Friday, April 16, 2010

Regulatory capture

Why depending on human regulators is doomed to fail, continued...
Posted by at 6:50 AM

11 comments:

  1. Jim Johnson, CRSApril 17, 2010 12:12 AM

    I think we will hit the bottom of the market in Oregon this year. I hope your market stabilizes.

    ReplyDelete
  2. AnonymousApril 18, 2010 12:28 PM

    Hmmm...was there any other big housing bubble news from Wall Street to come out on friday?

    ReplyDelete
  3. TuskenrayderApril 18, 2010 6:07 PM

    I'm in agreement with Jim. This fall will likely mark the bottom in the Portland area as prices fall once the tax credit expires followed by stagnation in the market as mortgage rates slowly rise.

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  4. JamesApril 19, 2010 2:36 AM

    Anonymous said...
    "Hmmm...was there any other big housing bubble news from Wall Street to come out on friday?"

    You're not trying to suggest that the SEC cracking down on Goldman Sachs in 2010 somehow prevented a credit crisis that began in 2007, are you?

    I should have been clearer. Regulators are reactive, not proactive. If you want to PREVENT a future crisis, relying on human regulators is doomed to fail.

    ReplyDelete
  5. ChrisApril 19, 2010 12:27 PM

    I think you're being pessimistic, James, though I can't really blame you on that score.

    However, I think human regulators are still the way to go, but you have to put people in place who will regulate. They exist. The first place to start is to eliminate anyone who doesn't believe in regulation. For example, there's no reason why Alan Greenspan should have been chairman of the Fed as long as he was, considering he thought a good portion of what the Fed did was harmful to business.

    Human regulators are a good thing, but we have to hire regulators who aren't ideologically invested in the concept of not regulating.

    ReplyDelete
  6. TuskenrayderApril 19, 2010 9:51 PM

    "If you want to PREVENT a future crisis, relying on human regulators is doomed to fail."

    Maybe I'm just too anthropocentric, but I can't imagine any species other than humans that would be suited for financial regulation.

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  7. AnonymousApril 19, 2010 10:39 PM

    Maybe I'm just too anthropocentric, but I can't imagine any species other than humans that would be suited for financial regulation.

    ROBOT REGULATORS BABY! ROBOTS!!!

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  8. AnonymousApril 20, 2010 3:50 AM

    Just stop printing money. Then the banks won't have surplus "credit" to put into loony tunes projects.

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  9. JamesApril 20, 2010 3:57 AM

    Tuskenrayder said...
    "Maybe I'm just too anthropocentric, but I can't imagine any species other than humans that would be suited for financial regulation."

    Rather than having a system where regulators say "Look, there's a bubble, we need to counteract it," it's better to have a system of AUTOMATIC RULES that make bubbles unlikely. For example, commercial banks (but not investment banks) are required to have a certain amount of Tier 1 capital, so that they have a financial buffer when things go bad. The Frank version of the financial reform bill would require all financial institutions to have a similar financial buffer. (Ideally, rather than have a financial leverage rule that remains constant, we would have one that acts in a counter-cyclical manner.) Likewise, we need rules that require people to have 20% down payments on mortgages, so they have reason to care about the PRICE of their home when buying, not just the amount of their MONTHLY PAYMENTS. 20% down payments would also give them a sizable buffer before they end up underwater on their loans. Automatic rules make it so we don't have to rely as heavily on fickle human judgment in order to prevent a financial crisis.

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  10. ChrisMarch 07, 2011 12:01 PM

    I think you're being pessimistic, James, though I can't really blame you on that score.

    However, I think human regulators are still the way to go, but you have to put people in place who will regulate. They exist. The first place to start is to eliminate anyone who doesn't believe in regulation. For example, there's no reason why Alan Greenspan should have been chairman of the Fed as long as he was, considering he thought a good portion of what the Fed did was harmful to business.

    Human regulators are a good thing, but we have to hire regulators who aren't ideologically invested in the concept of not regulating.

    ReplyDelete
  11. AnonymousMarch 07, 2011 12:01 PM

    Hmmm...was there any other big housing bubble news from Wall Street to come out on friday?

    ReplyDelete

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