Interesting article on financial reform

[IndependentlyPoor]

Given that we've already created this safety net for commercial banks (which puts the taxpayers on the hook for making depositors whole), it's obvious that we should make the line between these institutions and investment banking very clear. This includes a division of operations/interests to assure that government gaurantees in the commercial banking side are not, in fact, backing up investors in the investment banking side.

Ummm, isn't this what Glass-Steagall did before Gramm-Leach-Bliley ?

Government policies created the last one (the Fed's easy money policy starting in 2002, the recognized role of Fannie Mae and Freddie Mac in causing/accelerating the housing bubble, the CRA which encouraged loans to ill-suited borrowers, etc).

I suppose this is our biggest point of disagreement. I don't believe your view comports well with the actual history. I hesitate to post the following link because Ritholtz's writing is a bit hotheaded. However, I think he makes valid points. If you read this, please try to read past his attitude. He is like that about everything.
CRA Thought Experiment | The Big Picture

I agree that the Fed's easy money policy fueled the bubble. However, Fanny and Freddie were very late to the party. The bubble was already well under way when they jumped in.

 

[ziggy29]

If the average American can get past their political biases... I do not believe too many can honestly say "no change is needed".

What political biases? And how is that relevant? I don't see a defense of the status quo here. You keep arguing against a position that no one seems to have, and I don't get it. The discussion is about *what* changes are necessary and important and which might be counterproductive. It's not whether or not we change nothing.

 

[Westernskies]

What political biases? And how is that relevant? I don't see a defense of the status quo here. You keep arguing against a position that no one seems to have, and I don't get it. The discussion is about *what* changes are necessary and important and which might be counterproductive. It's not whether or not we change nothing.

+1

 

[ChrisC]

Ummm, isn't this what Glass-Steagall did before Gramm-Leach-Bliley ?

Yep, the irony of it all.

I suppose this is our biggest point of disagreement. I don't believe your view comports well with the actual history. I hesitate to post the following link because Ritholtz's writing is a bit hotheaded. However, I think he makes valid points. If you read this, please try to read past his attitude. He is like that about everything.
CRA Thought Experiment | The Big Picture

Yep, there's a disconnect here.

I agree that the Fed's easy money policy fueled the bubble. However, Fanny and Freddie were very late to the party. The bubble was already well under way when they jumped in.

Very late to the party; more than Fannie and Freddie, the Fed and Greenspan fuel the fire enormously. I distinctly recall a front page article in US Today in 2004, where Greenspan was promoting adjustable rate mortgages for everyone. And some observers saw this bubble coming and made lots of money. Op-Ed Contributor - I Saw the Crisis Coming. Why Didn’t the Fed? - NYTimes.com Let's blame the right Government policies and players instead of CRA and Fannie and Freddie -- it's convenient to blame those miscreants that purportedly damage the free market.

 

[Gone4Good]

"Circuit breakers" to slow trading, prohibitions against naked short selling, margin limits, etc are all, admittedly, government restrictions on free trade, but less intrusive and harmful than government bailouts and promises to pass buckets of money to people who made poor decisions.

All of those things currently exist. And none of them prevent short-term lenders (often time overnight lenders) from simply demanding their money back. That is what happens in a panic. A liquidity crisis for both healthy and unhealthy firms is what follows. Nothing you've written, and nothing I've seen from the "no more bailouts" crowd addresses this fundamental banking problem.

In a liquidity crisis its not just bad actors who go down the drain. It is everyone who borrowed short and lent long. Which pretty much describes the entire banking system. Arguing that you can simply let banks fail in a panic misses this critical point. Advocating against a means to stop it is really bad policy.