Bailouts: What is the easiest way to answer this?

[PrairieQueen]

That the bank bailouts were need BECAUSE of the lack of regulation of the banking industry. Therefore, we need MORE regulation and not less?

 

[Live_Free_Or_Die]

nt

 

[PrairieQueen]

I don't normally like to do this but this is a statement made by someone on another thread:

Why were the bailouts needed? Because of the corruption in the banking industry. The "trustworthy" capitalists saw opportunity and exploited it. They convinced people to get ARMS to pad thier numbers in order to look more attractive to forign investors. They didn't care who could or could not pay for their loans. The more money they had coming back on paper, the more attractive they looked to investors. Of course, the bubble burst, and then they all claimed to need a bailout. However, it is now coming to light that the bailouts were orchestrated by the banks and were unnecessary.

And we want to talk about how trustworthy we should all be on our own without government regulations? HAHAHAHA!!!

What would be your reply?

 

[newbitech]

if regulations are ignored, then it doesn't matter if there is a lot or a little. The banks weren't bailed out because of lack of regulation. The banks were bailed out because they AND the regulators committed fraud that went unpunished and quite often rewarded.

 

[mtj458]

The easiest answer is that the bank bailouts weren't needed at all. If a company is losing money it should fail.

If the question is why did they fail, then just talk about the Austrian business cycle theory.

 

[hugolp]

Bush signed laws at 210 regulations pages ... a day!!! 210 pages a day of regulations!!! ¿How in earth can anyone say that this was created by a lack of regulation? Its just a plain lie, dont let anyone get away with it.

 

[Zippyjuan]

Bush signed 600,000 pages worth of banking regulations? (210 pages a day times 365 days a year and eight years). In 1999 the total list of all regulations (not just banking) was 134,000 pages. http://usgovinfo.about.com/library/weekly/blfedregs_b.htm

How many regulations are there? According to the Office of the Federal Register, in 1998, the Code of Federal Regulations (CFR), the official listing of all regulations in effect, contained a total of 134,723 pages in 201 volumes that claimed 19 feet of shelf space. In 1970, the CFR totaled only 54,834 pages.

The conservative Herritage Foundation reports that this did increase but not much under Bush- certainly not quadrupling. http://www.heritage.org/research/regulation/bg2116.cfm

Unlike the Federal Register, which is in effect a posting board for all sorts of agency actions, the Code of Federal Regulations (CFR) is the regulatory equiv*alent of a statute book that includes only the text of existing regulations. In number of pages, the CFR makes the Federal Register look Lilliputian, with the 2007 edition totaling 145,816 pages, more than 4,500 pages longer than in 2001, when Bush took office,[15] and almost 8,000 pages longer than in 2000.

So under Bush it grew by 4,500 pages- which is definately not 210 pages a day. It actually comes out to about a page and a half a day. And this does not mean that regulations were followed or enforced which was more the problem under Bush.

According to Nuri Roubini:
http://www.azstarnet.com/sn/byauthor/258818

"For the last eight years, this administration has been systematically against any form of appropriate regulation and supervision of the financial system," said Nouriel Roubini, a finance professor at New York University. "It was a race to the bottom. The ideology was laissez faire, free markets, reliance on self-regulation, which means no regulation."

From the same article:

Looking back on how the mess was made, critics say regulators' absence wasn't the sole cause of the bubble, but Washington's decisions set the stage for the crisis and exacerbated it once it began.
The most important decision may have been the Federal Reserve's move to keep interest rates near all-time lows for three years, which acted as a clearance sale for borrowers.
The Fed cut its target short-term interest rate for overnight loans to banks, the federal funds rate, from 6.5 percent in 2000 to 1 percent in 2003. Loans for cars, homes and houses were on sale, almost 85 percent off.
Cheap credit spurred the rise in housing prices. The Fed viewed that rise as fuel for the economy after the burst tech bubble and the Sept. 11 attacks.
At the same time, international changes in bank regulation in 1988 and 2001 lowered banks' reserves.
The reserves, kept in banks' vaults and with their regional Fed banks, are their cash cushion; when borrowers don't pay back loans, banks can cover the shortfall with their reserves.
The regulations also allowed banks to keep some debts off their balance sheets — the snapshot of a company's financial condition that helps investors gauge its health.
As a result, banks' total loan portfolios looked smaller than they were, allowing them to hold even less cash as a proportion of real total loans.
Under the new rules, banks' reserve requirements were set, in part, by their scores from credit-rating agencies.
"In a sense, the regulators outsourced regulation to the ratings agencies," said Mark Zandi, co-founder of Moody's Economy.com
Another problem: The ratings agencies were wrong about how creditworthy many banks were.
As if to hasten the crisis, the federal government crowded out state regulators.
In 2003, the federal Office of the Comptroller of the Currency, which supervises all national banks, said states could not regulate a bank's mortgage lending if the bank had no branches in the state. Wachovia Corp.'s mortgage subsidiary promptly sued Michigan's bank regulator, claiming that its mortgage unit there was no longer subject to Michigan state regulation.
All 50 state attorneys general and every state bank regulator fought to keep oversight of banks' mortgage lending.
But in April 2007, the Supreme Court ruled against the states, by a vote of 5 to 3.
Message: Leave big banks to the federal regulators.
In a dissent, Justice John Paul Stevens said the court's decision "threatens the vitality of most state laws as applied to national banks."

 

[Zippyjuan]

The Supreme Court got in on the act with Justice Scalia (the Court's most conservative Justice) criticizing the Bush administration for getting in the way of New York trying to reduce predatory lending in their state- supporting state's rights: http://www.mcclatchydc.com/251/story/70985.html

WASHINGTON — In a rebuke of the Bush administration, the Supreme Court ruled Monday that a federal bank regulator erred in quashing efforts by New York state to combat the kind of predatory mortgage lending that triggered the nation's financial crisis.

The 5-4 ruling by the high court was unusual. Justice Antonin Scalia, arguably the most conservative jurist, wrote the majority's opinion and was joined by the court's four liberal judges.

The five justices held that contrary to what the Bush administration had argued, states can enforce their own laws on matters such as discrimination and predatory lending, even if that crosses into areas under federal regulation.

The Bush administration argued that it had to the right to pre-empt any state effort to regulate. But after winning that argument, the OCC failed to address the issues of predatory lending that Spitzer, and later his successor Andrew Cuomo, sought to address

 

[akforme]

By bailing them out didn't we de-regulate failure? It's the best regulator we have too.

 

[hugolp]

"For the last eight years, this administration has been systematically against any form of appropriate regulation and supervision of the financial system," Roubini

Thats the whole point. Politicians want to become rich and powerfull. That is one of the reasons why regulations dont work.