[JerryLove]

Originally Posted by Hopeful

And I disagree with you - completely.

Have you considered the possibility that it is you who might be wrong?

Sure did. Then I looked at both the pre-regulation history of the US, and current traits where there's minimal or no governmental regulation.

I also asked myself how imposing more safety standards could yield less safety: or how government standards would prevent corporations from adhering to higher standards. The few scenarios I could come up with were too far fetched to occur regularly.

Finally: I asked myself how often I've seen companies complain they wanted to use higher standards. Found very few.

And Jerry, I also mentioned that I can appreciate your opinion and perspective based on your experience. Mine has been different, so is my opinion. The question has been asked and I answered the best I know how, which includes all my years working and being a consumer in private and public industry.

How well did corporate self-regulation of new banking practices do leading up to the recent fiscal melt down?

How well did corporate accounting standards do leading up to Enron and Anderson. How have things like Sarbanes Oxley made it worse?

How did corporate pollution standards do prior to the EPA? How have emissions and waste regulations hurt the environment?

How is pollution self-regulation doing in China? How is basically self-regulating land use doing in Brazil? How has all-but-self regulated development done in Florida? How have government limits on urban sprawl made sprawl worse?

To the point, name a single instance where FAA regulation has forced an airline to be less safe.

Do you believe a cereal which is 42% sugar is a healthy choice for an obese child's diet?

[Hopeful]

Maybe if there weren't folks like Rod Blagojevich, Richard Daley, Lyndon Johnson, Richard Nixon, Marrion Berry, Jim & Susan McDougall, etc., you might have a better case. However, the corruption at these levels shows what is wrong with government oversite of anything.

I have worked in banking since 1972. Unlike your characterization as a loosey goosey anything goes industry, banking is a highly regulated industry that has State and Federal agencies watching over them as well as stockholders (unless it's privately held) and the SEC. You have the FDIC, OCC and Treasury looking over them. They are subject to a host of laws that cover every aspect of operation from deposits and to lending and investment activities. Prior to CRA, borrowers had to meet certain criteria for mortgages including income verification and debt service requirements. Cast in stone were: your monthly mortgage payment (including taxes and insurance) could not exceed 25% of your monthly income. Your total debt payments including your new mortgage payment could not exceed 33% of your monthly income. However, when CRA came into play, banks were forced to loosen those standards so that the "American dream of home ownership" could be had by all. If the banks didn't, CRA could rate the bank poorly and they would not be able to open up branches or they could be fined substantially or punished in other ways. Then, there's the FHA which guaranteed low down payment loans. In the less regulated days of banking, it was typical for a home buyer to put down 20% of the price, thereby resulting in a less risky loan to the bank and to the banking system overall. But, with the FHA guarantee, the risk was passed on to the government because no prudent bank would have made these loans.

Then there are the good ole' quasi-government agencies of Fannie Mae and Freddie Mac which provided the liquidity in the market by buying the loans that were generated by the mortgage bankers. You see, banks themselves did not typically have the amount of deposits on hand to make the vast numbers of loans that were being generated. No, these loans were packaged and sold to investors, among the largest being Fannie and Freddie. FNMA also had its hooks into the banks by providing certifications such as "DUS approved underwriter" which made it possible for lenders to "play ball" with them. It was well known within the banking industry that the best apartment loan rates came from Fannie Mae - nobody could compete with them because their source of funds was cheaper than anyone else's. Despite what you read in the media, this whole meltdown was caused in large part by the failure of government to do their part. The reason this occurred is that the politicians were too busy getting their strokes from the industry because they knew the banks would be answering to government.

Now, they are trying to cover their behinds by passing bailout fund money when they should have let the big banks fail - it would have been less costly in the long run. It's like I've said before, leave it to Government to break your leg and then offer you a crutch!

[JerryLove]

Originally Posted by Hopeful

Maybe if there weren't folks like Rod Blagojevich, Richard Daley, Lyndon Johnson, Richard Nixon, Marrion Berry, Jim & Susan McDougall, etc., you might have a better case. However, the corruption at these levels shows what is wrong with government oversite of anything.

Shall I list corrupt business owners now? Some of the names would be the same.

Again I fail to see a point. There are corrupt politicians. There are corrupt businesses. This makes government regulation of industry worse than self-regulated industry how?

I've given examples. Where are yours.

I have worked in banking since 1972. Unlike your characterization as a loosey goosey anything goes industry, banking is a highly regulated industry that has State and Federal agencies watching over them as well as stockholders (unless it's privately held) and the SEC.

Let's look at some of that shall we?

Stockholders are interested in earnings reports. They want to stocks rise. So do the CEOs they hire, as that's how they get bonuses. This does not lend itself to good long-term planning.

You have the FDIC, OCC and Treasury looking over them. They are subject to a host of laws that cover every aspect of operation from deposits and to lending and investment activities.

Absolutely true. Now remember how that came to be. Unregulated banks ran themselves into insolvency in the great depression. Regulations were put in place.

Many of those regulations lasted until the turn of the 21st century. How well have the banks been doing lately?

And in the interim, where have the crashes been? That's right: in the things that were unregulated (like junk bonds and savings-and-loans). Most recently in debt-backed securities.

Prior to CRA, borrowers had to meet certain criteria for mortgages including income verification and debt service requirements. Cast in stone were: your monthly mortgage payment (including taxes and insurance) could not exceed 25% of your monthly income. Your total debt payments including your new mortgage payment could not exceed 33% of your monthly income. However, when CRA came into play, banks were forced to loosen those standards so that the "American dream of home ownership" could be had by all. If the banks didn't, CRA could rate the bank poorly and they would not be able to open up branches or they could be fined substantially or punished in other ways.

Explain how the crash happened in the 1920s.

Explain how the CRA caused banks to "look the other way" as appraisers gave false appraisals and loans were approved with no checking of income.

You can't. They didn't. The banking regulations that went in during the depression created a depression-free economy for more than a half-century.

Mostly after that you rant about quasi-government entities which are not the topic at hand. You don't like them? I don't either. Surprise!

Now about industry self-regulation. Tell me again how Sugar Smacks are a healthy food.

[Hopeful]

So, despite all these years of regulation, we come to the same place. So, how effective has regulation been? I can make the same case you have, because maybe there is no real answer. However, the reason I named corrupt politicians is because no matter how good the intentions are or what the regulations are to accomplish, they (politicians) will find a way to mess it up. What CRA did was to pave the way for loosening of credit standards so that politicians could deliver their promise of the "American dream". With Fannie and Freddie willing to buy into "sub -prime" and undocumented loans, they gave the green light to make these loans. They told the banks to generate these loans because they were willing to buy them and count on the appreciation of value that they hoped would continue. Banks could not make these loans without that liquidity in the market. When the loans are not held on their books, they don't have to reserve for loan losses as they normally would which requires use of capital. However, did any oversight agency do their job? No, they were too busy trying to protect the dealmakers in DC who were working with the industry to make the economy and Wall St. look good. You can bet that banks who originated these loans did not get any criticism or bad ratings from CRA.

Now, in answer to your Sugar Smacks question, I believe the FDA could come out and say it was healthy. Nothing surprises me.

[Hopeful]

NYT: FDIC may borrow cash from banks - The New York Times- msnbc.com

Jerry, I'm not making this up! Please read the above from today's NYT as posted on MSNBC. Looks like this argument has taken a very strange new twist, especially with respect to the banking industry and the question at hand. How ironic, members of the banking industry are now talking about loaning money to the FDIC to help bail it out! The regulators need help from...private industry!!!!

[JerryLove]

Originally Posted by Hopeful

So, despite all these years of regulation, we come to the same place. So, how effective has regulation been?

No depressions from the time the regulations were put in place to the time the regulations were removed. That seems effective to me.

Now, in answer to your Sugar Smacks question, I believe the FDA could come out and say it was healthy. Nothing surprises me.

Now here's the good part. I can fire the guy in charge of the FDA (presidential appointment yes?). How do I fire "the food industry"?

I can lobby congress for change in regulations. Does that work with the food industry?

The government has no fiscal incentive to feed me unhealthy food. Does Kellogg have a fiscal incentive to get me to buy frosted flakes?

You can say that the government has problems in (say) tobacco regulation; but can you honestly say they have less interest in getting me to not smoke than Phillip Morris?

[Hopeful]

Originally Posted by JerryLove

No depressions from the time the regulations were put in place to the time the regulations were removed. That seems effective to me.

I'd like to know which regulations you claim were removed. What was allowed to happen was that the government forced the banks to make riskier loans contrary to prudent underwriting guidelines. That is what really happened here. But, what do you think about the announcement that the banks may be bailing the FDIC out?

[JerryLove]

Originally Posted by Hopeful

I'd like to know which regulations you claim were removed. What was allowed to happen was that the government forced the banks to make riskier loans contrary to prudent underwriting guidelines. That is what really happened here. But, what do you think about the announcement that the banks may be bailing the FDIC out?

the glass steagall act comes to mind.

Now tell me which government regulation forced banks to give sub-prime mortgages. Which regulation forced banks to not check claimed income? Which regulation forced the bundling and rebuilding of these bad assets?

[Hopeful]

Originally Posted by JerryLove

the glass steagall act comes to mind.

Now tell me which government regulation forced banks to give sub-prime mortgages. Which regulation forced banks to not check claimed income? Which regulation forced the bundling and rebuilding of these bad assets?

Glass Steagall would not have prevented this meltdown in mortgages - it applied to banks doing investments. What other regulations were done away with that had a direct impact on the current situation?

I already said, it was the power of government through its agencies and programs like CRA, SBA, FHA, FNMA and FHLMC that forced banks to make risky loans at the threat of being rated poorly. The government encouraged lending to marginal and poor credits by guaranteeing those loans. Also, what is meant by "rebuilding of these bad assets"?

Anyway, for the 3rd time, what do you think about the banking industry coming in to save the FDIC?

[JerryLove]

Originally Posted by Hopeful

Glass Steagall would not have prevented this meltdown in mortgages - it applied to banks doing investments. What other regulations were done away with that had a direct impact on the current situation?

The one which separated Commercial and Investment banks.

[qutoe]I already said, it was the power of government through its agencies and programs like CRA, SBA, FHA, FNMA and FHLMC that forced banks to make risky loans at the threat of being rated poorly. The government encouraged lending to marginal and poor credits by guaranteeing those loans. Also, what is meant by "rebuilding of these bad assets"?[/quote] But I'm still waiting for you to show me how banks were forced into subprime loans, and how banks were forced into not checking income, and how banks were forced into packaging and selling these loans (rather than managing them), and how banks were forced into investing in debt-backed-securities.

Of course, the fact that so many banks did none of those things tells me that there was no force involved. Banks did it because it was profitable. Mortgages were packaged and sold to a stock market that gobbled them up. The industry did nothing to regulate itself, and the government did not nearly enough.

Anyway, for the 3rd time, what do you think about the banking industry coming in to save the FDIC?

Nothing. Haven't paid any attention to the news lately.

[Hopeful]

Originally Posted by JerryLove

The one which separated Commercial and Investment banks.

[qutoe]I already said, it was the power of government through its agencies and programs like CRA, SBA, FHA, FNMA and FHLMC that forced banks to make risky loans at the threat of being rated poorly. The government encouraged lending to marginal and poor credits by guaranteeing those loans. Also, what is meant by "rebuilding of these bad assets"?

But I'm still waiting for you to show me how banks were forced into subprime loans, and how banks were forced into not checking income, and how banks were forced into packaging and selling these loans (rather than managing them), and how banks were forced into investing in debt-backed-securities.

Of course, the fact that so many banks did none of those things tells me that there was no force involved. Banks did it because it was profitable. Mortgages were packaged and sold to a stock market that gobbled them up. The industry did nothing to regulate itself, and the government did not nearly enough.

Nothing. Haven't paid any attention to the news lately.[/QUOTE]

Subprime loans, no document loans, etc. were the result of values escalating so quickly, the banks had to find a way to meet the borrowers' demand for loans. Had they not done that, they would have risked being criticized so they could not open branches or do mergers and acquisitions. CRA can do that to a bank and that's how they were forced by the government.

Jerry, just humor me and please read the article I provided. It's not very long, but it is enlightening.

[JerryLove]

Originally Posted by Hopeful

]I already said, it was the power of government through its agencies and programs like CRA, SBA, FHA, FNMA and FHLMC that forced banks to make risky loans at the threat of being rated poorly.

You've said it, but you've not supported it and it's simply not true. My bank did not make subprime loans and was and is not poorly rated.

The government encouraged lending to marginal and poor credits by guaranteeing those loans.

Of course this is also not true. Were these loans guaranteed, then there would not have been a problem with them not being paid back... at least not a problem for the stock market and banks (there certainly could have been for the government). The entire problem was because of defaults causing these loans to *not* get paid back.

Also, what is meant by "rebuilding of these bad assets"?

meant "re bundling"

Subprime loans, no document loans, etc. were the result of values escalating so quickly, the banks had to find a way to meet the borrowers' demand for loans. Had they not done that, they would have risked being criticized so they could not open branches or do mergers and acquisitions.

They didn't have to meet such demands at all. My bank did not. The only critics I ever saw on banks that did not were investors. And my bank did, in fact, start a merger with another one.

CRA can do that to a bank and that's how they were forced by the government.

A cite to where government regulation actually did this would be very helpful.

Jerry, just humor me and please read the article I provided. It's not very long, but it is enlightening.

It underscores the need in banking for more regulation than presently exists. The failure rate is high because of risky and bad behavior on the part of the banks.

Of course we could go the other way and remove the government entirely. The banking system would entirely fail on a regular basis as it did before the government became involved.

[Hopeful]

Originally Posted by JerryLove

You've said it, but you've not supported it and it's simply not true. My bank did not make subprime loans and was and is not poorly rated.

Of course this is also not true. Were these loans guaranteed, then there would not have been a problem with them not being paid back... at least not a problem for the stock market and banks (there certainly could have been for the government). The entire problem was because of defaults causing these loans to *not* get paid back.

meant "re bundling"

They didn't have to meet such demands at all. My bank did not. The only critics I ever saw on banks that did not were investors. And my bank did, in fact, start a merger with another one.

A cite to where government regulation actually did this would be very helpful.

It underscores the need in banking for more regulation than presently exists. The failure rate is high because of risky and bad behavior on the part of the banks.

Of course we could go the other way and remove the government entirely. The banking system would entirely fail on a regular basis as it did before the government became involved.

Jerry, but if banks are in the position to help bail out the feds, how would more regulation help those banks out? If anything, they would tie their hands so they couldn't help. One of the benefits of the banks' offer is it does not take anymore taxpayer money. And, the underlying rift between the FDIC and the Treasury underscores the risk that decisions won't be made for the right reasons (i.e., Sheila Bair would rather take bamboo under the fingernails than go to Tim Geitner...). Politics have and will always get in the way, that is my point. Therefore, I can't trust them.

[JerryLove]

Originally Posted by Hopeful

Jerry, but if banks are in the position to help bail out the feds, how would more regulation help those banks out?

The FDIC is looking for more money because of all the failed banks it has had to absorb the losses of. More/better regulation would have prevented the bulk of these failures.

If anything, they would tie their hands so they couldn't help.

What government regulation have I supported that would prevent banks from loaning to quasi-government agencies?

One of the benefits of the banks' offer is it does not take anymore taxpayer money.

Sure, but I think I'm missing your point

And, the underlying rift between the FDIC and the Treasury underscores the risk that decisions won't be made for the right reasons (i.e., Sheila Bair would rather take bamboo under the fingernails than go to Tim Geitner...). Politics have and will always get in the way, that is my point. Therefore, I can't trust them.

Who is talking about trusting politicians? I'm talking about not trusting the industry to self-regulate. They generally do a horrible job of it to the determent of everyone around.

Do you think self-regulation is effective? Is Frosted Flakes a "healthy choice"?

[Hopeful]

Originally Posted by JerryLove

The FDIC is looking for more money because of all the failed bsum
What government regulation have I supported that would prevent banks from loaning to quasi-government agencies?

Sure, but I think I'm missing your point

Who is talking about trusting politicians? I'm talking about not trusting the industry to self-regulate. They generally do a horrible job of it to the determent of everyone around.

Do you think self-regulation is effective? Is Frosted Flakes a "healthy choice"?

I think we'll just have to declare an impasse.

I might actually agree with your assumption that the government can regulate better, IF you can guarantee the politicians will not mess it up or interfere with the intent of the law. Just for clarification, the banks did not lend to the quasi-government agencies. They put gasoline on the fire by buying the loans that the banks would not normally make because of the looser underwriting guidelines.