Regulators systematically ignore evidence that deregulation has broken markets

http://necsi.edu/projects/yaneer/owsdesc.html

by ott2 • 15 years ago

11 6 15 years ago

driverdan• 15 years ago

Here's the sentence you based the headline on:

"Our results show that government policy decisions, often in deregulation but also in regulation, have undermined the ability of our economic system to function and made it highly susceptible to crises." (emphasis mine)

Seems you missed a key point. Also,

"...other acts of regulation and deregulation have been carried out under the influence of corporate interests."

So it seems regulation or deregulation isn't the real issue. The real issue is manipulation of laws based on corporate interest.

onemoreact2• 15 years ago

I think when you compare "often in" with 'but also in" most people would assume the first is far more prevalent than the second. Regulatory capture is often an issue, but dispute being blamed for the instability Freddy and Fanny lost far less money than other banks relative to their size. Which suggests that they where not major players in the most toxic assets. So, while I have no problem suggesting they in some small way contributed to the mess that just happened I take issue with people suggesting they are the major causes of the collapse.

yummyfajitas2• 15 years ago

Huh? The government made a profit on most of the bank bailouts. The main exceptions are AIG (lost $6B) and GM (maybe $5B, but I don't understand the GM bailout so well).

The losses on Fannie/Freddie are estimated to be in the range of $100-200B, depending on what house prices do.

http://online.wsj.com/article/SB1000142405297020368750457700...

If Fannie/Freddie lost less money relative to their size (citation?), it's only because the denominator is so large.

yummyfajitas2• 15 years ago

This article is full of crap. It claims that Gramm-Leach-Bliley created "too big to fail", but we had too big to fail long before Gramm-Leach-Bliley. For that matter, I don't think Gramm-Leach-Bliley would have prevented GM from being "too big to fail".

The uptick rule is also a red herring. We had a controlled experiment in 2004 - the SEC eliminated the uptick rule for about 1/3 of securities. No disaster occurred for those 1/3 of securities that didn't also occur for the remaining 2/3.

There is no compelling argument whatsoever why shorting stocks should be harder than going long. The main people who want to prevent short selling are executives of failing companies - short selling allows speculators to inform the market about the companies impending failure, which tends to be bad for the CEO.

joshuaheard• 15 years ago

All of the examples cited are industries highly regulated by the government: equities markets and banking. Since the government is already highly regulating these markets, any further tinkering by the government is going to have unintended consequences.

Actions have consequences, so when the government regulates a market, the market players react, often in unintended ways. Likewise, when the government then re-regulates (often called "deregulation") the market, the market players react again in unintended ways.

The financial crash was caused by the government coming in and taking over another industry, residential real estate mortgages, by purchasing all the secondary mortgages and setting standards. When the government lowered lending standards to help lower class people purchase houses (they couldn't afford), it unintentionally caused the mortgage-based securities market to crash. Mortgages used to be a safe investment, but after the government lowered lending standards, this assumption that the markets had previously used was no longer true.

Further government distortions of the market are cited in the report, namely ethanol subsidies. So, I would conclude that government distortion is what is breaking the markets, and that less government control is needed to return to freer markets.

Regulators systematically ignore evidence that deregulation has broken markets

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