or from Corporate Governance Failures The Role of Institutional Investors in the Global Financial Crisis - http://books.google.co.nz/books?id=iiAulO5LLxAC&pg=PA211&lpg=PA211&dq=ikb+small+unsophisticated+german+bank&source=bl&ots=eizMCU4pPt&sig=mLquTJewe6nCQtNTYAWXrYeacRg&hl=en&ei=ELrJTrOcBIqViQeY2OXeDw&sa=X&oi=book_result&ct=result&resnum=4&ved=0CDgQ6AEwAw#v=onepage&q=ikb%20small%20unsophisticated%20german%20bank&f=false

A specific example of an unsophisticated SI is the German bank IKB, known best for its role in the SEC's complaint against Goldman

MarcoD

Nov20-11, 10:10 PM

Just out of my own interest I found a story related to IKB.

http://www.soldonapn.co.nz/wp-content/uploads/2009/11/NZHA19APR10B016.pdf

Well, that's comforting if you realize that Mario Draghi, now presiding the ECB, was vice chairman and managing director of Goldman Sachs and a member of the firm-wide management committee, and that Mario Monti, now prime minister of Italy, was a senior adviser at Goldman Sachs.

The whole of Europe is now gossiping about it. Nothing to do except for to buy stock in GS?

WhoWee

Nov20-11, 10:15 PM

Yeah, so I was asked to support...

I cited a very famous specific case, subject of ongoing court action. So how is this not good enough?

If whowhee wants to side with Goldman Sachs and claim that IKB was a "sophisticated investor", then sure, let him/her make the case. One that is more than his/her opinion.

But in the meantime...

From the Economist - http://www.economist.com/node/15955490

Or from Corporate Governance Failures The Role of Institutional Investors in the Global Financial Crisis - http://books.google.co.nz/books?id=iiAulO5LLxAC&pg=PA211&lpg=PA211&dq=ikb+small+unsophisticated+german+bank&source=bl&ots=eizMCU4pPt&sig=mLquTJewe6nCQtNTYAWXrYeacRg&hl=en&ei=ELrJTrOcBIqViQeY2OXeDw&sa=X&oi=book_result&ct=result&resnum=4&ved=0CDgQ6AEwAw#v=onepage&q=ikb%20small%20unsophisticated%20german%20bank&f=false

You've cited one opinion - here is another on the subject. my bold
http://www.thedailybeast.com/articles/2010/04/23/the-goldman-cases-weak-link.html

"The SEC may have shot itself in the foot when it made a failed German bank a key part of its fraud case against Goldman Sachs.

Yesterday, I reported that IKB Deutsche Industriebank was not the sucker at the table that the SEC depicts in its lawsuit against Goldman. Indeed, its executives were wily and wealthy financiers who employed financial engineering shenanigans to escape the watchful of eye of regulators, shareholders, and auditors.

Now a document exclusively obtained by the Daily Beast demonstrates (view them here) that just a few months before it invested in the derivatives at the center of the SEC's case, the German bank was touting its prowess as a sophisticated investor in those derivatives.

"They weren't consumers, as you or I often think of that term. They were traders."

In other words, IKB were not just sophisticated financial professionals. They were—or claimed to be—sophisticated and experienced when it came to exactly the kind of junky CDOs, dubbed Abacus, they bought from Goldman Sachs.

"Securitisation and CDO investments are an integral part of IKB AG's business model," the document—a marketing brochure for one of IKB's off-balance sheet conduits—claims.

The brochure describes a man named Dr. Thomas Wolwer as the "Senior Portfolio Manager," who has the "responsibility for investing in CDOs both cash and synthetic." His qualifications include working for Dresdner Kleinwort, where he structured and sold various cash and synthetic CDOs. In short, this guy was as experienced in these black financial arts as you can get."
**
Also:
"Either the German bank executives were sophisticated and knew what they were investing in when they bought derivatives from Goldman, or they were lying about their sophistication when they bought them."
**********************

Given the IKB website features derivatives prominently under their "Products".
http://ikb.de/content/en/products/index.jsp

I think IKB is sophisticated enough to be in the derivatives business - but not on par with aggressive Wall Street traders (IMO) acting in less than good faith.

MarcoD

Nov20-11, 10:29 PM

I think IKB is sophisticated enough to be in the derivatives business - but not on par with aggressive Wall Street traders (IMO) acting in less than good faith.

Hmm, ABN Amro (Dutch) was the loser in that one, right? I agree with your assertion. Germans and Dutch bankers are technically well educated, but not very street wise, they get 'ethical banking' courses instead. In short, they just got suckered, which is okay in Wall Street ethics, and a not-done according to Frankfurt banking.

I personally found them idiots for not understanding the difference between US and European attitude to trade.

(It's actually funny that in that respect the US can't complain too much about the sup-prime mortgages debacle since it amounts to one big foreign capital injection in the US's economy.)

apeiron

Nov21-11, 05:25 AM

In other words, IKB were not just sophisticated financial professionals. They were—or claimed to be—sophisticated and experienced when it came to exactly the kind of junky CDOs, dubbed Abacus, they bought from Goldman Sachs.

Well which was it? That they were? Or that they claimed to be (and instead proved to be hicks taken by the big city slickers)?

Did you properly read the blog(!) article you are citing here?

Down page it concludes...

It is possible, or even probable, that IKB was overstating its level of sophistication...

Darn tootin' right as history proved!

Of course, IKB was in there trying to be a player with Rhineland. But by what stretch of the imagination were they competent?

As you confess....

I think IKB is sophisticated enough to be in the derivatives business - but not on par with aggressive Wall Street traders (IMO) acting in less than good faith.

...so yes, we agree that IKB was clearly not as sophisticated as GS and Deutsche Bank. But we have different opinions on whether they had enough of a clue to be writing the deals they wrote. Or whether the Rhineland team cared enough about the outcome for their employer.

And IKB was a story shared by many (IMO). Staid traditional bank gets whizzy new CEO who sets up an off-balance sheet entity to "aggressively pursue" great new business opportunity. And comes unstuck because the US was allowing the unscrupulous to package toxic waste as AAA.

WhoWee

Nov21-11, 08:16 AM

Well which was it? That they were? Or that they claimed to be (and instead proved to be hicks taken by the big city slickers)?

Did you properly read the blog(!) article you are citing here?

Down page it concludes...

Darn tootin' right as history proved!

Of course, IKB was in there trying to be a player with Rhineland. But by what stretch of the imagination were they competent?

As you confess....

...so yes, we agree that IKB was clearly not as sophisticated as GS and Deutsche Bank. But we have different opinions on whether they had enough of a clue to be writing the deals they wrote. Or whether the Rhineland team cared enough about the outcome for their employer.

And IKB was a story shared by many (IMO). Staid traditional bank gets whizzy new CEO who sets up an off-balance sheet entity to "aggressively pursue" great new business opportunity. And comes unstuck because the US was allowing the unscrupulous to package toxic waste as AAA.

I guess it's not a "fact" if you're not certain either?:wink:

Also, I'm not certain there are any confessions in my post? :rofl: It doesn't seem fitting (in the context of your analysis of IKB) to hold Deutsche Bank up as the model of sophistication as they needed a bailout of $11.8 Billion of the TARP funds from AIG - but I think we both consider Deutsche Bank to be competent?
http://www.councilforamerica.org/news/obama-taxpayers.html

Deutsche Bank is still considered to be over-leveraged.
http://www.sfgate.com/cgi-bin/article.cgi?f=/g/a/2011/11/21/bloomberg_articlesLUVO5Q0UQVI9.DTL
"By any measure, Deutsche Bank is a giant. Its assets at the end of September totaled 2.28 trillion euros (according to the bank's own website), or $3.08 trillion. In the latest ranking from The Banker, which uses 2010 data, Deutsche was the second- largest bank in the world by assets, behind only BNP Paribas SA.

The German bank, however, is thinly capitalized. Its total equity at the end of the third quarter was only 51.9 billion euros, implying a leverage ratio (total assets divided by equity) of almost 44. This is up from the second quarter, when leverage was about 36 (assets were 1.849 trillion euros and capital was 51.678 euros.)

Even by modern standards, this is very high leverage. JPMorgan Chase & Co. has a balance sheet about 20 percent smaller than Deutsche Bank's, but more than twice as much Tier 1 capital, an important indicator of a bank's financial strength. Bank of America Corp., whose weakness is a serious worry in the U.S. today, has twice Deutsche's capital. (These comparisons use The Banker's ranking of the top 25 banks.)"

Might it be possible the trading department at IKB acted in their own best interest - rather than the bank's? We've heard of rouge traders or departments at other firms that (like a gambler on a losing streak) took bigger and bigger risks to attempt to correct a position - or overstate earnings.

Perhaps the word "hick" means something different for each of us? For me, "hick" (as it relates to this topic) would imply someone who isn't familiar with the industry or products, lacks education in the required area and general preparedness. From my link to the IKB website - derivatives is listed as one of the primary product lines of the bank. This implies (to me) the bank directors considered the bank prepared to transact business in the segment.

When it comes to unregulated derivatives - I'm not certain sophistication can be measured by success or failure? My guess is the market has previously judged competence by the size of the portfolio managed. I think we can agree AIG and Deutsche Bank are both sophisticated - yet they were unsuccessful and needed a bailout by US taxpayers.

John Creighto

Nov21-11, 01:45 PM

@ apeiron,
Yes, regulating for transparency would seem to contribute to levelling the playing field. Is it realistic to suppose that legislation to that effect will be passed? Can sufficient transparency and the prevention of financial catastrophes be achieved without legislation?

With regards to transparency there are already quite a few rules with regards to disclosure of various derivative risks. Of course I presume disclosure could mean burying them deeply in some obscure report.

apeiron

Nov21-11, 02:00 PM

It doesn't seem fitting (in the context of your analysis of IKB) to hold Deutsche Bank up as the model of sophistication....

You are harping on now for pages about one word - "hick". The original point was my objecting to your characterisation of the financial sector as "highly regulated". I argued that the credit crunch was caused by the explosive rise of an opaque, off-balance sheet, market for structured financial products and the consequent emergence of predatory behaviour.

Regulation is needed to create transparency and level playing fields in markets so that even ordinary folk can safely invest. But the derivatives casino created an environment in which even "sophisticated" banks, with newly created trading desks, became easy marks. As IKB showed.

You don't actually seem to disagree with anything substantive about what I've just said. You have agreed about the casino aspect, the predatory aspect, the regulation aspect.

You are now repeating points I originally made as if these were novel thoughts...

Might it be possible the trading department at IKB acted in their own best interest - rather than the bank's?

So you can see why your comments seem like trolling rather than a serious intent to engage with the meat of my arguments.

If you actually have some substantive disagreement with my views about the demonstrated perils of unregulated, geared trading, then start a proper thread about it. But so far, it has been nitpicking to little effect because you don't fundamentally disagree it turns out. All IMO :smile:

apeiron

Nov21-11, 02:30 PM

With regards to transparency there are already quite a few rules with regards to disclosure of various derivative risks. Of course I presume disclosure could mean burying them deeply in some obscure report.

There were rules, but they didn't properly cover the situations that developed, nor was there vigorous enforcement of the rules. But attitudes are more important than rules. People have already contrasted the more upright/naive Europeans vs the more unethical/cutthroat Yanks. A game was created where everyone was expected to be "big boys" and so to expect a lack of ethics. If there were rules, they would be bent to the max. If there was a lack of information, then it was you look out.

The problem - the reason everyone got hurt - was that this was all so in the dark that even the biggest boys could not see all the linkages being created. Or the ninja loans that the mortgage broking troops were starting to write.

Predatory financing is nothing new. I personally dug up the story of the world's fastest growing computer leasing company, Atlantic Computers, in the 1980s. It was at heart a simple tale of two documents that looked like a single lease contract, but which came apart to leave you deep in the sh... But people couldn't believe there was anything actually wrong because even big companies like American Express were signing the deals. And then a bank came along and bought Atlantic despite my expose.

So from an early age, I got the view that the level of "sophistication" in high finance is not all it is cracked up to be. Even moderately simple scams are too complex when the players involved are greedy and can't see past the attractive figure on the front page of the contract to actually interpret the fine print contained within.

All IMO of course. But here is what happened to another fool bank that didn't listen to me (I asked Gunn in person why he would buy this toxic pile, he mumbled something evasive). It became the world's biggest bankruptcy for its time.

The 1988 acquisition of Atlantic for pounds 400m proved the undoing for the stock market success story, as a black hole was discovered in the company's accounts. B&C had to write off pounds 550m and in 1990 collapsed with pounds 1bn of debt.

The report says Atlantic never made a profit from its inception in 1975 and employed practices that went beyond the bounds of acceptable accounting policies. 'If the report is correct, it is clear that B&C was sold a pup,' Mr Gunn said.

http://www.independent.co.uk/news/business/john-gunn-faces-disqualification-dti-report-on-bcs-purchase-of-atlantic-computers-criticises-bzw-and-accountants-spicer--pegler-1415499.html

WhoWee

Nov21-11, 02:53 PM

You are harping on now for pages about one word - "hick". The original point was my objecting to your characterisation of the financial sector as "highly regulated". I argued that the credit crunch was caused by the explosive rise of an opaque, off-balance sheet, market for structured financial products and the consequent emergence of predatory behaviour.

Regulation is needed to create transparency and level playing fields in markets so that even ordinary folk can safely invest. But the derivatives casino created an environment in which even "sophisticated" banks, with newly created trading desks, became easy marks. As IKB showed.

You don't actually seem to disagree with anything substantive about what I've just said. You have agreed about the casino aspect, the predatory aspect, the regulation aspect.

You are now repeating points I originally made as if these were novel thoughts...

So you can see why your comments seem like trolling rather than a serious intent to engage with the meat of my arguments.

If you actually have some substantive disagreement with my views about the demonstrated perils of unregulated, geared trading, then start a proper thread about it. But so far, it has been nitpicking to little effect because you don't fundamentally disagree it turns out. All IMO :smile:

Just to clarify, I've never argued against the regulation of derivatives trading - just the coordination of implementation at some future point in time. However, I often argue that the financial sector is highly regulated in areas other than derivatives.

As for the idea that anyone actively trading in derivative markets is unsophisticated - I just don't subscribe. With a quick look at this link for some standardized documentation from the industry - the complexity of the market is obvious.

http://www.isda.org/c_and_a/equity_der.html

apeiron

Nov21-11, 03:07 PM

As for the idea that anyone actively trading in derivative markets is unsophisticated - I just don't subscribe.

Okey dokey. And the other view to which many subscribe is that the definition of "sophisticated" is one of the key issues to be considered post-crunch.

And this other view has been acted upon (which rather undermines your claims here)...for example...

Julian Le Fanu, a policy adviser to the UK’s National Association of Pensions Funds (NAPF), says while the report might tackle the lack of boundaries to protect investors in the US investment market, the UK’s Financial Services Authority already places a requirement on any investment provider to ensure an investor is capable of understanding the risks of the product it invests in, as has the recent introduction of the EC’s Markets in Financial Instruments Directive (MiFID).

“We have been through a round of investor reclassification, particularly through MiFID, with new boundaries in client classifications, so financial institutions’ classifications have been reviewed to ensure they are in line with the requirements of the MiFID,” said Le Fanu,

http://www.ipe.com/magazine/are-pension-funds-sophisticated-enough_29196.php

WhoWee

Nov21-11, 03:12 PM

Okey dokey. And the other view to which many subscribe is that the definition of "sophisticated" is one of the key issues to be considered post-crunch.

And this other view has been acted upon (which rather undermines your claims here)...for example...

I get it - but there's a big difference between investors and traders.

apeiron

Nov21-11, 03:37 PM

I get it - but there's a big difference between investors and traders.

But "sophisticated investor" is the actual issue here isn't it? It is the term recognised in financial regulation. And the term being used in defense by GS, Deutsche, et al. Why are you trying to misdirect to "trader" when that was not what was under discussion?

WhoWee

Nov21-11, 03:50 PM

But "sophisticated investor" is the actual issue here isn't it? It is the term recognised in financial regulation. And the term being used in defense by GS, Deutsche, et al. Why are you trying to misdirect to "trader" when that was not what was under discussion?

Isn't the argument related to IKB their specified trader status? It was the intent of IKB to make a market in derivatives - wasn't it?

apeiron

Nov21-11, 09:06 PM

Isn't the argument related to IKB their specified trader status? It was the intent of IKB to make a market in derivatives - wasn't it?

Do you still not realise that "sophisticated investor" is a technical term here? Or are you chosing to ignore that? Which would be intentional misdirection of course.

IKB was not the originator but the purchaser of the CDOs. So you may want to call them "actually a trader". But the defence being used by the likes of GS (the originators) against the suckers (purchasers) like IKB, and the many other fools, is that they can be classed technically as "sophisticated investors" and so have to look out for themselves.

In case you really don't know the distinction, to save you making the same mistake again...

Securities and Exchange Commission Rule 501-D lists the classes of people and institutions that are "accredited" or sophisticated investors, meaning they are exempt from the protections afforded the so-called small investor. They include banks, insurance companies, business development companies, charitable organizations, nonprofits and so on.

http://www.forbes.com/2009/03/24/accredited-investor-sec-personal-finance-financial-advisor-network-net-worth.html

WhoWee

Nov21-11, 09:51 PM

Do you still not realise that "sophisticated investor" is a technical term here? Or are you chosing to ignore that? Which would be intentional misdirection of course.

IKB was not the originator but the purchaser of the CDOs. So you may want to call them "actually a trader". But the defence being used by the likes of GS (the originators) against the suckers (purchasers) like IKB, and the many other fools, is that they can be classed technically as "sophisticated investors" and so have to look out for themselves.

In case you really don't know the distinction, to save you making the same mistake again...

I understand the meaning of the term - no misdirection or mistake either - it's the correct analysis (IMO).

I'm trying to understand why you don't think IKB (a company with enough sophistication to serve as a trader in the derivatives industry) wasn't sophisticated or competent enough to be considered a "sophisticated investor" as per your posted description? Just because they are buying rather than selling doesn't change their stature at the table or in the market. Forget the word trader - they were experts in the industry by virtue of their level of participation - weren't they?

From their financial report: my bold
http://www.ikb.de/content/en/ir/financial_reports/annual_report_2010_2011/GJ2009_10_AG_en_final_sicher.pdf
"IKB’s strategic positioning
IKB Deutsche Industriebank AG (IKB AG or IKB when referring to the Group) has undergone
comprehensive restructuring in the past four years of severe global financial crisis. Key risks have been gradually reduced. Lending business without real customer relationships and very long-term project and export financing activities are no longer being actively continued. The Bank has been completely refocused on its traditional customer base – particularly German SMEs with sophisticated financing requirements.

Its business model has been expanded parallel to this. IKB no longer just offers its corporate clients (with sales upwards of € 50 million) credit financing, but an increasingly wider range of capital market and advisory services (such as derivatives, placements, M&A, restructuring advisory) that allow them to optimise their financing structure and grant them access to the capital market. In terms of acquisition
finance, IKB works closely with private equity companies. As new business shows (increase in new lending business at IKB AG including the Leasing Group in the 2010/11 financial year: from € 3.0 billion to € 3.7 billion), IKB is satisfying the requirements of its existing customers, some of whom have been with IKB for decades, with this new approach. "

This report also describes the steps taken to adjust the portfolio of derivatives.

Surprisingly, the report makes this projection.my bold
"The future earnings structure will feature a stronger share of commission income from consulting, derivatives and capital market business. With lower consolidated total assets on account of the EU requirements, net interest income will initially decline and later stabilise in the medium term as new lending business grows. The expenses of the guarantee commission owed to SoFFin will diminish."

The more I read through this report - the less convinced I am that IKB was a babe in the woods - just my opinion.

apeiron

Nov21-11, 10:53 PM

Forget the word trader - they were experts in the industry by virtue of their level of participation - weren't they?

Hick bank tacks on trading desk to jump aboard the whizzy world of structured finance and it blows up in their faces big time. End of story IMO. The results speak for themselves.

Again, you seem to be citing sources without apparently understanding them. The current IKB report says quite clearly that it has dropped all that whizzy SIV stuff that it proved too unsophisticated to handle and has returned to the hick medium-scale corporate financing that was its bread and butter before a hotshot CEO came along and convinced people he knew what he was doing.

You seem to be confusing (intentionally misdirecting?) corporate finance instruments - derivatives, placements, M&A, restructuring advisory - with the SIVs concocted from junk CDOs. If you have a history in corporate finance, then it is at least plausible that there is expertise there. But this is all about traditional banks getting greedy and trying to cash in on markets like subprime that they had no track record in.

IKB AG set up a hands-off trading entity, IKB CAM, then sat back and waited for the cash to roll in. You may want to claim that IKB CAM were "black art" experts and no babes in the woods. And they certainly behaved as if they believed they were BSDs from Wall St. But history's judgement is that they got carved up by GS and Deutsche. And IKB AG was left sitting there, dazed in the middle of the road, saying, duh, what just happened?

Hear it from the horse's mouth....

GUNTHER BRAUNIG, CEO, IKB DEUTSCHE INDUSTRIEBANK AG: Good morning, ladies and gentlemen. When I was appointed at the end of July to master the crisis IKB was facing I set myself three targets; to create transparency, to stabilize the Bank, and to realign the Bank's business...

...IKB's Board of Managing Directors considers the following findings from the report to be key. First, the report criticizes the way in which essential tasks that transferred to IKB CAM, which was established as an asset manager by IKB in 2006. Key words here are organizational deficiencies, inadequate authority investment -- in investment decisions, and inadequate control mechanisms in particular.

http://goliath.ecnext.com/coms2/gi_0199-9747818/IKB-Deutsche-Industriebank-AG-Special.html

LaurieAG

Nov22-11, 04:14 AM

Hear it from the horse's mouth....

It reads like it came from the horses other end though:wink:.

According to the PwC report, the audit reports that were presented to the Supervisory Board did not include any indications of the existence of subprime risk for IKB either. This applied, in particular, to a special audit concerning risk and interest management which was commissioned by our Supervisory Board and carried out by an independent accounting firm. Hence, the Supervisory Board was unable to recognize the special risk situation that led to the IKB's existential crisis. The PwC report concludes that the Board of Managing Directors did not inform the supervisory board adequately about the overall economic picture. Overall, we as the Board of Managing Directors agree with the risk assessment by PwC.

WhoWee

Nov22-11, 07:36 AM

Hick bank tacks on trading desk to jump aboard the whizzy world of structured finance and it blows up in their faces big time. End of story IMO. The results speak for themselves.

As much fun as this is - we just don't agree. IKB took a seat at the big table and hired an expert to sit in the seat. If they had been able to dump their holdings onto someone else - they would have been hailed as winners and experts.

Now, after they've taken losses - nobody owes them anything. The playing field was even when they sat down. The big Wall Street banks weren't required to measure the skill set of their trading partner before executing a trade.

By comparison, if you owned a commercial property and leased it to a used car lot for 20 years and on occasion loaned the operator money to buy inventory - made a nice return. You might consider yourself an expert at leasing that piece of property and loaning working capital to flip cars.

Now, if that owner retires and you decide to hire someone away from another dealership to manage the lot and buy cars with your money - you stand to make more money in the deal. It is your responsibility as the owner to make a good hiring decision and to fund the deal properly - the operation of the business is then left to your hired help.

If that experienced car guy you hired takes your life savings to the auto auction and buys 100 cars that are inoperable for a variety of reasons and causes you to lose half your money - who should you blame? The playing field was level at the auction - nobody made your man buy the cars. He thought he made good deals - but in reality he bought cars that nobody else wanted.

Were you or your man duped? He thought he was getting a good deal - and if additional investment wasn't required to repair the cars - it might have been a good deal.

At the end of the day, there's only one way to become an expert in a field - you have to engage in activities and learn from your mistakes. I love old sayings - if you can't take the heat, then stay out of the kitchen.

IKB had the resources to participate and accepted risk with the intent of leveraging large profits - they failed. Nobody owes them anything - IMO.

John Creighto

Nov22-11, 01:36 PM

With regards to European banks and subprime loans, I’m not sure which banks would have had access to the reports which showed how the (loan quality statistics)/audits were messaged to look better than they were. As a general rule of thumb though banks only have to take a 50% risk weighting on mortgages assets when calculating their capital adequacy. There is nothing in these calculations which measure the ability of the borrower (or population in general) to pay. When times are good the higher a bank can leverage and the more profit they make. When times go bad, the CEOs already made their bonuses.

Anyway, aren’t we way off topic?

MarcoD

Nov22-11, 02:10 PM

IKB had the resources to participate and accepted risk with the intent of leveraging large profits - they failed. Nobody owes them anything - IMO.

It's a difference between European and US trading I think. In northern Europe, when customers find out they bought a bad (financial) product, it is not unusual that the selling party, partly or wholly, compensates the customer. I gather this is different in the US.

(Not that European dealers are angels in that respect. Everybody tries to buy insurances on burning houses. It's just that in short term it is always good for a good laugh, but on the long run it's bad for business. And I guess Germans sometimes lack a sense of humor.)

apeiron

Nov22-11, 03:07 PM

If they had been able to dump their holdings onto someone else - they would have been hailed as winners and experts.

If, if, if. :tongue:

But the discussion is not about hypotheticals but about facts. And the one you keep disputing is the commonplace statement that many of the banks and other institutions brought down by derivatives lacked the competence to assess the risks of these opaque products.

The story is of sleepy, highly regulated institutions who suddenly changed their business models when derivatives/banking were deregulated and entered the game - the level playing fields :rolleyes: - without the internal governance systems or institutional expertise to deal with the risks they were exposing themselves (and their customers) to.

Now you offer cute annecdotes about car yards. We are talking about banks where hiring a few traders is not good enough. There has to be a whole culture for a bank to be an "expert".

You mentioned earlier the S&L saga in the US. Perhaps, like Marco says, you just lack familiarity with how similar the parallels are regarding European banking and structured finance in the mid-2000s.

But it has been much written about. For example, LSE's Robert Ward on the Icelandic banks...

There is no mystery about how it happened. The publicly owned,
locally oriented, “savings and loan” type banks were quickly privatized
in the late 1990s and early 2000s, sold to owners friendly to the ruling
political parties, deregulated, and set loose. They quickly transformed
themselves from “utilities” doing retail banking to “utilities attached
to casinos”...

...This is how the banks became an accident waiting to happen. They
were in a position similar to that of the savings and loan banks in the
United States in the late 1980s, which were hastily deregulated, leaving
their inexperienced managers free to play in the big leagues, with
little regulatory restraint. The result was the “savings and loan” crisis,
which cost several percentage points of U.S. GDP to put right.

http://www.challengemagazine.com/extra/005_033.pdf

Or the Economist on Germany's landesbanks....

it sold sophisticated financial structures, including investments in American subprime mortgages, to IKB, a small German lender, and was the first to pull the plug, six weeks ago, when IKB got into trouble. Josef Ackermann, Deutsche Bank's boss, has little time for such criticism. He blamed some German banks for taking on risks beyond their capacity and competence...

...Landesbanks were set up to act as wholesale financiers alongside state-owned regional savings banks. With a state guarantee they were able to fund themselves cheaply, making their lending profitable. When their state guarantee was abolished in 2005, under pressure from Brussels, they found it harder to obtain cheap new funding and had to scour for higher-yielding assets. Investment banks touting mortgage-backed securities from America found a particularly receptive audience at SachsenLB. Other banks were also tempted into rough waters...

http://www.economist.com/node/9769382

A Forbes comment at the time...

The talent pool of employees at the Landesbanks are not near the caliber of those who work for the bigger, private-sector institutions like Deutsche Bank. "Some of these banks are simply out of their depth when dealing with these transactions and they didn't have sufficient management system in place to control what was going on," said Kline.

http://www.forbes.com/2007/08/21/germany-landesbanks-subprime-markets-equity-cx_po_0821markets20.html

The reason all this matters is that without the steady flow of suckers, there couldn't have been the crisis. Goldman Sachs and the other big city sharks needed someone fresh off the bus to buy their shonky wares.

You can keep protesting that these hick, inexperienced, unready financial institutions were technically "expert" and it was quite legal to relieve them of their small town innocence as part of their rapid and necessary life education having arrived in the big smoke.

But I'm not sure how that squares with you also feeling that the derivatives world is much in need of regulation to protect these same "expert traders".

MarcoD

Nov22-11, 03:25 PM

You can keep protesting that these hick, inexperienced, unready financial institutions were technically "expert" and it was quite legal to relieve them of their small town innocence as part of their rapid and necessary life education having arrived in the big smoke.

Personally, I don't think we'll ever know what the real story is. I mean, say Deutsche Bank wants to invest in risky stuff but can't be bothered to take on the risk. Of course, a manner out of that is starting a separate business, take stock in that, let it be filled with capital, and let them do the risky investments. That manner, you get all the profits with only a low risk. How do we know IKB is not a financial vehicle of Deutsche Bank?

I have the feeling that there were loads of these small companies, and all the public does is just mutter about the fact that cheap money created lots of bubbles and these bubbles blew up.

Bloomberg reported 200.000 laid off in the financial sector. Probably there is nothing left to regulate since nobody, except for the public, will be stupid enough to invest in business dealing in CDSs or CDOs for a decade or two. (I don't have money, but I know I wouldn't. Looks to me that the easiest manner to be ripped off is to invest in complex portfolio's or financial products.)

(Sorry for changing my opinion, but after looking at some Bloomberg and reading some, I have the feeling that nobody knows anything, especially not the media. I mean, I got the feeling that every banker's statement should be read as a poker bet. "Stuff is going lousy" = "I found an exceptional market, am making loads of money, no need to get involved" and "The bank is doing fine" = "Were almost broke and can't use a bank run.")

WhoWee

Nov22-11, 03:40 PM

If, if, if. :tongue:

But the discussion is not about hypotheticals but about facts. And the one you keep disputing is the commonplace statement that many of the banks and other institutions brought down by derivatives lacked the competence to assess the risks of these opaque products.

The story is of sleepy, highly regulated institutions who suddenly changed their business models when derivatives/banking were deregulated and entered the game - the level playing fields :rolleyes: - without the internal governance systems or institutional expertise to deal with the risks they were exposing themselves (and their customers) to.

Now you offer cute annecdotes about car yards. We are talking about banks where hiring a few traders is not good enough. There has to be a whole culture for a bank to be an "expert".

You mentioned earlier the S&L saga in the US. Perhaps, like Marco says, you just lack familiarity with how similar the parallels are regarding European banking and structured finance in the mid-2000s.

But it has been much written about. For example, LSE's Robert Ward on the Icelandic banks...

Or the Economist on Germany's landesbanks....

A Forbes comment at the time...

The reason all this matters is that without the steady flow of suckers, there couldn't have been the crisis. Goldman Sachs and the other big city sharks needed someone fresh off the bus to buy their shonky wares.

You can keep protesting that these hick, inexperienced, unready financial institutions were technically "expert" and it was quite legal to relieve them of their small town innocence as part of their rapid and necessary life education having arrived in the big smoke.

But I'm not sure how that squares with you also feeling that the derivatives world is much in need of regulation to protect these same "expert traders".

Your point is noted - I'm just not as convinced as you are that the biggest sharks are in NY, nor that IKB was a lamb.

On a side note - perhaps the European bankers should have read "Liar's Poker" - since Congress (apparently) didn't.:uhh:

You'll enjoy this interview with Lewis Ranieri on CNBC.
http://video.cnbc.com/gallery/?video=3000006596

apeiron

Nov22-11, 03:50 PM

Personally, I don't think we'll ever know what the real story is.

The details are still being uncovered, but people actually do know the story very well. And in some cases, they knew ahead of the event, as these very fine Economist articles reveal.

But as I said about Atlantic Computers, you can tell people exactly what is going on, however when their eyes are alight with dollar signs, you can see they are not listening. Or they know, but believe they can be in and out of the market before it collapses around their ears.

So on Deutsche Bank, the Economist had this penetrating analysis in 2004.

Mr Ackermann and his ten-man group executive committee have taken Deutsche in precisely the opposite direction. Since 1996, they have been transforming it from a giant institution serving German commerce to a global money machine with no particular national loyalty. The bank has given up on its ambition to become a financial supermarket like the mighty Citigroup. Now it increasingly models itself on Goldman Sachs—which does not shirk from taking risk—to the detriment of its other existing and potential businesses. According to one joke circulating in Frankfurt, the German financial centre where the bank is based, Deutsche is actually run by an Indian “bond junkie”: Anshu Jain, its head of markets.

Mr Ackermann and his team have other priorities than messy domestic mergers. They want to create a global institution with a 25% return on equity.

http://www.economist.com/node/3128013

I mean, a 25% return??

Then this 2000(!) article from the Economist right at the start of the derivative bubble, which seems incredibly prescient (except of course for those who had seen the dotcom boom, hedge fund blow ups, S&Ls, etc, etc)....

Mr Gibbons, for one, is unconvinced. In particular, he worries about American banks' phenomenal profitability. Over the past four years, banks in America have made, on average, a return on equity of 16.5%. In international terms, that is a stunning result. How have they managed it? By taking ever more risk, thinks Mr Gibbons. And for that, thank some of the recent changes in financial markets.

The first is deregulation. In many ways, this has been a good thing. Since 1994, banks have been free to spread their wings across state borders, making them less susceptible to problems in any one region. Thanks to a loosening of the division between commercial and investment banking dictated by the Glass-Steagall act, commercial banks have also been able to get into the investment-banking business. J.P. Morgan almost reinvented itself as an investment bank (though not, it transpires, a particularly successful one: it has just been swallowed up by Chase Manhattan, a bigger bank that also has investment-banking pretensions).

But there is a downside to deregulation. It has been behind just about every banking crisis of recent times. Banks have opened their coffers and lent as if there were no tomorrow, either simply because they were able to do so, or because they felt they had to stop new entrants to the market eating into their business, or both.

http://www.economist.com/node/404464