CS Electricity (& the financial crisis...)

No they were decieved into believing they were purchasing "securities" when in reality they were purchasing the equivalent of junk bonds. Either way they aren't taking responsibility for their gullibility, instead they are looking for "charity" in the form of a bailout.

Securities from who.

To be fair, it was the credit rating agencies which produced the garbage data relating to the risks of these securities and thats the information that the banks bought and traded them on. If the first CRA to look at a NINJA loan had given a truthful assesment, as is its job, and said no way in hell will this be paid, none of this would be happening. But the financial system is a system like any other, garbage in, garbage out.

Precisely why they shouldn't have been deregulated.

It seems clear this began before the 2006 act.

Deregulation began back in the eighties. It just reached peak in 2006. However the warning signs were already there BEFORE 2006 but a blind eye was turned to them.

With respect to CRA's regulation has never appeared to be onerous, there's only been a SEC stamp of approval, the 2006 act formalized that system and prohibited regulation of the rating methodology.

Credit rating should be totally regulated by the government. Clearly the occurrences (read: abuses) in the past few months are telling us as much.

Locksley wrote:

Credit rating should be totally regulated by the government. Clearly the occurrences (read: abuses) in the past few months are telling us as much.

Agreed. Also along these lines, in an effort to minimise the volatility of the economy, credit could also be moderated. As the ecomony gets better people have a tendency to get somewhat reckless with money and credit. If credit is progressively restricted as the economy improves there will only be a small setback as opposed to a crash when the economy inevitably peaks.
For example, at a certain point in the economic cycle when we are experiencing growth, credit will start to be restricted so that people cannot get in over their heads. Investors will not be able to buy as much on margin, as the margin will go from 10-1, down to 8-1 down to 5-1, etc. Then when the economy tops out people will not be in over their heads and so economic slow down will be minimized. Then, to stimulate the economy, the credit restrictions can be relaxed, allowing people to purchase more and bring about economic recovery quickly and easily.

How about being a little more aggressive, when people get into trouble with debt have a government agency reposess their lives and rstructures them to maximise earnings and minimise outgoings. Their expenditure is restricted to an agency issued credit card with every purchase monitored and vetted while their assets and debt are taken under agency management. Their housing is downsized to an acceptable minimum, their earnings are maximised by shoping arround for the highest wages, increased training, potential maximisation. They are only given control of their life again when their debt problem is rectified.
As for credit restriction, isn't that effectively what is done with setting the interest rate? A high interest rate makes borrowed money expensive, a low one makes it cheap.

There are agencies set up right now for credit counseling. They can consolidate people's debt's and get lower interest rates to make payments manageable. The question is where is the line between government debt management assistance and invasion of privacy? With most financial crises nobody is aware of the problem unless the individual let's them know. Should this be changed? I don't know. I do think that once a person files for bankruptcy then the government has a justification to intervene in their lives. In fact this is where your ideas would fit in perfectly. I also think that bankruptcy rules could be a little tougher in SOME aspects. As for corporate bankruptcy needless to say this needs to be handled with a firmer hand than is presently in place.
As for the interest rate, this is where a lot of problems have materialized for people. Deregulation of the credit card industry has led to outrageous interest rates as well as negligent credit risk evaluations for customers. A high risk customer gets a credit card easily, despite having a poor credit history, but if that individual is late on a payment the credit card company uses that as justification for raising the interest rate to loan-shark levels. By this time it's too late and the individual is in over their heads.
The purpose for limiting the amount of credit is minimizing the possibility of a person accumulating too much debt that it becomes unmanageable. This also gives the government another tool to moderate the economy. Also if something like this were in place this present crisis could have been minimized.
If you'll notice I use the word minimize a lot. The reason for this is it is impossible to prevent, eliminate or stop most things from happening. All you can realistically to is either minimize the frequency or the severity of problems. To talk in such all-or-nothing terms is naive.

But that's the rub, you can't eradicate the economic cycle, so what you have to ask yourself is, are these measures actually going to save more money on the down swing than they will lose on the upswing?

By taking the extremes out of the cycle there is less drama associated with a downturn. Instead of some kind of crash there would just be a slowdown. and consumer and investor confidence wouldn't be severely affected. This would prevent the downturn from becoming a recession and the ecomony would recover quickly and less traumatically.

US lawmakers publish rescue deal
http://news.bbc.co.uk/2/hi/business/7640872.stm

Rescue deal has finally been decided upon, but my worry is it does little to minimize the risk of this happening again. Where's the regulation?

Em, I did understand your point but you've seem to have ignored mine. Regulation of markets hampers growth and softens recession, if you accept that premise you are faced with the question, will you loose more from your economy during the good times than you save during the bad? It's a simple question.

Regulation only hampers short-term growth, which is undesireable because it is built on a shaky foundation that can collapse easily. You won't lose more because the good times can be extended and sustained for longer periods of time. The regulation stops the reckless behavior by both consumers and investors which is a key factor in economic downturn. From there you have only downturn not recession or depression and the economy is propped up with a strong foundation. Instead of having drastic ups and downs which can affect consumer and investor confidence, these downturns will have minimal effect. The economy will not go up and down, it will slowly ratchet up.

That all sounds a trifle, naive. The notion that the downturns can be made few and further apart doesn't bare relation to reality. I wonder what you mean by short-term growth, also, growth is growth surely.
Finally you cannot possible mean and an end to the economic cycle.

This would be so much easier with visual aids, but my computer savvy is limited in this department!
By limiting the amount an individual can buy on credit, and increasing the amount of collateral the economy would have a strong foundation and even if the economy were to somehow completely collapse, it could not drop below this foundation, or safety net. In good times it is just human nature to not consider things might go bad and so they have a tendency to buy now and pay later, thus credit. If they only made purchases when they actually had money, if some kind of setback were to happen in their lives they could weather it by using credit, but if their credit is already maxed out they lose everything, and have less than nothing to fall back on. Multiply this by thousands of people and you have a serious problem. Not only that, but buying power doesn't just slow down it comes to a screaching halt dragging down everthing else with it. Businesses bought on credit fold leaving employees without jobs, eliminating their buying power and starting a whole domino effect. A downturn becomes a recession, a recession become a depression.
One of the greatest problems with this latest economic crisis is that house prices skyrocketed. With fixed mortgages an individual could only afford to make PAYMENTS on a certain priced house. In order for homebuilders to sell their houses they had to keep their prices low. With this sub-prime mortgage garbage an individual could afford to make the SAME payment on a much more expensive house but have significantly less equity. The house prices skyrocketed because of the demand and people were stuck with houses that they really couldn't afford unless house prices continued to skyrocket. When they didn't these people ended up owing more than their houses were worth and now we have a crisis.

I understand, you're talking about Japan, high savings, low personal debt , and a decade of stagnation. But a solid economy. The UK on the other had has had fifteen years of credit fueled growth. My point is that even if the UK is hit harder by recession due to higher credit levels and lower regulation than Japan, that doesn't necessarily mean that over the complete cycle the Uk won't still have come out of it with with higher overall growth and greater wealth creation in the end. Which is what it's all about.

Actually I wasn't referring to any country in particular. I was just talking about straight economic concepts. Japan's stagnation is due to their dependence on foreign markets. They put a lot of their eggs in one basket when it came to economic growth, and if those markets stagnate, then they get dragged down with them.
The UK's growth can still be regarded as short term. Compared to it's status with the rest of the world thirty years ago, the UK still has a lot of ground to get back, as does the US. The UK is on a good path, but I think now would be the time to start building that safety net while it can afford to do so, something the US should have done eight years ago before Dubya issued all those tax breaks and deregulations.

I know you weren't being specific, I was fitting your concepts to real world examples to see if they panned out. Japan's stagnation over the last decade and a half is not related to export growth, Japan has always been very successful at exporting to foreign markets and it has been the main driver of domestic growth, but a fiscally conservative population who don't indulge in vast consumer spending.
The UK has undoubtably grown economically compared to the rest of the world in the last thirty years, and it has done so in part by deregulation, and latterly easily obtained credit. That's partly why the UK is so entwined with the US crisis. You say that the growth is short term, but I think I'm right in saying that it is the longest period of sustained growth since records began.

The UK has grown, no question there, but compared to other countries the growth is not as significant. The RATE of growth in OPEC nations, in China, several South American countries, is significantly greater.
With Japan, part of the decline in their growth, in my opinion, is due to what I like to call the "Americanization" of their business practices. Their goods are not of the same quality as they were fifteen years ago, and now people aren't as loyal to the brand as they used to be. I see South Korea competitive with Japan in several key markets because they are now adopting this same quality philosophy in their businesses as Japan had thirty years ago.
This would be another area that could be addressed with the economic growth program. Encourage businesses in good times to invest in quality and R&D rather than pay the executives fat bonus checks.

The Uk has risen in comparative GDP in the last 30 years in relation to other developed nations, however developing nations will always have much higher rates of growth that just aren't usefully comparable, plus OPEC nations generally have terrible economies subsidised by petrodollars which makes GDP a poor indicator of economic well being.
I don't think Japanese quality has gone down so much as everyone elses quality standards have gone up, genrally speaking. South Korea has long been the location of much Japanese outsourcing and manufacture, so its only natural that they share a certain DNA. Both have governments that are highly motivated towards investment in high tech industry and education.

I'm not for one second suggesting that some kind of radical changes take place, but during the Great Depression a number of wise regulations were put in place and have since been whittled away by fair-weather financiers.  I still contend that these ideas are valid, given the reasons why economies have downturns.  I'm also not saying that these regulations can't be relaxed to stimulate the economy, as long as they are reinstated as times get better and even made more strict if growth is too fast.  That way if the economy gets shaky there will be a safety net to cushion the fall. If the UK had implemented some of these ideas they might not have been dragged down with the US in this latest crisis.
I think we might be getting our wires crossed again, but I'm not sure where. There seems to be an impasse that we've reached, possibly I might not be clear that this idea is not a radical implementation, just a gradual increase in regulation to prevent things from getting out of control. Like I said, visual aids would help me communicate!

I think events seem to have over taken this debate. Given Germany and France have both had to bail out banks in the last fortnight I'm beginning to find the whole regulation arguement less convincing.

If you go back and pick out any regulation that was put in place and research why it was implemented you will find a legitimate reason for it. In many cases it was due to reckless irresponsibity of people or in some cases it was due to failures that people had no idea might occur because they were working in unknown territory. In this latest fiasco these crooks got around the regulations by renaming their products as something other than what was regulated. These "securities" actually had "insurance policies" to give the illusion to the investors that these "securites" were protected. They called this "insurance" "credit default swaps", and by doing this they skirted the insurance regulations that required the policies to actually have capital backing them up. Make no mistake about it regulations are a good idea, but making sure that these scum don't get away with creating these smokescreens is part of the enforcement of these regulations. Respecting the SPIRIT of the regulations is what ethical people do. Looking for loopholes in the LETTER of the regulations is what unethical people do. Society has shown not only tolerance but admiration for the unethical people who have found these loopholes and exploited them. There needs to be a change in this mindset or else the regulations will fall short.

As I think I've pointed out elsewhere, this is more to do with the nature of American democracy than anything else. It is a system drowning in money which allows such close relationships between wall street and washington that you can barely see the difference between the lobbyist and the politician. By Nov 4 Obama will have raised and spent the best part of a billion dollars, near enough ten times the sum McCain recieved in taking public finance, yet I've not read or heard a single mention of this as a bad thing, something corrupting or disruptive to democracy. Do you really want your president, senator, congressman to be whoever can pay the most?
But this is how your democracy is set up, this is how people have voted for it to be. These are the rules of the game that companies have to play by to win, so all I'm saying is, if you don't like the game, hate the rules not the players.

The campaign finance system was set up by the Republicans because they were the ones who had all the money, and it certainly worked to their advantage in 2000. Now it has come back to bite them and they want to whine about it. I wholeheartedly agree that there needs to be reforms in our "capitalist" (aka plutocratic) system. Campaign finance and special interest "favors" is bribery just by another name.
The companies don't have to play by these rules to win. They simply have to change the rules so this type of unethical activity won't be tolerated. They don't however because they have the advantage. Why change the rules if it evens the playing field forcing one to get off one's lazy ass and actually earn the fat paycheck for once? Or, if one is in a position of power, change the rules so that one has even more of an advantage over the competition.
I WILL hate the players because they were responsible for making the unfair rules.

My point was that the rules are set by the American government, the rules of that governance allow the business sector huge sway in setting the future rules relating to specific sectors, which in turn creates a legislative positive feedback loop as more favourable terms allow the next bill to be even more favourable still.
These are the rules of the game, and either a company plays it and lobbies its interests or it doesn't, but the company which doesn't may well find that its competitor has and has successfully shaped the regulation to perfectly fit their business model to the gross detriment of its own. You either play to win, or you don't play at all.
So I urge again, hate the rules not the players.

Well, if everything goes right in this next election there will be enough Democrats in order to pass some laws that can at least limit the amount of influence special interest groups can have. They could also demand the ethics committee to start doing their job and minimise the amount of unethical activity that goes on. It may not be a perfect system but it can be significanly better if unethical activities weren't tolerated.

If Democrats pass any laws that limit special interest groups, only those that are backed by right-wing corporations would be targeted. So much of the funding of the DNC comes from special interest groups, however, that I doubt they will be willing to take much of a stand on it for fear of risking damage to their own.

Quote :

By Nov 4 Obama will have raised and spent the best part of a billion dollars, near enough ten times the sum McCain recieved in taking public finance, yet I've not read or heard a single mention of this as a bad thing, something corrupting or disruptive to democracy. Do you really want your president, senator, congressman to be whoever can pay the most?

It's sickening, isn't it?

What I find most disturbing is the fact that at a time when Obama's up 8 points in the national polls he is outspending McCain 8 to 1 in advertising and there seems to be no media oversight upon whether these to facts are linked, is a sizable chunk of his lead entirely due to his bank roll, or is his war chest due to his popularity? With all these pundits no one seems to be willing to say advertising works.