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On April 15 2016 22:38 Lord Tolkien wrote:
1) Displays of gross incompetence occurs no matter if it's a big or small business.
2) Should also be noted that the primary instigator of the financial crisis was not "big banks", but the shadow banking done by smaller institutions like AIG and, more specifically, Countrywide and WaMu, who issued the massive amounts of sub-prime mortgages.
3) What is the legal precedence for this, and how would you make a case to do so legally, If it's not possible within our current legal framework, what type of legal reforms do we need to pass make it possible, and make it not just an exercise in rhetoric?
4) It should be noted that the presence of big banks were important to soaking up and averting catastrophe in 2007. as a number of insolvent shadow banking institutes were bought by larger ones, who absorbed the toxic assets at a detriment to their own solvency (with Fed guarantees and injections of capital) to prevent a cascading financial collapse. The acquisition of Merrill Lynch and Countrywide by Bank of America, for instance.
5) I'm generally not sure why people believe breaking up large banks would have a positive economic effect on the US economy, and why having a large number of small banks is a better composition of the financial industry. That would be making nearly the same fallacy that Jackson made in regards to the Second Bank of the United States, and the direct role that decision took in instigating the massive recession of 1837.
When discussing to-big-to-fail in the context of 2007, the primary issues was a lack of regulation regarding the shadow banking sector (which new regulations are in place now, more perhaps may be needed), and that the ENTIRE FINANCIAL SYSTEM was threatening to collapse with the massive loss in capital and liquidity caused by the bursting of the housing bubble, not just a few big banks.
Yeah, the one of the problems was shadow banks were not FDIC insured and also not subject to the strict risk management things that come with FDIC. Thus, they were able to engage in more risk while having less safety precautions-- they had insufficient stop loss/ stop gap measures in place, so when mortgages started failing their liquidity pools drained real fast b/c they had to pay out. Then came the credit crunch and finance started grinding to a halt.
Also small banks fail as easily as big ones. Look at the last few bank runs we've had.
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On April 15 2016 22:56 Plansix wrote:
The banks can be as large as they want as long as people go to jail for fraud and gross negligence when they take place. Currently that is not taking place. I don’t believe there is any reason to believe that the banks being huge is a benefit to the economy either. Their size is one of the main reasons why they are so difficult to regulate. From personal experience, finding someone who is able to make decisions about cases is very difficult due to the way they diffuse responsibility.
1) What fraud took place, and how could they be charged for it? In general, the financial crisis in 2007 was caused by transactions which were technically legal (which is why the Justice Department couldn't find anything they could use to truly make any prosecutions, and not for lack of trying), only highly risky, irresponsible, and likely rather amoral. I myself do not disagree that a number of execs should've been held accountable for their decisions, but with the framework of US law at the time, there was/is little to be done in this case (statues of limitations are up, and changing laws to facilitate the prosecution of crimes in the past is a...disturbing precedent). I agree, however, that there needs to be stricter regulations on the financial sector, and better legal tools to hold corporate and financial executives accountable in the case of gross irresponsibility. Best we can do. Should also be noted it has nothing to do with bank size. Firms like Bear Sterns barely broke $1bn USD, compared to the capital of Bank of America, and the former arguably had a significantly larger role in instigating the crisis.
2) Big banks aren't necessarily a benefit from the economy, I agree, but having a large number of small banks presents a very high risk in the economy (beyond general inconvenience). Less capital, less liquidity, much greater risk per bank (with less they can loan from other banks and the Feds). If another systemic crisis in the financial system like the sub-prime mortgage crisis were to occur, things would get hairy at a rapidly escalating pace. A bunch of small banks failing doesn't trigger a collapse, but a cascade of them will, as we learned in the Great Depression. We could even look at the 2007 crisis and the large numbers of small banks that went belly-up.
There's actually a decent Forbes article on the issue.
www.forbes.com
tl;dr: Good regulation is far more important to ensuring the health and solvency of a financial sector, as opposed to bank sizes.
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I would place a lot of fault with the credit rating agencies. They gave all these lousy bonds really high ratings, and I bet most investors just looked at that and figured "hmm well these seem like nice bonds, Moody's said so". Those prospectuses are dense reading, like regular equities are already boring so I can only imagine how bad bonds would be. Barely anyone is going to read a detailed prospectus, which maaaaybe gives you an idea that the bonds were actually kind of risky.
Also on small banks: Taiwan is one of the few really developed nations where banks are relatively small. Sure Taiwan is kicking ass, but the inability to raise billion-dollar amounts of capital easily does hurt industry. The middle class is doiung great b/c of so much investment going to small and medium sized biz (among other reasons). There are some big companies in Taiwan like TSM, Asus, Acer, HTC (sort of) and Foxconn but with improved access to larger capital markets we would see more of those.
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If what the Banks did was legal, is questionable BUT that the rating agencies rated pure trash with A(A(A)) should rub everyone the wrong way.
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On April 15 2016 23:32 Velr wrote:
If what the Banks did was legal, is questionable BUT that the rating agencies rated pure trash with A(A(A)) should rub everyone the wrong way.
Yeah rating agencies couldve called out the toxic assets real easy with some diligence. It was deliberately sloppy imo.
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On April 15 2016 23:30 ticklishmusic wrote:
I would place a lot of fault with the credit rating agencies. They gave all these lousy bonds really high ratings, and I bet most investors just looked at that and figured "hmm well these seem like nice bonds, Moody's said so". Those prospectuses are dense reading, like regular equities are already boring so I can only imagine how bad bonds would be. Barely anyone is going to read a detailed prospectus, which maaaaybe gives you an idea that the bonds were actually kind of risky.
True, though it was a collective failing, really. They just sort of assumed they were sound/less risky than they were despite knowing what they were buying, and then the housing market pops: as if these things never occur.
But yes, credit rating agencies really dropped the ball hard.
On April 15 2016 23:30 ticklishmusic wrote:
I would place a lot of fault with the credit rating agencies. They gave all these lousy bonds really high ratings, and I bet most investors just looked at that and figured "hmm well these seem like nice bonds, Moody's said so". Those prospectuses are dense reading, like regular equities are already boring so I can only imagine how bad bonds would be. Barely anyone is going to read a detailed prospectus, which maaaaybe gives you an idea that the bonds were actually kind of risky.
Also on small banks: Taiwan is one of the few really developed nations where banks are relatively small. Sure Taiwan is kicking ass, but the inability to raise billion-dollar amounts of capital easily does hurt industry. The middle class is doiung great b/c of so much investment going to small and medium sized biz (among other reasons). There are some big companies in Taiwan like TSM, Asus, Acer, HTC (sort of) and Foxconn but with improved access to larger capital markets we would see more of those.
Yes, diversity in bank sizes is generally good. I do not know if we currently need more or less small banks, but if there is a deficit of community banks, this can generally be tackled by adjusting regulations on smaller banks, and more liberal creation/incorporation rules, as opposed to simply breaking up large banks, which would have some rather massive financial/economic ripples.
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I disagree with the idea that CEO’s and other people in positions of responsibility should not have been be charged with crimes for the actions in 2007. At minimum criminal investigations should have taken place. As long at as regulations are viewed as a write off and there is no risk to the people running the show, they will continue to try behave badly.
It’s the firestone tire issue, where they did not issue a recall because it didn’t make financial sense to do so. But then legislators started talking about adding criminal liability if a business decisions of that nature leads to deaths. Now everyone who makes automobiles are super aggressive with their recalls to avoid that and the negative PR.
They need to feel the fear of regulation beyond massive fines they can challenge in court.
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GM's handling of the ignition switch issue seems to suggest that the Firestone lesson was not learned as well as you're asserting 
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On April 15 2016 23:48 farvacola wrote:GM's handling of the ignition switch issue seems to suggest that the Firestone lesson was not learned as well as you're asserting
I never said they were all perfect, but Planet Money reported that one of the causes of more aggressive recalls was the fear of laws making criminal negligence to failure to recall a faulty product that leads to harm or death.
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On April 15 2016 23:30 ticklishmusic wrote:
I would place a lot of fault with the credit rating agencies. They gave all these lousy bonds really high ratings, and I bet most investors just looked at that and figured "hmm well these seem like nice bonds, Moody's said so". Those prospectuses are dense reading, like regular equities are already boring so I can only imagine how bad bonds would be. Barely anyone is going to read a detailed prospectus, which maaaaybe gives you an idea that the bonds were actually kind of risky.
Also on small banks: Taiwan is one of the few really developed nations where banks are relatively small. Sure Taiwan is kicking ass, but the inability to raise billion-dollar amounts of capital easily does hurt industry. The middle class is doiung great b/c of so much investment going to small and medium sized biz (among other reasons). There are some big companies in Taiwan like TSM, Asus, Acer, HTC (sort of) and Foxconn but with improved access to larger capital markets we would see more of those.
A wrong rating is hardly an excuse for any decently sized financial institution. They have their own internal credit rating systems.
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Netherlands45349 Posts
On April 15 2016 20:12 GreenHorizons wrote:Show nested quote +On April 15 2016 19:56 Kipsate wrote:On April 15 2016 19:40 GreenHorizons wrote:
Why will it hurt the American economy and citizens to break up the banks? Moreover, the rest of the world will not split between banks, that is to say that American banks would suffer significantly while foreign banks won't. The problem with that is that a lot of banks will lose a large amount of stock value and devaluate. Americans who have 401ks, mutual funds or hell even some pensions would lose a significant amount of value which is damaging to a lot of Americans.
I may have worded that confusingly, breaking up banks and splitting them up between retail and investment are two different things, the latter is a terrible idea for the reasons I already stated. The former is also problematic because of the same reason (more limited but still applicable) other banks won't follow suit, Barclays will be as huge as ever, Chinese/Japanese banks will be as huge as ever. Splitting up say JP Morgan (which in its own is like 10x the size of Goldman Sachs) in 100 little parts will severly hurt these banks on the international market(once again leading to a significant drops in stocks for the average American pension fund etc). They will also have less capital to combat setbacks because they aren't allowed to hold that much capital in the first place. Having better regulation on for example the amount of minimal capital or common stock they are allowed to have is a better way to go about it, this will admittedly make competition harder but not as bad as splitting JP morgan or Bank of America up in +100 little parts. As for the economy, the finance sector is about ~8%(correct me if i'm wrong) of America's GDP, they need that finance sector to be attractive. Measures like these would work if international trade agreements can be completed where every bank in the world would follow suit(I believe some things like that are in the works) but until they are actually realistically manageable then it will put the American economy and citizens on the backfoot. So the argument is that essentially that we are already hostages of big banks nationally and globally and the best we can do is continue to try to squirm out of our restraints? We can't do what needs to be done because other nations are too stubborn/ignorant to see the risks. If that's the argument I get it and I see some merit, but it also is reminiscent of the cold war. I'm not sure the same strategy will work especially when they are actually creating infrastructure and goods and we aren't making much at all with all our cold war esque spending (other than military equipment and infrastructure for countries we'll be invading in decade to destroy said infrastructure and rid them of the weapons we gave them (like we have been for the last 40 or so years).
Disregarding your characterization and choice of words for a second, but yes the reality that we live in is that these banks need to compete internationally, such is the system that we live in. We need stricter regulation over the system but not too much as to deter them from competing internationally as that would be disastrous.
The Financial Stability board is an international body designed to regulate and offer more transparancy for big banks (it includes the G20, so even countries such as China, I am not to sure as to how succesfull this has been(someone can enlight me on this who has more knowledge would be nice) because I don't have the best experience with "international governing bodies" to say the least. But if I am not mistaken the big banks actually aren't becoming significantly bigger then they currently are due to the the Financial Stability board. Steps are being taken at least to do something about international transparancy and banking.
http://www.fsb.org/
Clinton is running on a platform to deal with Shadow Banking and offer more regulation, yes she is being aided by money from Wall Street but she is the only one who seemingly seems to understand how it works(which honestly, might be just because she has ties with Wall Street in the first place, Lobbying is a thing and its not always inherently evil). Bernie Sanders does not.
as RvB has pointed out, you also haven't explained why either breaking up big banks would be beneficial or why implementing a way of GS would be beneficial either. You are one of the most ardent supporter of Sanders and if you can't explain what he basically is running his platform on then that is a big problem.
He points out large problems within society but he never explains how they will be solved, he never explains how he will be able to implement his solutions or what (negative) consequences it might have.
Now i'm willing to concede that most people who don't choose Sanders don't know all of this but neither do those who do choose Sanders. You point out that many Sanders supporters recognize his shortcomings, I am not sure they do considering you are one of the more informed Sander supporters out there and in no way representative of the other Sanders supporters. If one of the shortcomings of your canidate that you support is that he runs a platform based on a misunderstanding of economic policy and dire consequences for the American citizen and economy then that is a really strong shortcoming.
In some sense, Sanders is an idealist, HRC is a pragmatist. She understands the game, she understands policy she understands that she needs to make deals, because she is part of the establishment. Sanders running has incredible importance in shifting the general populace of America into more acceptable leftwing policies(such as a better fucking healthcare system or a loosening of insane student debts) and into making HRC appeal to those who like those policies as well. But in the end he is not a man I would like to become president of the United States.
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On April 16 2016 00:01 RvB wrote:Show nested quote +On April 15 2016 23:30 ticklishmusic wrote:
I would place a lot of fault with the credit rating agencies. They gave all these lousy bonds really high ratings, and I bet most investors just looked at that and figured "hmm well these seem like nice bonds, Moody's said so". Those prospectuses are dense reading, like regular equities are already boring so I can only imagine how bad bonds would be. Barely anyone is going to read a detailed prospectus, which maaaaybe gives you an idea that the bonds were actually kind of risky.
Also on small banks: Taiwan is one of the few really developed nations where banks are relatively small. Sure Taiwan is kicking ass, but the inability to raise billion-dollar amounts of capital easily does hurt industry. The middle class is doiung great b/c of so much investment going to small and medium sized biz (among other reasons). There are some big companies in Taiwan like TSM, Asus, Acer, HTC (sort of) and Foxconn but with improved access to larger capital markets we would see more of those. A wrong rating is hardly an excuse for any decently sized financial institution. They have their own internal credit rating systems.
Yeah, so I'm not saying that the originators of those shitty MSB's are guilt free by any means. However, many investors relied on the credit agencies to provide a good third party evaluation of these loans. I feel like credit agencies should be held to a similar level of accountability as public accountants when it comes to this. Then again, they made it out of WorldCom, Enron and all that unscathed despite giving company-issued bonds investment grade ratings and not lowering until failure was very clear or had already occurred.
I would be more inclined to trust the internal credit officers of these banks on things they had a stake in. I know a lot of banks took some of the riskier tranches of MSB's for themselves, but they also pursued an investment strategy to hedge against potential downside which they were more aware of. There was a "I wouldn't actually use my own product" thing going on here.
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Cayman Islands24199 Posts
there was pretty cavalier willingness to eat the questionable mbs especially by london based branches of these institutions, with the understanding that they can sell these real fast. the counterparty risk is not really accounted for in this sort of a dynamic because you are trying to dump the hot potato to guys who did not understand the underlying risk. the problem is the market climate and incentives involved with music chair style short termism.
an underdiscussed dynamic is the distribution of expertise in the global financial system. credit agencies serve teh important role of conferring credibility on stuff that, while certain firms understood the risk involved, others don't. so you have asymmetry of information, lemon selling adverse choice market.
see e.g. https://www.newyorkfed.org/medialibrary/media/research/staff_reports/sr318.pdf
so basically you do have some kind of fraud going on but it's more of a systemic information asymmetry in a bubble housing market. but really, adverse selection is called rekting the other guy in the business. it's seen as a good thing lol, except when the other guy gets so rekt that it kills the whole system.
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legal change for individual liability is difficult because it's essentially trying to hold individuals responsible for a collective action problem. there is however some space for this at the top where risk requirements are set, orders for procedure enforcement etc are made. but if you have say, a gross negligence of risk in market standard, what goes into that computation? it's not exactly that easy for a trial by judges. regulators is thus really the preferred alternative, but legal reform can also be made to place some restrictions on trading activity for highly leveraged firms, limiting compensation for firms requiring bailout.
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One week after he formally received a bill to designate the Bible as Tennessee's state book, Gov. Bill Haslam has vetoed the measure. Critics say the bill isn't constitutional — and that it equates the Bible to the Tennessee walking horse or the Tennessee cave salamander.
The bill's backers are pledging to try to override the veto, which comes a year after similar legislation failed.
Explaining his veto in a letter to state Speaker of the House Beth Harwell, Haslam writes that in addition to the legal issues about the bill, "this bill trivializes the Bible, which I believe is a sacred text."
In the letter reprinted by The Tennessean, Haslam adds, "Our founders recognized that when the church and state were combined, it was the church that suffered in the long run."
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United States42674 Posts
On April 15 2016 23:33 Rebs wrote:Show nested quote +On April 15 2016 23:32 Velr wrote:
If what the Banks did was legal, is questionable BUT that the rating agencies rated pure trash with A(A(A)) should rub everyone the wrong way. Yeah rating agencies couldve called out the toxic assets real easy with some diligence. It was deliberately sloppy imo.
Except their business model is literally selling credibility where none should exist. You might as well complain about advertising agencies for attempting to mislead consumers.
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On April 16 2016 00:56 KwarK wrote:Show nested quote +On April 15 2016 23:33 Rebs wrote:On April 15 2016 23:32 Velr wrote:
If what the Banks did was legal, is questionable BUT that the rating agencies rated pure trash with A(A(A)) should rub everyone the wrong way. Yeah rating agencies couldve called out the toxic assets real easy with some diligence. It was deliberately sloppy imo. Except their business model is literally selling credibility where none should exist. You might as well complain about advertising agencies for attempting to mislead consumers.
For companies that are supposed to live and die by their ability to provide us with accurate information, they aren't really doing a lot of dying.
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Paul Ryan, the budget wunderkind who was elected speaker only after a united House GOP dragged him into the job, is finding himself in the exact same position as former House Speaker John Boehner: unable to find consensus in his conference.
Just months after being elected as speaker with the promise he'd return the House to what is called "regular order," Ryan will miss an April 15 deadline to pass a budget even as he still seeks to find consensus around one.
"It's important for Paul," said Rep. Peter King (R-NY) on passing a budget. "It's important to anyone who is speaker, I think because it is what we are supposed to be doing. It is regular order. And with him being budget chairman and even apart from that, it lays out the roadmap for the House for the year."
The irony for Ryan is that the budget debacle unfolding on his watch is more about perception than an actual legislative crisis. Under a fiscal agreement struck between outgoing House Speaker John Boehner and President Obama, there is already a 2017 funding bill in place, a parting gift from Boehner that was intended to save Ryan from the kind of high profile vote wrangling he is facing now as GOP schisms bubble up in an election year.
Ryan, however, had made a pledge to bring back "regular order" and restore the budget process to the committees, all an effort to encourage his conference to feel a stake in the process and unite his party.
Ryan's token of goodwill appears to be backfiring.
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Cayman Islands24199 Posts
lol krugman basically made a shitpost against sanders. he mad
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The Republican National Committee is expected to debate a proposal next week that would dramatically shift the balance of power at this summer’s convention — and impose a new rulebook for selecting the party's nominee.
The proposal, which will top the agenda during a meeting of the Rules panel at the RNC’s annual spring meeting in Hollywood Beach, Fla., would fundamentally alter how the convention is conducted, further empowering the delegates to determine the course of the proceedings.
It amounts to not just a changing of the rules but of the rulebook itself, with far-reaching implications, potentially impacting whether party insiders will be able to draft a so-called “white knight” — someone currently not running who would play the role of savior at a deadlocked convention.
The proposal is the brainchild of Solomon Yue, an RNC officer and Rules Committee member from Oregon. It would replace the system used at Republican national conventions for decades, which mimic those used by the U.S. House of Representatives, with Robert’s Rules of Order, a design that’s often used to oversee civic and organizational meetings.
Some see the idea as a recipe for utter chaos, and one that could open the door to mischief-making. With thousands of delegates on hand, it’s easy to imagine a scenario where objections pile up, jamming up floor proceedings and turning the convention into a train wreck — all before the eyes of a national audience.
RNC officials say Yue's plan is almost certain to be tabled until closer to the convention. But it will spark a months-long debate just as the scrutiny into the party’s internal workings is intensifying.
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On April 15 2016 23:27 Lord Tolkien wrote:Show nested quote +On April 15 2016 22:56 Plansix wrote:
The banks can be as large as they want as long as people go to jail for fraud and gross negligence when they take place. Currently that is not taking place. I don’t believe there is any reason to believe that the banks being huge is a benefit to the economy either. Their size is one of the main reasons why they are so difficult to regulate. From personal experience, finding someone who is able to make decisions about cases is very difficult due to the way they diffuse responsibility. tl;dr: Good regulation is far more important to ensuring the health and solvency of a financial sector, as opposed to bank sizes.
I agree with your post, but that bolded part may not be as widely shared as you think. I remember being younger when I wanted Wall Street to be demolished as punishment for the Financial Crisis of 2008. I understand the value of having a functioning financial sector now that I am older, but I didn't always have that bold premise of yours.
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EPT
