Europe Under-Regulated Too?

As European stock markets tank, the Irish government guarantees bank deposits, the Benelux countries nationalize Fortis bank, Germany bails out Hypo Real Estate Holdings, and Denmark also guarantees bank deposits and dismally so forth, the question arises: Who knew that Europe, of all places, was so under-regulated? Or maybe de-regulation is not the chief cause for the outbreak of financial chaos? Just wondering. 

Comments

[Nigel Watt]

Silence! Naomi Klein will not tolerate such dissent.

[robc]

It was the *wrong* regulation. If only Europe had elected the right people they would have applied the proper regulations. Duh.

I feel dumber just from typing that.

[MRB]

Fat mouths couldn't keep their mouth shut. The European's love gloating but almost never put their money where their mouth is...

Wait, Socialism isn't working either...

Hmmmm

Also, of note is that the dollar is gaining.

[No Name Guy]

Of course they're under regulated - they've haven't ALL been nationalized just yet.

Once they have been, then the smart guys and gals in government will do an AMAZING job of running things without that pesky profit motive getting in the way. After all, history is a great teacher on how effective govt. run economies work.

[fyodor]

I'm guessing the leftist-statist response would be that the US's unregulated banks brought everyone else down. Or that corporations have the Euros bought out too. Or something. There's always something!

[Dagny T.]

Or maybe de-regulation is not the chief cause for the outbreak of financial chaos?

You're right. There is also GreedN'Corruption!

Especially greed. But especially corruption.

[/Sideshow Bob]

[Jerry]

The narrative in Europe is that they were duped by the greedy Americans.

[hotsauce]

I was wondering when we would get a post on this. You have any good articles or columns to link to, Jerry?

[jasno]

It would seem that anyone who invested in repackaged sub-prime or poorly backed loans would be in for trouble.

Not that I'm suggesting that's what happened here, but I would bet that smart money abroad likes to invest in the U.S. because we're realtively politically stable and give good returns.

So, has anyone looked at the effect of the sub-prime mess on long term foreign investment in the U.S.?

[Paul]

Oh, I was waiting with bated breath to hear the words "New World Order" applied to the financial system after this event. I was not disappointed. Heard it this morning on NPR while driving to work. The New Dealists are wetting themselves over this.

[stubbylibrarian]

The narrative in Europe is that they were duped by the greedy Americans.

Of course they were, the poor dears. They are never anything but victims.

I can't quite square that posture with their vaunted sophistication, their centuries of accumulated experience, their world-weary wisdom...I mean, they're Europeans, for heaven's sake, and we're just a bunch of crass rednecks, so how do we manage to lead them off the paths of rightgeousness so regularly and so painfully? And why do we always recover so much more quickly, and more completely? It's almost like our system works better than theirs, or that we know something they don't...

or, as I tell my Euro friends way too often - age doesn't automatically confer wisdom. Sometimes all it confers is senility. Weakness. Corruption and decay. Europe is about 75 years overdue for a nice, long nap and some warm broth. something bland that doesn't require chewing.

[J sub D]

And I remain placid. Assuming we (the west) don't go all tarifficky, this will be a *gasp* recession.

Been through them before. Survived too.

[Arho]

You know what? The consensus in Europe will actually be that this is proof of under-regulation. Americanization, Thatcher, greed, Bush, the neoliberal EU (really), and let's throw in McD's and Starbucks as well (I don't know why, but they usually get blamed for stuff).

International banks = free markets in Europe. And I guess some people in US will agree.

[Paul]

Been through them before. Survived too.

I can do recessions standing on my head. Those of us that don't have much to begin with ain't got so much to lose.

[third-generation warfare]

i

[Jerry]

I think Spiegel tends to put down the general narrative that is soon to be repeated across Europe.
America Loses Its Dominant Economic Role

[Paul]

Jerry:

We will with this bailout. That's guaranteed.

[fyodor]

I think Spiegel tends to put down the general narrative that is soon to be repeated across Europe. America Loses Its Dominant Economic Role

"Still, this is no time to gloat."

But we will anyway!!

Reading a little bit of that reminded me of a tidbit I caught off the BBC, of a Labor Party member telling Parliament something along the lines of, "If the banks, why not the utilities?" As someone else said on Hit & Run, it's a mixed economy and both sides can blame the other (rather like the Israeli-Palestinian conflict, I'll add!), but the clearer picture for most of the world, here and elsewhere, is that the Republicans, keepers of the free market flame, in the public's perception anyway, have pretty much capitulated and sold the free market down the river with this bailout. Thanks to the bailout, free market rhetoric will sound more and more hollow, and thus we've probably lost the argument every bit as much as we thought we were winning it this past generation or so. I guess it's not just business that goes in cycles!

[KD]

Not to worry about recession, someone on a friend's Facebook page says Mercury is in retrograde. When it gets all postitivegrade again we'll have a boom...

If only Congresscritters and Senatecritters knew about this, they might have just waited and not got all excitable and stuff.

[Sambo]

"I mean, they're Europeans, for heaven's sake, and we're just a bunch of crass rednecks, so how do we manage to lead them off the paths of rightgeousness so regularly and so painfully?"

Cause everybody loves a young whore.

[Mr. Nice Guy]

Err, I hate to, err, point this out, but, ahem, um, doesn't this argument turn around the other way?

I mean, you can't blame government intervention for the mess if nations of varying levels of government intervention are suffering the same problems...

[cunnivore]

MNG, there's a lot of govt intervention on both sides of the Atlantic. The argument only turns around if a very lightly regulated economy suffers these problems, but unfortunately such a thing does not exist on either side of the Atlantic.

[Mr. Nice Guy]

Of course it could also be like this: a row of wooden houses built next to each other where each house took variable levels of fire protection measures. The house with the lowest level catches fire and then it spreads to the neighboring houses which had higher levels of fire protection. That wouldn't negate the conclusion that low levels of fire protection methods were the cause of the mess.

[Mr. Nice Guy]

"The argument only turns around if a very lightly regulated economy suffers these problems, but unfortunately such a thing does not exist on either side of the Atlantic."

You mean FORTUNATELY I think. As I've said many times this is the libertarian magic lucky charm: there never has nor is there currently any nation without some government intervention. Therefore the libertarian fundamentalist, when faced with any negative phenomena, can simply hunt around until they find some government intervention, and then blame it. It's unfalsifiable, like many magical claims.

In the real world though one would expect, if the claim "government interference fucks things up" is a true one, that nations with comparitevely higher or lower levels of government interference should NOT be have similar levels of things being fucked up...

[J sub D]

I mean, you can't blame government intervention for the mess if nations of varying levels of government intervention are suffering the same problems...

You read, but you do not understand. If the argument is that too much regulation in the US was contributory to the sub-prime fiasco (it was) than a more regulated Europe having problems is completely in sync with that argument.

Jiminy Cricket! It's not that difficult of an argument to understand. You need not agree, but damn, Europe having problems while highly regulated hardly refutes the point that the US was over-regulated as well.

[Mr. Nice Guy]

So if you look at the Great Depression, which began in a time of comparatively very low levels of government intervention (as established ironically by libertarian fundamentalists who are always telling us what a massive socialization occurred with the New Deal), you just hunt around until you find some example of government intervention (remember, there will always be something), and viola, SMOOT-HAWLEY!

I've just seen this trick used too many times in the many libertarian articles and books I've read. It's just too cute by half...

[robc]

MNG,

Your analogy doesnt work. The higher level fire protection houses shouldnt catch on fire. They have the frickin protection. Unless, they used the wrong protection, then see my 6:33 post.

[cunnivore]

I didn't say we'd need a Libertopia to have these problems, I said a lightly regulated economy. Those have existed in the past -- 19th century US and Britain would be good examples.

Therefore the libertarian fundamentalist, when faced with any negative phenomena, can simply hunt around until they find some government intervention, and then blame it.

Only if they can provide evidence of a plausible link should they be believed...just like the champions of more regulation should provide evidence of a link between lax regulation [NOT misapplied or selectively enforced regulation, either] and these problems.

[Mr. Nice Guy]

But J, how can that be? If over-regulation is the problem, and the US is obviously less regulated, then we should be having less problems here, right? I mean, how else would that work?

However, if the economic problems are the result of something more complicated than most people's ideology, say it is not a cause of "too little" or "too much" regulation but a result of myriad and complex economic forces that most non-experts don't and probably won't understand, then this same mess happening in nations with varying levels of regulation (or government intervention in the economy, or whatever) would be a little more sensible.

[Happy Cat]

Economic theory teachez awr dat, unfortunately, artifishal credit expanshun adn teh (fiduciary) inflashun uv media uv exchange ofer noes shortkut ta stable adn sustaineded economic development, noes wai uv avoidin teh necessary sacrifiec adn disciplien beehien awl voluntary savin.

[Franklin Harris]

The narrative in Europe is that they were duped by the greedy Americans.

So, the Europeans admit that they are idiots. 'Bout time.

[Mr. Nice Guy]

"The higher level fire protection houses shouldnt catch on fire. They have the frickin protection."

robc-It's not like they sheathed their houses in diamonds. They made it less likely to catch fire from normal events. But negligent neighbor's house next to yours blazing like an inferno, not the normal thing the fire protection was for.

[Paul]

The house with the lowest level catches fire and then it spreads to the neighboring houses which had higher levels of fire protection.

So what's the point of having higher level of fire protection if it doesn't protect you from the lowest common denominator?

That's like saying that communism failed because it was encircled by capitalists. It was supposed to succeed in spite of capitalism. Actually, because of it. If the so-called 'unregulated' American Banking system could utterly gut everyone elses, then the regulations they had were probably unnecessary and pointless.

[Sambo]

"You mean FORTUNATELY I think. As I've said many times this is the libertarian magic lucky charm: there never has nor is there currently any nation without some government intervention."

I remember Hong Kong business in the pre-British handover era being both untaxed and unregulated. That's why it grew so quickly. That's also why Red China coveted it.

[Mr. Nice guy]

"just like the champions of more regulation should provide evidence of a link between lax regulation [NOT misapplied or selectively enforced regulation, either] and these problems."

And the little fact that many of the financial products at the center of this mess were deregulated a little while ago doesn't provide just as much of a "just so" ad hoc point of evidence as the libertarian just so stories I'm talking about? I mean whatever you think, it's at least reasonable.

[cunnivore]

MNG, that's like saying that a girl who has sex every day should be expected to get more pregnant than one that has sex once a week. Once it happens, it happens. Once the bottom falls out of the economy, it falls out.

[Happy Cat]

"But J, how can that be? If over-regulation is the problem, and the US is obviously less regulated, then we should be having less problems here, right? I mean, how else would that work?"

Teh United Statez iz an economic chimera. Hybridz do not always liv happeh healthy livez. Jus look at teh liger.

[Mr. Nice Guy]

"So what's the point of having higher level of fire protection if it doesn't protect you from the lowest common denominator?"

You guys are making me think that more libertarians than I thought live in a magical universe. In the real world it's pretty rare to get any "absolute" protections from anything. I mean, if I'm smart I'll get a car with a crash-resistant frame and good airbags but still some dorkwad can ram his Honda civic into me at 65 mph and injure or kill me...

[Mr. Nice Guy]

"I remember Hong Kong business in the pre-British handover era being both untaxed and unregulated."

There are a lot of reasons that Hong Kong might have done so well that have nothing to do with its level of government interference. I mean, you can't think of some differences between Hong Kong and most nations that would explain their economic success right of the bat, ones that have nothing to do with the lower tax rates?

I mean, for that matter, say, Witchita KS has much lower tax rates than NYC. But not exactly an economic dynamo that Witchita.

[Sambo]

"But J, how can that be? If over-regulation is the problem, and the US is obviously less regulated, then we should be having less problems here, right? I mean, how else would that work?"

Goverment forcing lenders via the threat of lawsuits to provide morgages to people who can't afford them IS government regulation.

[MP]

However, if the economic problems are the result of something more complicated than most people's ideology, say it is not a cause of "too little" or "too much" regulation but a result of myriad and complex economic forces that most non-experts don't and probably won't understand, then this same mess happening in nations with varying levels of regulation (or government intervention in the economy, or whatever) would be a little more sensible.

Yes. Agree totally. This is not an issue of over/under regulation. This is a deleveraging/risk discovery issue. And a very complex one at that.

The shrill cries of "We need more regulation!" are almost laughable. Particularly when one asks "What regulation?" and "How would it have prevented this?"

Additional regulation MAY have made the deleveraging less painful. But it may not have. It's really hard to model that.

But the Democrats have their excuse to increase the level of government, regardless of the substance of their position, thus "MORE REGULATION!" rules the day.

[Ironic]

An economy is like an ecosystem. When something goes wrong it means there has either been an artificial element added or a natural element taken away. Left alone, an ecosystem, like an economy functions smoothly.

[Dinosaur]

"Left alone, an ecosystem, like an economy functions smoothly."

Uhh, not for every member of the ecosystem...

[Mr. Nice Guy]

I mean, if Canada took NYC and then made it a protectorate, then it would seem like an economic dynamo. But I doubt many here would say "see, that nanny-state stuff NYC does is quite the model to follow."

And btw, as a lover of NYC I can say it is full of nanny-state bullshit. Way too much if you ask me.

[Sambo]

"There are a lot of reasons that Hong Kong might have done so well that have nothing to do with its level of government interference. I mean, you can't think of some differences between Hong Kong and most nations that would explain their economic success right of the bat, ones that have nothing to do with the lower tax rates?"

Why don't you think of some differences and get back to us? I'm simply relating what I learned in an economics classback in 1974 when it was actually happening.

[Sambo]

"I mean, for that matter, say, Witchita KS has much lower tax rates than NYC. But not exactly an economic dynamo that Witchita."

President Ford to NYC: Drop Dead

NY Daily News - 1975

I don't recall any president saying anything remotely simalar to Witchita.

[Mr. Nice Guy]

Uhh, Sam, look at some of my recent posts for a hint. Hong Kong, like NYC is essentially a port city.

Does NYC's economic success establish that its high regulation nanny-statism is conducive to economic success? Or could it be a success for reasons unrelated (or maybe even in spite of) all that?

[Rich Ard]

How did we get from Ron's "maybe deregulation didn't cause this" to "if there were no regulations, none of this would ever happen".

I don't see you, MNG, trying to get anyone to fault deregulation; rather, you are starting to think you're surrounded by econopagans...about right?

[Ironic]

From an objective standpoint the standard of living of the poor souls who actually live in NYC is low compared to other parts of the United States - or Canda. A big apartment in NYC is the size of a living room in Ohio or Florida. It would be the size of a bathroom in Texas.

[Meteor]

"Uhh, not for every member of the ecosystem..."

I interfered with that ecosystem.

[Sambo]

"Uhh, not for every member of the ecosystem..."

Very true. reminds me tangentially of a Human Geography class I took that likened London to a moldy sandwich. As the inner-most circles died the city expanded out in ever greater circles. Had too. Pretty common for cities actually, but geographically, London provided a prime example.

[Sambo]

"Uhh, Sam, look at some of my recent posts for a hint. Hong Kong, like NYC is essentially a port city."

So is Liverpool.

[Sambo]

"From an objective standpoint the standard of living of the poor souls who actually live in NYC is low compared to other parts of the United States - or Canda. A big apartment in NYC is the size of a living room in Ohio or Florida. It would be the size of a bathroom in Texas."

Absolutely. I have a friend who moved his successful consulting business after twenty years from Manhattan to Omaha for that very reason.

BTW New Orleans is a port city. Wanna live there?

[peachy]

[Dr Nick] "Now, there are many options for dangerously under-regulated economies, like yourself." [/Dr Nick]

[MJ]

"...if the economic problems are the result of something more complicated than most people's ideology, say it is not a cause of "too little" or "too much" regulation but a result of myriad and complex economic forces that most non-experts don't and probably won't understand, then this same mess happening in nations with varying levels of regulation (or government intervention in the economy, or whatever) would be a little more sensible."-Mr. Nice Guy

There's a lot in what you wrote that I beleive is true. That doesn't help the argument of the people who want more government regulation and oversight, in fact, it argues against their point. If the problem is not well understood, any new regulations will likely be trying to fix the wrong thing and causing new problems. The simplistic blaming of vague "deregulation" and "out control" markets is a dangerous call for action, the wiser course is likely to do little and let this play itself out.

[cunnivore]

An economy is like an ecosystem. When something goes wrong it means there has either been an artificial element added or a natural element taken away. Left alone, an ecosystem, like an economy functions smoothly.

Define artificial and natural. For instance, are beaver dams artificial or natural? How about invasive species like kudzu and zebra mussels? Hell, define ecosystem for that matter. Are meteors part of the ecosystem? How about tsunamis? Good luck.

[cunnivore]

Meteor | October 6, 2008, 8:21pm | #
"Uhh, not for every member of the ecosystem..."

I interfered with that ecosystem.

You're not artificial (except perhaps in the Intelligent Design sense, but then everything is).

[Meteor]

I am a non-native element. Like introducing the Brown Tree Snake to guam. The Brown Tree Snake is not artificial but it *IS* non-native.

[cunnivore]

From an objective standpoint the standard of living of the poor souls who actually live in NYC is low compared to other parts of the United States - or Canda.

You mean the objective standpoint that doesn't take notice of the much higher economic and social opportunities that NYC affords. You know, the reason people pay astronomical rents for the tiny places you mentioned.

I hear you can get a nice big place in the Sudan fairly cheap. I wonder why anyone would live in the US instead--objectively speaking, that is.

[cunnivore]

Since Polar Bears are not native to the Arctic -- their ancestors came from temperate zones -- their extinction will be a net plus to the Arctic ecosystem. Right?

[Jerry]

The economy of Wichita Kansas just hasn't taken off yet because they're still being occupied with finding them 4000 year old dinosaur bones.

[Andy D]

I'm with cunnivore on NY. I'd rather live a 6x6x6 box with a family of Cuban refugees in Manhatten than an expansive ranch in Texas (ok, I exaggerate). But I just like big cities, I like living around huge numbers of anonymous strangers, I like the arts, I like the food choices... it's hard to sort living standards into objective points... it's all about what you want.

And this whole economics thing. It's too complicated to fully understand, and ideology helps all of us sort through the mess. I'm for the free market, so I'll support it... maybe I'll bend and allow a little bit of regulation into my world-view, but it's scary to try... I don't want to open a floodgate.

[Ironic]

Cunnivore, the key word here is ELEMENT. Kudzu is a natural element of the ecosystem in Japan. It is not a natural element of the ecosystem in the Southeastern United States. It is possible, even likely, that the ecosystem in the Southeastern United States could adapt to this change. As for hurricanes, they are part of a larger cycle and native plants and animals in hurricane prone areas have evolved to adapt to this. The cabbage palm (Sabal palmetto ) in Florida seems to brush them off. The non-native (but quite beautiful) Norfolk Island Pine (Araucaria heterophylla) breaks like toothpick under hurricane force winds.

[MJ]

"if Canada took NYC and then made it a protectorate, then it would seem like an economic dynamo."

Well, except being an outpost of the British Empire helped make Hong Kong a dynamo. Making NYC an outpost of Canada, probabaly would do nothing positive for the city.

[Gentle Ben]

"Since Polar Bears are not native to the Arctic -- their ancestors came from temperate zones -- their extinction will be a net plus to the Arctic ecosystem. Right?"

Damn straight!

Everything is cyclical. But the cycles we can see, they scare us. People fear change.

[Ironic]

"Since Polar Bears are not native to the Arctic -- their ancestors came from temperate zones -- their extinction will be a net plus to the Arctic ecosystem. Right?"

See my comment about SE U.S. and Kudzu eventually becoming part of the ecosystem there. Polar Bears became an important part of that ecosystem over time.

[cunnivore]

The point, dear Ironic, is that everything that is now native and "an element of the ecosystem" was once non-native and out of place. We see the world as it is now, in the blink of an eye in cosmic terms, and assume that the way it exists now is the "natural" and right way for it to be. But that is just temporal chauvinism.

[Ironic]

"You mean the objective standpoint that doesn't take notice of the much higher economic and social opportunities that NYC affords. You know, the reason people pay astronomical rents for the tiny places you mentioned."

Name one specific social opportunity you can find in NYC that you cannot find in, as an example, Southern Florida. I am not speaking of a BRAND NAME, I am speaking of a category of activity. As for stock trading - perhaps you have never heard of the Internet. You can trade stocks on the Internet and not have your car broken into.

[Ironic]

"The point, dear Ironic, is that everything that is now native and "an element of the ecosystem" was once non-native and out of place. We see the world as it is now, in the blink of an eye in cosmic terms, and assume that the way it exists now is the "natural" and right way for it to be. But that is just temporal chauvinism."

I know that. What is your point?

[cunnivore]

And keep in mind that there are no rules in an ecosystem. Government intervention to prevent and punish fraud and theft are most certainly artificial in your analogy.

[joe]

The live theater in Southern Florida bites ass.

[cunnivore]

My point is that statements like "left alone an ecosystem functions smoothly" are vague and useless pablum that may tickle the ears but don't stand up to scrutiny. The ecosystems that exist today would not be functional, and in many cases would not exist, were it not for being "tampered with" at some time in the past.

[Ironic]

"Government intervention to prevent and punish fraud and theft are most certainly artificial in your analogy."

Do you think that because a government does not do something that it will not get done? On of the greatest assets a business has is reputation. A business that has a reputation for fraud will not last long in a true free market where government bailout money cannot be extracted at the point of a gun. Private security already exists and without government regulations would have more flexibility.

[cunnivore]

A business that has a reputation for fraud will not last long in a true free market

No prob. Just change your business name often enough, employ different facades, move between anarcho-capitalist citadels quick enough, and reputation won't matter.

Private security already exists and without government regulations would have more flexibility.

As bad as some police depts are getting, I don't think you really want to live in an area where various private security firms have "flexibility" in the means by which they protect their clients.

[Paul]

that's like saying that a girl who has sex every day should be expected to get more pregnant than one that has sex once a week. Once it happens, it happens. Once the bottom falls out of the economy, it falls out.

The economy looked at least 16 to me.

[Paul]

But not exactly an economic dynamo that Witchita.

Location, location, location.

Not just regulation, regulation, regulation.

[Ironic]

"My point is that statements like "left alone an ecosystem functions smoothly" are vague and useless pablum that may tickle the ears but don't stand up to scrutiny. The ecosystems that exist today would not be functional, and in many cases would not exist, were it not for being "tampered with" at some time in the past."

The ecosystems would be different but not inherently better. This is like saying "without government tampering with the economy we would not have the economy we have today." Electric Boat Company might not exist were it not exist were it not for DOD contracts but other "boat companies" would exist that would produce boats for civilian use.

[Ironic]

"No prob. Just change your business name often enough, employ different facades, move between anarcho-capitalist citadels quick enough, and reputation won't matter."

In a true free market mechanisms such as social shunning would exist to take care of such people. Reputation always matters - except aparently in governmental politics where you can let your friend drown while you call your lawyer and maintain your position of power.

"As bad as some police depts are getting, I don't think you really want to live in an area where various private security firms have "flexibility" in the means by which they protect their clients."

Yes, I would. I would not hire a firm that would break my door down in the middle of the night in a no-knock raid. I have no such choice at the moment. Police departments force me at the point of a gun to pay for their services.

[Sambo]

"Do you think that because a government does not do something that it will not get done? "

Exactly what Hong Kong circa 1974 was all about.

I worked in a US factory in 1977 that provided Cadillac pay and benefits in order to keep the workers from unionizing.

From the worker's perspective, unionizing wouldn't improve things, so why bite the hand that feeds you steak and lobster?

The company's position was that providing top-shelf compensation was far, far better than letting in the union.

Executive summary: Workers happy, shareholders happy, unions covetous, just like Red China.

[Ironic]

Joe, have you been here?
http://www.thegoldenapple.com/

[Sambo]

"No prob. Just change your business name often enough, employ different facades, move between anarcho-capitalist citadels quick enough, and reputation won't matter."

But you'll never build one either.

[cunnivore]

Of course. But that just means you're starting from the same place that other new businesses are.

[cunnivore]

Ironic, I think you misunderstand my point about the security firms. I wasn't talking about the security firm YOU hire...but the security firms others hire that consider you a target.

Oh yeah, I know what the response will be: the security firm YOU hire will fight off those other security firms. Maybe you could go to Baghdad for some advice from the natives on the best ways of getting by in that kind of society.

[Rimfax]

Did the communists really lose the Cold War after all?

[Sambo]

"Location, location, location.

Not just regulation, regulation, regulation."

If that were true, today, Duluth, MN would dwarf, Minneapolis/St. Paul. But back in the early 20th Century, Twin Cities agribusiness successfully lobbied the Army Corp of Engineers to run the majority of Northern Minnesota's watershed (and massive wheat crop) to the Mississippi River instead of to Duluth (on Lake Superior). I seem to recall the Courts had a hand in it via rulings on riparian rights.

[Sambo]

"Did the communists really lose the Cold War after all?"

Too soon to tell.

[BDB]

Location, regulation, education, demographics. It all plays a role.

I don't think Wilmington, DE, would be much without lax corporate and trial lawyer regulations.

[Ironic]

"Ironic, I think you misunderstand my point about the security firms. I wasn't talking about the security firm YOU hire...but the security firms others hire that consider you a target."

War (even on a small scale) is cost-prohibitive and simply could not be afforded without the mechanisms of the state to force taxpayers to pay for them. Without the strong-arm of the state there is not financial advantage to engage in them.

"Oh yeah, I know what the response will be: the security firm YOU hire will fight off those other security firms."

Apparently you did not know what my response would be.

"Maybe you could go to Baghdad for some advice from the natives on the best ways of getting by in that kind of society."

Funny you should bring up Iraq. Do you really think Iraq has no governmental interference in its economic and social system at the moment?

[robc]

Mr Meteor,

I am a non-native element. Like introducing the Brown Tree Snake to guam. The Brown Tree Snake is not artificial but it *IS* non-native.

Whether you are native or not depends on where we draw the system boundaries. If an ecosystem is a closed system, we have to draw them wide enough to include you. If an open system, well, hell, anything goes then, you have to expect and plan for invasion.

[Ironic]

"I don't think Wilmington, DE, would be much without lax corporate and trial lawyer regulations."

Quite true. If you live in the United States pull out any major credit card you own. Look at the corporate address. I will be willing to bet that the address is located somewhere in the state of Delaware, probably Wilmington.

[economist]

"Did the communists really lose the cold war after all?"
No, they just renamed themselves.

[Barak Obama]

"Did the communists really lose the cold war after all?"

No, we did not.

[Some Guy]

The only thing that I would hate more than knowing my government ran Fannie & Freddie would be knowing my government invested in them.

As an American, I'm glad there is seemingly an endless supply of greater fools out there!

[amouse]

This post makes silly overly broad analogies. Ireland is a beacon of free market de-regulation. The fact that it guarantees bank deposits does not make it a more regulated financial system than us.

http://www.independent.ie/business/world/tighter-regulation-is-the-future-for-banking-1484777.html

They are just as deregulated as us when it comes to banks and finance.

[cunnivore]

War (even on a small scale) is cost-prohibitive and simply could not be afforded without the mechanisms of the state to force taxpayers to pay for them.

Bullshit. War predates the state, and still goes on alongside it without state involvement (think urban gang wars). The losers at the market "game" -- those who cannot survive through peaceful trade -- will ever attempt to do so by violence.

[Jerry]

Well, the problem with Ireland is that they do a lot of business with the UK and USA, which are both outside the Eurozone. They should drop the euro and EU.

[Genghis Khan]

War (even on a small scale) is cost-prohibitive and simply could not be afforded without the mechanisms of the state to force taxpayers to pay for them.

You're forgetting about my...er...business model.

Also, I too think Sarah Palin is hot. She must have Mongol blood in her.

[Trig]

"Also, I too think Sarah Palin is hot. She must have Mongol blood in her."

Makes sense.

[Dr. Dre.]

"The losers at the market "game" -- those who cannot survive through peaceful trade -- will ever attempt to do so by violence."

That you, Suge???

[perilisk]

Just because we were malregulated (-if- we were) doesn't necessarily mean we need more regulations. Sometimes a malnourished person needs to eat more, sometimes they just need to eat well. Hell, you can be ridiculously fat and be malnourished. Libertarians and pro-regulators are equally bad about tossing around the word "regulation" with no qualifications or elaboration.

I suspect our regulations/laws contributed to this crisis, but I haven't seen a lot of detailed discussion about specific changes that would solve this crisis or prevent future crashes; maybe we need to add some regulations, maybe take some away. Maybe we already have the ones we need and have to ensure that they are enforced, impartially and strictly.

[Anonymous]

Regulations on operations are bad. Is that qualified enough, perilisk? The CRA is disgusting redistribution pap.

Regulations on reporting can be good. But in the case of the mark-to-market securities, a regulation of reporting feeds back into other regulations that tie reporting back into operating in a way that fueled illiquidity. That is, transparency is good, but fishing line fixed to specific places on the saran wrap is bad.

More importantly, tax monies are forcibly taken from me and, in a rush panic of legislative flury by statists, given to companies to reward them for failing (well, it was the government's fault, I figure; but it's still my money). If money weren't regulated the way it is, and if taxes weren't the way they are, I could have the choice to either completely insulate myself from any monetary or financial risk or choose this time to buy in heavily to these failing companies, voluntarily accept the risk, and possibly get a good return on that investment.

[Matilda]

"The CRA is disgusting redistribution pap."

Any connection between the CRA and eminent domain abuses? No idea, just curious.

[Anonymous]

No idea, Matilda. Sounds like a basis for a good reason article if any connection shows up.

/me pokes all those magazine guys with RB for initials with a stick

[Hazel Meade]

I predict that by this time next year, most of the squishy urban liberal class will have discovered that they really don't like state-socialism after all.

All of a sudden they wake up and find a giant monolithic government controlling the economy for the benefit of a few entrenched industrial and banking intrests. Then they're like "Wait. I thought socialism was supposed to be some kind of freedom loving utopia where we all got free shit and long vacations. What happened? How come this isn't as fun as I thought it was going to be?"

[nelson muntz]

ah-ha...

http://www.youtube.com/watch?v=EPcBpF6DTWk

ah-ha in french.

[ed]

All of a sudden they wake up and find a giant monolithic government controlling the economy

Then they look at the calendar and it's 1935.

[Sean Healy]

Most here are assuming European banks were more heavily regulated because, duh, they're in Europe and everyone knows Europe is full of regulation. Well, most here are wrong.

I'm a banking reporter in Ireland, so I know a bit about why European banks are having the same or similar problems to American banks. First of all, bank regulation throughout the EU is pretty light. Brussels issues general directives which the member nations are required to follow, but implementation at the national level is at the discretion of national governments and regulators. So, for instance, in Ireland and Britain, oversight is very light. It's a bit tighter in other countries, but the EU allows 'passporting' across national borders, so banks can 'forum shop' for the most suitable regime for certain operations. Unsurprisingly, just about every major bank in Europe set up conduit operations in Dublin. HRE's public finance arm, Depfa, is also located in Dublin.

Yet although structured investment vehicles showed the first signs of strain in the credit crunch, the fundamental underlying problem for most banks - and especially banks in the Anglo Saxon countries - was cheap credit leading to an asset bubble. Irish banks had very little exposure to subprime securities, but lots of exposure to property lending at inflated prices - subprime by another name. Many banks are now looking insolvency in the face as asset prices plummet below deposit levels, destroying shareholders' equity/bank capital. Under those circumstances, banks won't lend to each other and so we have systemic illiquidity.#

If Europe truly had the tighter regulations that so many here assume prevailed, the central banks would have stepped in about three years ago to restrict credit and force pre-emptive recapitalisation. Instead they worried about inflation and trivial consumer finance issues. The result was that we had the same 8-10x salary multiples, originate and securitise mortgage lending and overleveraged derivatis trading that has wrecked banks in the US. There's not a whole lot of daylight between the regimes either side of the Atlantic, you know.

[K T Cat]

Outstanding comment, Sean! I didn't know any of that.

Following up on that, I've had the chance to work with some staff members of Senators and Congressmen. These are the folks who do the real thinking and heavy lifting when it comes to legislation. If you watch CSPAN, you'll see that most Senators and Congressmen simply read their remarks. That's because someone else wrote them.

The staffers know a little about a lot of subjects. Some of them are experts, but not many. Many are young and inexperienced and are simply there to be close to power, get laid, grab cash, etc. If the American people knew who was involved in the drafting of legislation, they'd be appalled.

As the powers of the Federal government grow, the responsibilities laid on these turkeys do, too. They just aren't up for the task. We ask them to choose solar power investments, regulate beekeeping, discuss global warming, regulate banks ...

It's no wonder that it all gets done in a sloppy fashion. Rather than ask for a small, efficient and thrifty government that does just a few things well, we've got the equivalent of a hippopotomus in our backyard.

[huh]

"Wait, Socialism isn't working either..."

either?

[Isaac Bartram]

Sean, actually I was somewhat aware of the level of regulation in Europe. It's one of the reasons I've found the whole "deregulation....bushhitler...cowboy...evil...cheneyhalliburton...miltonfriedman...USAbad" talk so odd.

It seems there has been a widespread consensus that market forces are a good thing.

What nobody seems to like is the fact that every so often the market has to correct. Especially after a long period of insanity.

[Isaac Bartram]

Or to put it another way, everyone loves the free market when they're winning. Not so much when they're losing.

[cunnivore]

We ain't seen the bottom of this rabbit hole yet:

The Federal Reserve, invoking Depression-era power under "unusual and exigent circumstances," will buy "commercial paper," a short-term financing mechanism that many companies rely on to finance their day-to-day operations, such as purchasing supplies or making payrolls.

The $99.4 billion daily market for this crucial financing, which relies on investors rather than banks, has virtually dried up. Most investors have become too jittery to buy paper for longer than overnight or a couple days.

[Kant feel Pietzsche]

BTW, just so you fuckers will get off of Wichita, KS:

Cessna and Beechcraft, the big two in small aircraft, headquartered and main factories located in Wichita

Boeing's 2nd largest facility located in Wichita

Pizza Hut, before it sold out to Pepsico, founded and headquartered in Wichita

Koch Industries (If you don't recognize that name, you're on the wrong site) headquartered in Wichita

Wichita doesn't enjoy the advantage of a deep-water port (duh, they're 800 miles from nearest salt water) or early settlement like NYC, but they are doing all right. Kansas is persistently in the top 10 on the eco freedom index, while NY is persistently in the bottom 5.

They also don't enjoy a huge gang/junkie/mugger/crack whore problem and cucarachas that can carry away a small child. And without Kansas, NY would subsist on fish guts and effluvia.

GET OFF MY JAYHAWKS! *grin*

[Sean Healy]

Or to put it another way, everyone loves the free market when they're winning. Not so much when they're losing.

Well, yes, that's definitely very much in evidence in Europe right now. In Ireland the sequence of recent regulatory events went like this:

1) 'investigate' market rumors favorable to short-sellers
2) ban short-selling
3) raise retail deposit guarantee to ?100,000 - but provide no details on how this will be funded
4) provide sovereign guarantee of all liabilities (deposits and debt) of the six Irish-headquartered banks - without imposing conditions
5) extend sovereign guarantee to foreign-owned banks with retail presence in Ireland

Total contingent liability to the Irish taxpayer: ?500bn-plus

For some reason, 83% of Irish people think this is great. Actually, I know the reason. They've lost 70% of stock market gains and 30% of housing equity in the last 15 months. They'll do anything for a fix. We are now in a methadone economy.

[R C Dean]

So, has anyone looked at the effect of the sub-prime mess on long term foreign investment in the U.S.?

Well, right now the forex markets are fleeing to quality in the form of the US Dollar.

Probably a little early to say where a flight to quality in the equity and debt markets will take them, but I wouldn't rule out the US>

[Hazel Meade]

You mean, everyone loves the free market when there's a bubble and they can convince themselves that they have guarenteed returns on dot-com stocks or oil or housing, or whatever.

Then when the bubble pops, they prefer to cling to the illusion that it wasn't a bubble, and demand that the government step in to keep everything insane. "Nooooo!!!.... Housing prices are supposed to go UP. Make them go UP!!!! (And loan more money to poor people to purchase overvalued homes while you are at it.) "

[Michael Ejercito]

You mean, everyone loves the free market when there's a bubble and they can convince themselves that they have guarenteed returns on dot-com stocks or oil or housing, or whatever.

Markets absolutely suck at guaranteeing profits.

[Isaac Bartram]

Yes, Hazel, that pretty much sums it up.

The newest welfare entitlement is a guarantee that the value of your home or your stock portfolio will never go down. The Federal government will devote endless resources to this.

[R C Dean]

Markets absolutely suck at guaranteeing profits.

I disagree. Markets are absolutely infallible in guaranteeing profits to somebody, somewhere. It just won't be you, all the time.

[Ironic]

"Bullshit. War predates the state, and still goes on alongside it without state involvement (think urban gang wars). The losers at the market "game" -- those who cannot survive through peaceful trade -- will ever attempt to do so by violence."

Urban Gang wars exist because of the state. Remember the War on Drugs and the War on Alchohol before it? Of course war predates that state - that is how the state was created.

[Ironic]

"You're forgetting about my...er...business model."

I did not realize that Genghis Khan was an anarchist.

[Asharak]

I'm not defending European economic/business systems here, but is the U.S. is arguably getting slammed by this financial crisis more than any other developed nation.

[Libs!Libs!Libs!Libs!Libs!Libs!]

European tie ins to underregulated American derivatives would be the simplest explanation.

[bill]

Yes, because in a global economy where US markets affect every other market, their problems are actually due to too much regulation...

Does basic logic escape you people?

[Rand]

Haha, those CRAs strike again!

Wait, does Europe have CRAs? Or minorities?

[Anthony G]

Sean is correct. The author of the original post clearly has only a passing familiarity with the nature of financial markets in Europe. Any semi-competent international MBA student will tell you that European markets are less regulated than the U.S ones.

NYSE actually lost a lot of business to LSE when Sarbanes-Oxley and other regulations passed:
http://money.cnn.com/2005/12/15/commentary/pluggedin_fortune/index.htm

[JB]

Absolutely great post. But don't worry, Obama will fix with his magic regulation-wand that solves all problems.

Can't we ship that socialist over to Europe? They seem to love him over there...they can have him.

[anonymous]

The assumption behind the snarky comments here is that European financial markets have greater regulation than American ones. Is this actually the case?

The European *financial* markets are just as capitalist as the American ones are.

[Evelyn]

The problem is no one really wants things to just be "fair" - we want to come out ahead. When we get ahead, we want to leverage our power to get even more ahead.

People with power/money use it to get more. Whatever system we set up, it will be subverted. Corruption is inevitable, because people can BUY their way around whatever rules get put in place.

The underlying problem is built into human nature. Eventually things will act a lot like anarchy, effectively, but with a veneer of lawfulness to confuse people.

But giving speculators the greenlight to LEVERAGE their bets as never before - and you bet I'm talking deregulation here, in 2004 -- is the gasoline that makes our housefire into a neighborhood-destroying iinferno.

[Evelyn]

on the front page of the NYTimes, Oct 3:

"Many events in Washington, on Wall Street and elsewhere around the country have led to what has been called the most serious financial crisis since the 1930s. But decisions made at a brief meeting on April 28, 2004, explain why the problems could spin out of control. The agency's failure to follow through on those decisions also explains why Washington regulators did not see what was coming.

On that bright spring afternoon, the five members of the Securities and Exchange Commission met in a basement hearing room to consider an urgent plea by the big investment banks.

They wanted an exemption for their brokerage units from an old regulation that limited the amount of debt they could take on. The exemption would unshackle billions of dollars held in reserve as a cushion against losses on their investments. Those funds could then flow up to the parent company, enabling it to invest in the fast-growing but opaque world of mortgage-backed securities; credit derivatives, a form of insurance for bond holders; and other exotic instruments.

The five investment banks led the charge, including Goldman Sachs, which was headed by Henry M. Paulson Jr. Two years later, he left to become Treasury secretary.

..."We've said these are the big guys," Mr. Goldschmid said, provoking nervous laughter, "but that means if anything goes wrong, it's going to be an awfully big mess."

Anyone want pointers to the LATEST dereguation, in the same direction (fractional reserve reduction AKA increased leverage/risk/ volatility/irresponsibility) actually built into the bailout?!?!