News How Can We Truly Level the Playing Field?

[Diracula]

Don't we pretty much have to anyway?

 

[WhoWee]

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]

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.)

 

[WhoWee]

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]

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.

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.

 

[WhoWee]

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]

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.

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]

Good points, imho.

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]

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.

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]

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]

Why don't you support your comments?

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

 

[WhoWee]

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

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]

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]

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]

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]

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]

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 ...

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]

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

Apeiron, 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]

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]

@ 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]

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

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]

Again, this game is tiresome.

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

 

[WhoWee]

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]

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 [STRIKE]trolling[/STRIKE] complaining about now?

 

[WhoWee]

Yes, and I supported a fact. So what are you [STRIKE]trolling[/STRIKE] complaining about now?

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]

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]

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.

 

[apeiron]

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]

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

Has 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]

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.