Too Big to Fail 2.0: This Time It's Personal Finance and Just About Everything Else

[knightschwartz]

isn't this plan to force companys to sell certain products and offer certain deals and how to write contracts flagrantly unconstinual?

can someone tell me why this is not being taken to the Supreme Court?

[TheMarketAssassin]

Washington is rigged.....I am moving

[BrainDeadRepublican]

Seeds of the next mortgage banking crisis.

[enotdetcelfer]

"Tier 1 Banks" ... ... Facepalm

[fomastephanovitch]

Big government = jobs for the dweebs.

[ALittleBitPregnant]

"I would rather be exposed to the inconveniences attending too much liberty than to those attending too small a degree of it.-Thomas Jefferson

[glennd7962]

Of course there is predatory lending, do you folks really think we should completely deregulate? how much time must all of you have to explore the safety of your food, your buildings, your car, planes you fly on, etc. Government can be an effective referee and needs to be.

[zetsway5000]

Simple if you get food poisoning or one of the products malfunction, and harms you, they will get sued out of existence, and even if they don't because their a huge company the word of the mouth of their bad products will destroy them. Government doesn't make products any safer, anyone with half a brain knows this, we need deregulation not over-regulation like we have now.

[glennd7962]

"anyone with half a brain knows this". Wow, what a great way to substantiate your point. Clearly there is a balance between safety and the problems of government intervention but to assume that free markets don't require some kind of regulation/enforcement/referee is to misunderstand free markets. Communism assumes that it is based upon a revealed truth about human nature and society, with a scientific formula. Free markets theorists never pose this. Essentially, free markets are non-ideological

[zetsway5000]

Of course we need some sort of regulation, but we have over-regulation in this country, and almost all of the regulations do more harm then good. Communism does not assume any truth about human nature, or it wouldn't even exists as an ideology. Communism disregards human nature entirely.

[glennd7962]

No it doesn't. Marx, Engels, Hegel and others CLAIMED to have discovered scientific principles about society and economics, incorporated in the 7 tenets of Marxism. They were wrong, but my point is that Free Marketeers don't have a competing ideology - we claim no insight into a "dialectic" (to use a Marxist term), rather we believe in freedom for it's own sake. Free markets are part of being free, but aren't magic. We need to protect ourselves from all kinds of problems without killng it.

[zetsway5000]

What do you mean free markets don't have a competing ideology when I just told you it a few comments ago? Government over-regulation, and interventionism creates artificial monopolies, destroys wealth, and destroys economies. There is no magic about about it, I suggest you study Austrian economics.

[glennd7962]

It's not an "ideology" like Marxism is which contains all kinds of assumptions about society, and it's dynamics. I know market economics well - I've studied them for years. Back to my original point.OTC interest rate and credit derivatives markets were way underregulated domestically as well as internationally. In many important respects they were actually unregulated, in fact. My original comment was about the CFMA of 2000, which ripped the lid off and is the root of the current deriv probs.

[MooseOfReason]

glennd7962, Rates were only that low because of the Federal Reserve. Otherwise, the rates would reflect the amount of savings in the economy, meaning rates would be much higher, because banks don't have as much to lend.

[glennd7962]

Completely off point, but true. Back to my point and for the rest of you,do you even know what a CDS is, or what AIG was doing - they created synthetic CDS out of baskets of CDO's? Be very careful when applying free market generalities to the derivatives markets. I was in the business for 10 yrs and it was rife with frontrunning, price rigging, scalping and out and out fraud - due to insufficient regulation. Free Marketeers are not absolutists. Read some Friedman or Hayek. There are limitations.

[MooseOfReason]

glennd7962, It wasn't off point. You said "Of course there is predatory lending." I gave a reason why there was.

CDS, like Randazzo said in the video, means "credit default swap". It's insurance against a bond going default. Think of it like homeowners insurance if your house burns down. You get back whatever your property was worth.

Hayek was against a monopoly national currency, and wrote a book about competing currencies.

[glennd7962]

It isn't an insurance product at all, it's a "swap" of cash flows. I was in the business for 10 yrs, my question was directed at you to show you that you don't even know what one is. Example, what principal cash flows are are exchange? How do collateralization agreements work? How do you simulate future credit events to determine price within a given confidence interval? Btw, AIG was doing synthetic CDS comprised of collateralized debt obligations, btw. Finally, the business was underregulated.

[glennd7962]

More - AIG issued these synthetic CDS's from it's Financial Products division, not an insurance company. While they can be used to provide a hedge against adverse credit events - not just defaults - that is not all they were used for, It depends on which side one takes - they are no different from any other financial instrument that creates an exposure to a future price in an asset class. Insurance indemnifies one against a specific risk and doesn't have "market" risk - which was the problem.

[MooseOfReason]

It was not under-regulated. Read this article: "The Meaning of Competition in the Credit Default Swap Market".

[glennd7962]

Okay, one more try. This over-simplification of how the credit derivatives market is typical of what is coming from theoretical economists. I agree with the genera point, but for the last time, CDS introduce a "market risk" completely distinct from the risk of default, which was the root of the problems in the CDS market. The defaults didn't cause it. Your ignorance of this basic fact, as well as the authors, cause you both to come to the wrong conclusion.

[MooseOfReason]

glennd, I'm just going to recommend you read "Meltdown" by Dr. Thomas Woods.

[charleshoskinson]

If the business model is flawed, then shouldn't we allow the minds he conjured it to be unemployed? The republicans and the democrats bailed out the banks that used derivatives permitting them to continue their business. Eventually they will game the system again, and you get the bill. lower regulation also means more risk, which means more conservative management. Thus, the banks wouldn't play with derivatives like CDS.

[glennd7962]

Again, your Hayek point is off topic, I'm saying that we need sensible regulation, not that we need a central bank or single currency. All the responses to my points have been off topic - what gives on this site?

[glennd7962]

Wow, you just don't get it, do you? I know the cause of our problems are easy money, and that both the treasury and congress are rigging the game with perverse regulations that encourage behavior that is destroying us. However, in the OTC interest rate and credit derivative market specifically, the problem was and still is that there is virtually no effective regulation. Do you know that the CDS market didn't tank because of defaults? I agree with the general point, but on this you are wrong.

[glennd7962]

One more fact, do you realize that the default problem isn't most correlated with sub-prime? It's most correlated with equity levels, regardless of credit quality or size of mortgage? At the root of all of this is way too easy money, and while it's problematic, the fannies and freddies are sideshows. It's all academic now, we've gone way to far down this road. We will have a bust, default, hyper inflation and then maybe some sanity. But the lack of regulation of OTC derivatives is fire fuel.

[glennd7962]

Of course we should. But we also need proper regulation of OTC interest rate and credit capital markets - they are currently largely unregulated, which the speaker from Reason clearly doesn't understand, nor do many of the commenters on this site. I'm a free market capitalist for sure, but applying simplistic, Utopian, anarcho-capitalistic concepts to the concrete problems of this business might sound cool, but they have no relevance to serious policy discussions about OTC derivative regulation.

[glennd7962]

You know nothing about derivatives and shouldn't speak about them. The fact is that the CFMA of 2000 took the lid off of the ability for financial institutions to engage in vast speculation in the credit markets, the modern equivalent of the "bucket shops" that gave us the stock market crash of 1907. We need good regulation of the derivatives market - we haven't had one to date. I was in the derivatives business for 10 years and everyone there knew they were going to blow up the world someday.

[trime1851]

Great Viedo! There is no private enterprise that is too big to fail. The bailouts were the biggrest fraud in the history of the world. We in the USA are like the passengers on the Titanic. The course was set over 40 years ago. The iceberg was hit and ship is listing and the band is playing while we dance and enjoy our drinks. But the end is clear to those that think.

[SuperAtheist]

these companies were NOT too big to fail!

They did fail!!!

these companies were too big to LET fail in the opinion of idiots who don't understand the market and don't want to.

[Moragauth]

The guest speaker is rather good looking too. I guess the age of ugly old economists is ended. :P

[whoo689]

I mean, all this bitching about firms like Countrywide giving out "predatory" loans is just absurd! Do you REALLY think Countrywide wanted to ensure its own demise by giving out excessive risky loans?? Come on! It's called self-preservation, and corporations do all they can for it. The only way around it is if gov't forces their hand. I highly doubt the guys at the banks running things REALLY wanted to give out a whole bunch of new mortgages to real risky borrowers. It defies common sense.

[samuils]

Whoo689 and the companies didnt want to give out risky mortgages, Just think "Fanny and Freddy" and ACORN, go look up what thse 2 monster have done to housing industry

[mipoleon]

They gave out risky loans because of the implicit promise by the federal congress reimburse the banks if the loans went bad. So yes they made bad loans on purpose.

I worked at local bank who were making these loans so I am in a position to know. We sold 100% of them to countrywide because we knew they were bad and made a crap load of money doing it.

[Moragauth]

Perhaps we should blame the "greed" of the political class then.

[whoo689]

On economic issues, I cannot understand why the Democrats ALWAYS treat the "poor" or working class as unsinnable. They can do no wrong, according to guys like Obama. If a person making 30 grand a year took out a loan for a 200 grand house, it's "not their fault"; the bankers "deceived" them into thinking they could afford it.

Fannie and Freddie "aren't unnecessary", they'll say. They did a GREAT job of expanding homeownership, so "great" that the gov't had to re-take them over.

[whoo689]

One thing I CANNOT stand is these damn lefties whining about "predatory" lending, as if it's IMPOSSIBLE to prevent stupid people from taking out stupid loans and being too stupid to read the fine print. There's NO SUCH THING as predatory lending; you're just a moron. End of discussion. They need to stop scaepgoating idiots who bought too much house or took out loans they couldn't pay back. The corporations were not to blame for the housing crisis. Gov't's homeownership schemes did it.

[Moragauth]

Indeed. People who believe in "predatory" lending are the same kind of idiots who believe that "greed" caused the crisis.

[SuperAtheist]

I agree that too much of the blame was place on the lenders, but don't put all the blame on the borrower either; it was a team effort!

there is no I in team :)

also, how many borrowers were educated in our failed public school system?

[UnusVita]

It is not the failure of the school system, ultimately it is you signature on the dotted line if you don't understand what the contract says DON'T SIGN IT, if enough people refuse to accept overly complicated contracts companies will simplify them and until then research, research, research.

[SuperAtheist]

have you read all the EULAs for all the software applications on your computer?

[UnusVita]

Nope and I'm screwed if I violate them, my fault, the information was there.

[glennd7962]

there is also no u in team.

[krayzewolf]

But you also can't spell it without me.

[TenseAlcyoneus]

Is anyone at Reason over 40? Seriously.

[whoo689]

Probably not. And it figures, because most people over that age seem to be conservatives, at least on social issues, and they're big proponents of the New Deal and Great Society, having been born in the baby boom era.

[TenseAlcyoneus]

You mean all those people who founded the Libertarian Party? Uh no.

[samuils]

Whoo689 1) Plentey of conservatives are under 40 2) We are EXTEREMELY against new deal crap

[DoomHippie]

Drew Carry perhaps?

[abarzilai664]

He has the right ideas, the market must be allowed to fix itself through the invisible hand as Adam Smith had written.

[Moragauth]

It is futile to try override the market.

[DolphinFilms]

Keep up the good work ReasonTV