 You practically, with this free market, you aim for deregulation if I'm correct, right? So what about the crisis of 2008, where one of the main responsible was deregulation of the market, banks were able to contract debt with the people that wanted to buy a house, they weren't responsible for that debt, and deregulation would ultimately lead to no responsibilities from these banks. So how would you tackle that? Okay, so I have an eight hour course online on YouTube about the causes of the financial crisis. So you're welcome to view it. If you're that, if you're really interested, you want to go really, really deep into it. But just briefly, a brief answer. What deregulation? I mean, everybody out there says there was deregulation, but I want to know, show me a deregulation and what it led to. Basically, banks were able to trade with invest with savings from clients. Oh, so, so the investment banking versus commercial banking. So the separation was done away with the Clinton. The first one, and the second one was the fact that the bank could contract, could contract more debt itself with the Federal Reserve, and, and the ratio, the ratio was increased. So the bank could actually be worth three, for example, 300 billions. Yeah, it could take a leverage 32 times the leverage. Okay. So, so those are the, those two, and then we can deal with some of the other myths out there. Let me be less one. Yeah, missed regulation. So, yeah, exactly. Okay, sure. All right. So let me, let me, let me do this. First one was investment in commercial banking. The same. So in 1933, there was an act that separated commercial banking, commercial banking is deposits in the bank and loans. And investment banking is investments, right? And the two were separated. So banks had to literally split and, and do it separately. By the way, no such separation ever happened in Europe. No such separation ever happened in Japan. So in Japan, in Europe, banks were always commercial and investment bank together. No, but they, for example, in Italy, they can't use invest, they can use Germany, they can, in France, they can, in Great Britain, they can. It was never separation, right? They could use, they could use. And in the United States, they also couldn't use it directly. There was what's called the wall of separation. There's a firewall between the two. Even after the deregulation, there was a firewall between the two. But the, the fundamental part, you know, just the empirical part, because the fundamental part I'll get to in a minute, the empirical reality is not a single bank that did investment banking and commercial banking with one exception, I'll grant you the exception, failed. Those weren't the banks that got into trouble. So the only bank that actually didn't have, had both, that failed was Citibank, but no other bank that had investment banking and commercial banking failed. They were all fine. Bank of America was fine, was Fargo was fine, State Street was fine, all these banks were fine. So the relationship between this particular regulation and the financial crisis is literally zero. There's no relationship between the two. Who failed? A lot of banks in America failed. Who failed? Um, country-wide Washington Mutual Action, you know, this is an area I know pretty well. So these banks, all these like simple banks failed. Banks that were issuing mortgages, banks that held mortgages on their balance sheet, they failed. So this regulation had no impact, zero, literally zero impact on the great financial crisis. What caused the financial crisis? Something caused it, right? What was the second one? So that was one. The second one was leverage, leverage, 32 to one leverage. Yeah. So in 2002, I think it was, um, the investment banking model in the United States for a variety of reasons, uh, had broken after the dot-com bubble collapse. And a lot of the investment banks were upset at this and there were new regulations, new regulations, not deregulation, new regulations. Um, and by the way, the biggest new regulatory bill since 1930s was passed in 2002 called, uh, uh, uh, which, which was massively changed, uh, the way business was done. And a lot of these investment bankers couldn't make money. Given the new regulations, not deregulation, new regulations. So they went to the Federal Reserve, they went to the government and they said, look, with this amount of debt, we can't make money. We need to increase the level of debt in order so we can make money. And the government said, yes, okay, do it. So that's an example of, not markets, markets had nothing to do with it. This is the government giving them permission to do crazy stuff. And the government giving them permission to do crazy stuff after the government had restricted them doing the honest stuff, the good stuff, the stuff that they made, used to make money out. And again, I could elaborate for hours. Um, the third one was, uh, the third one was, um, I'm old. I can't remember stuff. Okay. Let me tell you what caused the great financial crisis. Quickly what caused the great financial crisis. In 2002, the Federal Reserve lowered interest rates at the fastest rate in history. It lowered them to 1%, which was at the time a negative real rate of return. Now, now we're used to that because after the financial crisis, we kept getting very low interest rate, but at the time it was super low, negative real rate of return. Basically, I paid you to borrow money from me. That's nuts. That never happens in a free market. Nobody would ever do that in a free market, but the Federal Reserve is in a free market. They were a government institution. They could do what they want. So is the European Central Bank. So they lowered interest rates to very, very low. What happens if you, if you lower interest rates, really, really low, what do people do? What do you incentivize to do? Borrow lots of money. Absolutely. I love low interest rates. I'll borrow all day long. As long as you'll give me a loan, I'll take it, right? Because I can make more than 1%. If I can't make more than 1% in the market, then I shouldn't be in business. So everybody goes down to 1%. America is not borrowing money like crazy. And what do they borrow the money to do? What do they do with that money? They buy homes. Why homes? My hairdresser, a woman who cut my hair in California, had three homes on a salary of somebody who cuts hair. So why were they buying homes? Because the government said, buy homes. They gave an incentive, your interest on your mortgage, when you take a mortgage, your interest is tax deductible. You pay less taxes if you have a mortgage, which is direct incentive to take on debt and to take on a mortgage. Right? In addition, George Bush, when he came into office, said, I want home ownership in America to go from what has always been 63%. I want it to be above 70. So he started increasing the incentives for people to borrow money to buy a home so he could get to 70. They got to 68% for the crash happen. So lots of people want to buy this low interest rates. They borrow money. They want to buy homes. Now, oh, by the way, government imposed not free market. Not none of this is free market so far. And then you say, well, why were banks lending the money? Like, why did my hairdresser, who has a very low income, have three homes? Why would they letting her borrow so much? Because in a free market, the bank would take the loss and therefore it would say, oh, wait a minute, lady, you got one home, probably enough, three mortgages, way too much. Why didn't they do that? Ah, because these government agencies called Fedemac and Fannie Mae, government organizations, that basically bought all the mortgages from the banks and then repackaged them and sold them off, right? But they were the ones who repackaged them. But not only Fannie Mae. Not only, but they had 80% of the market. Now they have 95% of the market. They were the dominant players in the market. They were set up by government in order to do exactly this. They were set up by government. And one was set up in the 1940, the other one was set up in the 1960s to buy mortgages from banks. So the banks wouldn't have to hold the risk. Banks just get money for the servicing of the loan for that, moving the money around. They would buy the mortgages, repackage them and sell them because they thought that would increase home ownership because more people take loans because interest rates would go down because the risk would go down because of the repackaging. So you get Fedemac and Fannie lowering standards. Goldman Sachs then looks at Fedemac and Fannie and says, huh, they're low, you know, I can't compete with them unless I lower my standards as well. But there's no question who started this. Again, this was part of the government's policy to increase home ownership. So investment banks followed, but they were led by the government and then they repackaged them and sold them. You know, they repackaged them. It's too complicated to get into, but you know, they sell these things. And when the mortgages start going bad, all these repackaged loans collapse and the banks get in trouble. Right. Now some banks like Washington Mutual Countryside, these were created to originate mortgages. They were just on mortgage churning machines. And when all of this happened, they went bankrupt, as they should, they suffered the consequences of playing in this game, but a game created by government, not a game created by market. There was no market. No, CC, I don't believe in deregulation. You said, I believe in deregulation. I don't believe in deregulation because there is no deregulation. They never deregulate. They re-regulate. What they do is they pretend to, they reduce some regulation and increase others. And all we remember is the ones that decreased. I'm for eliminating regulation. You can't change banking by taking just a few regulations here and there and eliminating them and getting rid of them. You either have to scrap all of it or don't touch it. What do we do though? We, you know, banks get into trouble. We don't want them to fail. God forbid they fail, right? In a free market, you let them fail. So we have, so we bail them out and then we place regulations on them so they can't do what they did before. But those regulations create perverse incentives to create the next crisis. And when that crisis happens, we bail them out again and we create new regulations on top of the old regulations. And maybe they even contradict the old regulations in ways that you grant create bad incentives that create the next crisis. And the United States has had 12 banking crisis and 13 banking crisis in its history. It's insane. None of them caused by the markets. All of them caused by these stupid regulations. Banking is the only business that was regulated from the beginning of the United States, from its birth, of all the industries. It's the only one. So to say that the financial crisis was caused by markets, when it's the most regulated industry in the US, even if we reduced some regulation, still the most regulated industry in the United States, it's just not to see what's actually going on. Massive amounts of regulations exist in the US. And we can get into why the rating agencies were so bad. And European banks, why did European banks, let's just do this, why did European banks buy these prepackaged mortgages from the United States? Why would Europeans want these CDSs, not CDSs, these CDOs, right? Collateralized debt obligations. So why did they want these prepackaged mortgages? Why would European banks, it's Americans, it's mortgages. What do you guys know about American mortgages? Well, it turns out that the regulatory agency that controls all banks in the world really, but primarily European banks, it's called Basel 2, these were Basel 2 rules, these were regulatory rules that govern European banks. Basically Basel 2 rules stated in the 2000s that mortgage-backed security has zero risk. And if you bought them, you could treat them like government bonds and carry no capital against them. I mean, you'd be an idiot not to buy them. So the European banks, they had a higher yield than government bonds and yet they were treated as zero risk, so we did it. But is that the mistake of markets? Provide bad incentives, markets won't function. Provide bad regulations, bad laws, markets won't function properly. And every crisis we've had. And my argument is going to be that markets never fail. They don't. Governments fail all the time. Regulations fail all the time. And there's logical reasons for that. It has to do with the problem of knowledge that Hayek talked about. It has to do with the lack of pricing signals when you don't have a marketplace. It provokes incentives that drive bad decision making and drive us into crisis. You want to get out of a crisis? Get rid of controls. You want more crisis, add controls.