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McCain on AIG...
"The government was forced to commit $85 billion," McCain said in a statement. "These actions stem from failed regulation, reckless management and a casino culture on Wall Street that has crippled one of the most important companies in America," McCain said in a statement.
"The focus of any such action should be to protect the millions of Americans who hold insurance policies, retirement plans and other accounts with AIG," he said. "We must not bail out the management and speculators who created this mess. They had months of warnings following the Bear Stearns debacle, and they failed to act."
Although he is stepping up criticism of government regulators as he seeks the presidency, McCain has long favored a reduction in corporate regulation.
More here. Feh.
In last week's New York Times, Tyler Cowen hit these right notes:
The biggest financial deregulation in recent times has been an implicit one—namely, that hedge funds and many new exotic financial instruments have grown in importance but have remained largely unregulated. To be sure, these institutions contributed to the severity of the Bear Stearns crisis and to the related global credit crisis. But it's not obvious that the less regulated financial sector performed any worse than the highly regulated housing and bank mortgage lending sectors, including, of course, the government-sponsored mortgage agencies.
In other words, the regulation that we have didn't work very well.
There are two ways to view this history. First, with the benefit of hindsight, one could argue that we needed only a stronger political will to regulate every corner of finance and avert a crisis.
Under the second view, which I prefer, regulators will never be in a position to accurately evaluate or second-guess many of the most important market transactions. In finance, trillions of dollars change hands, market players are very sophisticated, and much of the activity takes place outside the United States—or easily could.
reason readers know that the GOP and George W. Bush have been spendthrifts. And contrary to common perceptions, Bush has also been a regulatory nightmare.
|9.17.08 @ 12:28PM|#
Tax rebates, low FED rate, deficit spending, bailouts, loans. All heroin to the economy.
Happy Jack|9.17.08 @ 12:39PM|#
reason readers know that the GOP and George
Ilyich W. Bush have been spendthrifts
After AIG, can we add socialist to that? :)
|9.17.08 @ 12:43PM|#
nobody has summed up the regulation arguments better than Radley. Do we really think that the feds, who run a half a trillion dollar deficit, will do a better job managing these institutions than the boards who have direct interest in them?
JMR|9.17.08 @ 12:44PM|#
The funny part is when, during what's become a plethora of OPEN government manipulation of markets, people still try to deny they also secretly manipulate certain markets (coughGOLD&SILVERcough) whose results tend to strongly affect inflation measurements.
|9.17.08 @ 12:48PM|#
I have no confidence in the government's ability to understand, let alone regulate derivates.
Naga Sadow|9.17.08 @ 12:51PM|#
Pro Lib,
Actually I'm thinking of buying some shares. Low number though
around a thousand. If I do its under the hope that WAMU gets bought
up.
adrian|9.17.08 @ 12:52PM|#
Fannie and Freddie regulator
http://www.ofheo.gov/about.aspx?Nav=55
From mission statement:
"OFHEO's mission is to promote housing and a strong national
housing finance system by ensuring the safety and soundness of
Fannie Mae (Federal National Mortgage Association) and Freddie Mac
(Federal Home Loan Mortgage Corporation). OFHEO works to ensure the
capital adequacy and financial safety and soundness of two housing
government-sponsored enterprises (GSEs) -- Fannie Mae and Freddie
Mac. "
A whole agency for 2 companies that were completely insolvent and
not one regulator said a thing.
Regulation does not work.
|9.17.08 @ 12:55PM|#
Naga,
No problem with doing that. My problem was buying in as an employee
in the high 30s. I'm dead under any scenario except for WM clawing
its way back up someday, without getting acquired or declaring
bankruptcy. Fortunately, I wasn't crazy enough to sink a ton of
money into the stock. I was wary of their hedging strategy back in
ought-three.
Invisible Finger|9.17.08 @ 12:59PM|#
These actions stem from failed regulation
No, they stem from SUCCESSFUL regulation. Their credit rating
dropped and they had to come up with collateral.
Bailing them out is the failed regulation part. IOW, "The fed's
actions are failed regulation."
That Dude|9.17.08 @ 1:03PM|#
"The biggest financial deregulation in recent times has been an
implicit one-namely, that hedge funds and many new exotic financial
instruments have grown in importance but have remained largely
unregulated. To be sure, these institutions contributed to the
severity of the Bear Stearns crisis and to the related global
credit crisis. But it's not obvious that the less regulated
financial sector performed any worse than the highly regulated
housing and bank mortgage lending sectors, including, of course,
the government-sponsored mortgage agencies."
Wait a minute, wait a minute. This doesn't make sense to me. The
"highly regulated" institutions were major players in the exotic
derivative market. Especially Fannie and Freddie. I'm not a
regulation fan but this argument doesn't hold water to my ears.
Naga Sadow|9.17.08 @ 1:06PM|#
Ouch!!! Sorry my friend. I never even considered WAMU in the scheme of things. Their commercials always offended me. "FREE checking? For LIFE? You, sir, are crazy! Just crazy!"
|9.17.08 @ 1:06PM|#
In other words, the regulation that we have didn't work very
well.
Or maybe, just maybe, when your "regulators" are political hack
appointees who don't believe in and are loathe to enforce
regulations and constantly choose to interpret them in the most
toothless ways, the problem isn't necessarily the regulations?
|9.17.08 @ 1:09PM|#
Greedy, pinstripped, martini swilling, gucci wearing bastards cost us all more than anyone responsibly consuming cannabis. If only they were drug tested, this would have never happened.
|9.17.08 @ 1:09PM|#
And contrary to common perceptions, Bush has also been a
regulatory nightmare.
I hear people whining about deregulation incessantly. I try not to
laugh. Same as when people start braying about how this "meltdown"
demonstrates the failure of George W Peron's laissez faire
adminstration.
The Extispicator|9.17.08 @ 1:09PM|#
"Casino culture" Really?
Does he know that casinos actually make money?
|9.17.08 @ 1:09PM|#
Well, I worked there for over four years, and they had a 15% discount and over ten years of growth, growth, growth! I figured I could ride out any downturns, because, you know, they're a bank and regulated and stuff.
Naga Sadow|9.17.08 @ 1:12PM|#
Pro Lib,
You just reminded me of my worst decision ever. I think it was
January or February 2001 and I had about 1,800 dollars saved up and
Cisco Systems was down to 7 dollars. I was like "I'm not going to
be a chump and buy that crap". Same decision with Lucent
Technologies when it went down to .78 cents. I'm still kicking
myself for my early mistakes.
The Extispicator|9.17.08 @ 1:14PM|#
Amen, P. Brooks.
I teach Administrative Law, and the notion that we are living in a
deregulated economy is a joke. Or would be, if so many people
didn't buy it as gospel.
All of my students are shocked when they discover that most of the
rubber-meets-the-road contacts between a business and government
are with unelected, unaccountable bureaucrats enforcing regulations
that were not authored by Congress, but by the agency itself.
|9.17.08 @ 1:24PM|#
Or maybe, just maybe, when your "regulators" are political hack appointees who don't believe in and are loathe to enforce regulations and constantly choose to interpret them in the most toothless ways, the problem isn't necessarily the regulations?
But that is a natural weakness of regulations. Regulations are
always going to be interpreted and enforced to the benefit of those
in power. What you are talking about isn't some anomaly, it is how
*ALL* regulations and regulatory bodies work.
So yes, the regulatory system worked exactly like expected: While
costing billions of dollars in enforcement and compliance, it did
virtually nothing to prevent a meltdown.
The difference between you and us is that you believe that you can
vote for political Jesus, and political Jesus is absolutely
selfless, interested in the good of all people, and will make the
regulations work for all. Where as we believe that political Jesus
doesn't exist.
The Extispicator|9.17.08 @ 1:35PM|#
When regulations fail, there will always be two schools of
thought:
1) See, regulations don't work;
2) See, we need more funding, more regulations, better people in
the agencies, etc. -- i.e. regulations work, but these just need a
little more tinkering.
The Extispicator|9.17.08 @ 1:36PM|#
What is puzzling me this time is the factually incorrect third
reaction:
3) Why weren't there any regulations in place to stop this?
|9.17.08 @ 2:14PM|#
Part of the problem here is that we live in an age of instant
online trading and instant stock charts. That's causing this influx
of roulette speculators in the market that we didn't have in the
past, which is leading to repeated bubbles.
Over time, this behavior ought to get punished.
What seems absurd to me is that right now the political
commentators are acting like the stupid behavior of speculators is
equivalent to "ordinary hard-working Americans" getting taken in by
scheming capitalists. Oh those poor babies in the investment banks,
buying up those worthless mortgages, whatever shall we do?
It true that "ordinary Americans" may be adversely impacted by the
credit environment. But, not counting people who took out morgages
they couldn't afford, this impact is temporary and not substantive.
Eventually the credit market will return to normal.
What really interesting is that in the big picture, what ACTUALLY
happened is not that ordinary Joe-shmoe got taken in and lost his
money, but that the banks got taken in by Joe-shmoes with no
collateral and took THEIR money. Effectively, it was a big transfer
of wealth from stupid investment bankers to poor homeowners who
were given credit terms they could never have dreamed of otherwisem
and who are now being assisted by the government to keep those
homes on even better terms.
It's like the market accidentally created a massive housing subsidy
program and the left-wing reaction is to blame the capitalists for
not being tight-fisted enough with their money.
The Extispicator|9.17.08 @ 2:27PM|#
and iBankers make sick money
I used to assume it was because they were so smart they were worth
it...
|9.17.08 @ 2:34PM|#
The difference between you and us is that you believe that
you can vote for political Jesus, and political Jesus is absolutely
selfless, interested in the good of all people, and will make the
regulations work for all. Where as we believe that political Jesus
doesn't exist.
I'm not looking for a political Jesus -- just someone who isn't a
complete crony capitalist -- and a media that holds politicians
accountable when the people in power that have absolutely no place
being there. It doesn't take a political Jesus -- just someone who
isn't completely corrupt.
You don't put people don't believe in regulations in charge of
regulating things. And you don't put lobbyists for industry in
charge of regulating that industry. And when you do, there should
be a fucking shitstorm by watchdogs and media alike.
Atrios also sums up the "free-marketeers" nicely:
People who prattle on about "the free market" are usually too stupid to have a clue how complicated and pervasive the "rules" had to be to to get a well-functioning modern market system: sophisticated concepts of contracts and enforcement, property rights, legal entities, proper accounting, bankruptcy, limited liability, etc... etc..., did not descend from the heavens but were, in fact, created.
Don the libertarian Democrat|9.17.08 @ 2:34PM|#
We'd better come up with a way to avoid these kinds of crises, otherwise there will more bailouts and more regulations. That's the real world. I say that we should try and develop some decent and minimal regulations. But,hey,if the world changes, that's fine with me.
|9.17.08 @ 2:40PM|#
If you do the math... this AIG bailout is equivalent to twice
the size of the entire FDIC fund to cover depositor losses
when banks, and equivalent to roughly 6 months of war
spending.
Similarly the Fannie/Freddie debacle was equivalent to years of war
spending, and in the long run may cost as much as all of the war
spending since September 11, 2001.
Despicable.
|9.17.08 @ 2:45PM|#
Happy Constitution
Day, everyone! This is my favorite holiday, when George
Washington delivers little bags of freedom to all of the good boys
and girls.
Strangely telling that no one really celebrates this day, since it
honors the idea of limited government. Such a primitive and passé
concept. Shouldn't our presidential candidates be doing special
speeches celebrating this day?
Fluffy|9.17.08 @ 2:45PM|#
The calls for regulation will win the political debate, because
the argument was lost before it even began.
Fed policy and Bush fiscal policy created an asset price
bubble.
The problem with asset price bubbles is that during them economic
behavior that would otherwise be irrational appears rational, due
to distortions of the decision-making data being used.
Basically, state action created an environment in which risky real
estate bets were paying off. By now braying about the need
for regulation, the statists are essentially saying, "We need to
regulate you to stop you from behaving rationally when we fuck up
the macroeconomic situation. We want to be able to reap the
political benefits of a loose money policy, but we want you to
ignore the existence of that policy."
|9.17.08 @ 2:46PM|#
Pro Libertate | September 17, 2008, 2:41pm | #
Crony capitalism or crony socialism?
Definitely crony socialism. Capitalism gets an undeserved bad rap
for these sorts of things, and those that fall victim to the
twisted logic of anti-capitalist head games play right into the
hands of those that are sucking this nation dry like so many
leeches.
|9.17.08 @ 2:47PM|#
So what did Lehman do that got them passed over for a
bailout?
Not big enough and not important enough counter-parties to take
down with them.
|9.17.08 @ 2:49PM|#
If you do the math... this AIG bailout is equivalent to
twice the size of the entire FDIC fund to cover depositor losses
when banks, and equivalent to roughly 6 months of war
spending.
I am curious to know what's gonna happen when the FDIC
fails
|9.17.08 @ 3:02PM|#
FDIC won't be allowed to fail, of course, but any solution to
that problem will add more inflationary pressure to the
economy.
Boy, will I be glad when this mess is over. Hopefully, with some
sort of legitimate boom. Can we cure death or something big like
that? I look to technology to solve this economic crisis. Flying
cars powered by fusion? What do we need here?
|9.17.08 @ 3:11PM|#
I look to technology to solve this economic crisis. Flying
cars powered by fusion? What do we need here?
We need competent minds fueled by logic, reason, and a sense of
duty... not irrationality, ambition, and greed.
|9.17.08 @ 3:23PM|#
Surely you jest. We only need a law that says that we'll have
fusion power next year. Voilà!
In reference to my Constitution Day remarks above, how come Hit
& Run isn't commemorating this day of days? Well?
Pedantic Nitpicker (or maybe N|9.17.08 @ 3:46PM|#
In reference to my Constitution Day remarks above, how come
Hit & Run isn't commemorating this day of days?
Well?
Well, the constitution was signed Sept 17, 1787.
But it was not ratified until NH became the 9th state to ratify Jun
21, 1788.
And if NY or VA didn't wind up ratifying it, (10th & 11th) it
would have been a dead letter.
And the bill of rights, which imo is more important to create
"limited government with little bags of freedom" didn't go into
effect until into December 15, 1791
P Np (or Nw)|9.17.08 @ 3:47PM|#
Still, I agree that today has more of claim of being America's B-day than July 4.
|9.17.08 @ 3:48PM|#
Hopefully, with some sort of legitimate boom. Can we cure
death or something big like that? I look to technology to solve
this economic crisis. Flying cars powered by fusion? What do we
need here?
"Germany Russia Invades
Poland!!"
They tell me it worked before.
|9.17.08 @ 4:01PM|#
Under the second view, which I prefer, regulators will never
be in a position to accurately evaluate or second-guess many of the
most important market transactions.
And let's just ignore people like Barney Frank, who have been
telling us this would happen, and how it would happen, for
years.
Infamous|9.17.08 @ 4:04PM|#
"Germany Russia Invades
Poland!!"
They tell me it worked before.
Not until
"Jap PRC Planes Bomb
Hawaii!!"
|9.17.08 @ 4:12PM|#
Pedantic Nitpicker,
It's tough to pick a specific date, but this is the "official"
one.
ed|9.17.08 @ 4:18PM|#
Neither Obama nor McCain has the training nor the intellectual wherewithal to issue snap judgments on immensely complicated economic issues. Nobody does. I've been watching the MSM treatment of this latest "crisis" and not a single pundit has raised this objection. Do we Americans really expect the candidate to our highest office to be an expert on everything? Problem is, the candidate who honestly says, "I don't know" will be crucified by the very press who have anointed themselves: "Protectors of the Truth." Truly sickening. Not that we don't deserve it.
|9.17.08 @ 4:30PM|#
Neither Obama nor McCain has the training nor the
intellectual wherewithal to issue snap judgments on immensely
complicated economic issues.
Which means the advantage goes to the candidate who has been
talking about the problem, predicting the crisis, and proposing
solutions to it for a long time.
max|9.17.08 @ 4:33PM|#
This post is too uninformed to be convincing. The biggest
problems with the current market seizure absolutely could have been
avoided with sufficient oversight. 'No-doc', 'low-doc' and negative
amortization loans should not be legal. They are just bad
structures, and they should never have been allowed to be marketed
to consumers.
Similarly, there is no excuse for not regulating credit default
swaps. Swaps are insurance products. Insurance is highly regulated,
and for very good reason. For instance, no reasonable person would
argue that insurance laws preventing someone who does not own a
property to insure against its destruction. These laws prevent
fraud, and they also prevent a loss of 10 dollars from becoming a
loss of 100 dollars through the multiplying effect of non-owner
insurance. Similarly, insurers must be regulated so that insurance
buyers can be confident that sufficient capital exists to
compensate for losses and that the insured assets are actually
worth the amount of the insurance. Libertarian arguments against
regulation hold no water when applied to swaps and abusive consumer
loans. Period.
GG|9.17.08 @ 4:45PM|#
And let's just ignore people like Barney Frank, who have
been telling us this would happen, and how it would happen, for
years.
Mmm hm.
So five years ago, there was one of those rare moments in Washington when the branches and personalities of government-in this case, the Bush administration-are less interested in protecting or expanding their turf than in fixing a looming catastrophe. What was Frank's response to the proposal?
"These two entities-Fannie Mae and Freddie Mac-are not facing any kind of financial crisis," said Representative Barney Frank of Massachusetts, the ranking Democrat on the Financial Services Committee. "The more people exaggerate these problems, the more pressure there is on these companies, the less we will see in terms of affordable housing."
As Frank mentions in his press release today, two years after it was first proposed, the House finally voted on a bill reforming the mortgage giants. Alas, the legislation was watered down to the point of being meaningless-that's why it passed the House with such wide margins (122 Democrats and 209 Republicans). But even then, and despite his high regard for bipartisanship now, Barney Frank wasn't among the yeas.
Which means the advantage goes to the candidate who has been
talking about the problem, predicting the crisis, and proposing
solutions to it for a long time.
So, advantage
John McCain?
mike|9.17.08 @ 4:56PM|#
@max:
AIG is a holding company and only the insurance company subs are
regulated by the insurance commision of ny. AIGFP (financial
products) is a non-regulated sub of the holding company which wrote
the swaps. It should be noted that of 57B in swaps with
subprime/alt-a/heloc exposure, AIG had only paid out $103M and none
of the underlying collateral has failed to pay its interest and
principal.
So we have an enormous failure without any realized losses. Good
stuff.
Amakudari|9.17.08 @ 5:26PM|#
The biggest problems with the current market seizure
absolutely could have been avoided with sufficient oversight.
'No-doc', 'low-doc' and negative amortization loans should not be
legal. They are just bad structures, and they should never have
been allowed to be marketed to consumers.
You think the OCC and OTS were unaware of such loans? They were,
and they only started trying to regulate them toward the end of
last year. Likewise, the FHLBs could have haircut collateral values
for lenders that focused on these products. Oversight was
sufficient in terms of scope and funding, it just wasn't
competent.
So we have an enormous failure without any realized
losses.
You can survive for years on realized losses (Ford), but you can't
survive one day without liquidity (Bear Stearns). AIG most
definitely would have gone bankrupt without the Fed's contingent
loan, and the Fed's goal seems to be to provide AIG two years to
"orderly" sell off performing assets and operations, because AIG
absolutely can't emerge intact borrowing at 3M LIBOR
+850 bps. That's about 11.6% right now, and swap forwards don't
imply much of a decline over the loan's two-year tenor.
|9.17.08 @ 5:47PM|#
Pro Libertate,
You mean this McCain: But so, in this whole new derivative
stuff, and SIBs and all of this kind of new ways of packaging
mortgages together and all that is something that frankly I don't
know a lot about. [...]
But I don't know of hardly anybody, with the exception of a
handful, that said 'wait a minute, this thing is getting completely
out of hand and is overheating.'
So, I'd like to tell you that I did anticipate it, but I have to
give you straight talk, I did not. - Dec. 2007.
Nope, that is not the candidate who has been talking and warning
about this problem for a long time.
The people pretending this crisis STARTED with Freddie and Fannie's
books don't know what they're talking about. They're just trying to
cover McCain's ass.
|9.17.08 @ 5:55PM|#
Both candidates are economic idiots, in my book. However,
I predicted back when I was at Washington Mutual, helping
it self-destruct, that this monkey business at the GSEs would end
up in a government bailout.
How about the Rays? I wonder if they'll end up holding on and
winning the division?
Invisible Finger|9.17.08 @ 6:04PM|#
Bailing them out is the failed regulation part. IOW, "The
fed's actions are failed regulation."
I'll add that my opinion is this particular Fed action is much more
defensible than the prior moves.
Invisible Finger|9.17.08 @ 6:08PM|#
The people pretending this crisis STARTED with Freddie and
Fannie's books don't know what they're talking about.
So where DID the crisis start then?
|9.17.08 @ 6:50PM|#
I'm not looking for a political Jesus -- just someone who isn't a complete crony capitalist.
Everyone is a crony capitalist. People have a natural tendency to
help their friends and harm their enemies. People are self
interested. And not only that, people who are more self-interested
than others will do better in politics than those who ignore
self-interest, as a matter of natural selection.
So yes, you want Political Jesus. If your solution to our problems
is "better leaders", then you have no solution besides Political
Jesus.
jtuf|9.18.08 @ 12:25AM|#
I think the Times of India had the best headline for the AIG bailout, "USA becomes USSR: $85 bn bailout for AIG".
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