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'Volcker Rule' Stalls in Senate

MC.no.spin said:
So you are saying that monetary and fiscal policy is currently perverse, but don't offer up how to prevent the crisis from occurring again. I don't follow your reasoning.
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Let failing companies fail and don't let credit build up when there is no savings. That's a classic bubble.
 
MC.no.spin said:
CDSs were the big AIG meltdown cause and where much tax payer money has been spent to rescue the economy and banks.
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And the CDS's failed because the housing market collapsed. You're treating an effect like it was the cause.

So you are saying that monetary and fiscal policy is currently perverse, but don't offer up how to prevent the crisis from occurring again. I don't follow your reasoning.
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Well, the implication is that we must remove the perverse elements from the system, so the free-market can work as intended. What we have now is not a free-market, and please, when I say free-market, do not think that I'm talking about anarcho-capitalism.
 
Those poor, innocent bankers were only doing what evil government made them do when they loaned out money to people who would never be able to pay it back!
 
Deuce said:
Those poor, innocent bankers were only doing what evil government made them do when they loaned out money to people who would never be able to pay it back!
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Those poor, innocent people were only doing what the evil banks made them do when they took out those loans that they would never be able to pay it back.
 
MC.no.spin said:
If the bank makes investments in risky investment vehicles like CDOs and CDSs, and those go bad (like they did), the whole bank can collapse and not be able to honor those FDIC accounts.
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Is there any evidence that without a bailout, that would have happened here? My understanding of the financial situation was that even if the government didn't lift a single finger to bailout any of the banks that this rule would affect, each one of them would have nevertheless been able to pay back its depositors.

I could very well be wrong on that, but if that's the case, then I don't see how this proposal will have any effect on FDIC accounts.

Too many of these banks are "too big to fail" (so would need bail-out) and thus if there are no laws on the books to prevent them from making these risky investments, what is there to prevent them from doing it again? If they want to invest in such risky investment vehicles, they should do it under another corporation that is not going to be bailed out by the tax payer if things go wrong.
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Because the Volcker Rule wouldn't apply to institutions like Goldman, Morgan Stanley, or AIG, three of the biggest companies involved in this ordeal, I'm skeptical about how effective it would be at preventing another situation like this.
 
Deuce said:
Those poor, innocent bankers were only doing what evil government made them do when they loaned out money to people who would never be able to pay it back!
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If the government creates enormously perverse incentives in a capitalist system they can hardly blame the capitalists for taking advantage of it.
 
RightinNYC said:
Is there any evidence that without a bailout, that would have happened here? My understanding of the financial situation was that even if the government didn't lift a single finger to bailout any of the banks that this rule would affect, each one of them would have nevertheless been able to pay back its depositors.

I could very well be wrong on that, but if that's the case, then I don't see how this proposal will have any effect on FDIC accounts.
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Banks do not honor FDIC obligations, the FDIC does. The whole point of the FDIC is to make sure people get their money back when their bank fails. I'm not exactly sure what Mc.no.Spin is getting at.
 
Ethereal said:
Banks do not honor FDIC obligations, the FDIC does. The whole point of the FDIC is to make sure people get their money back when their bank fails. I'm not exactly sure what Mc.no.Spin is getting at.
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I'm assuming that the argument is that it would hurt the depositors because they would lose everything above $250k, and if it were a really catastrophic collapse, it would hurt the taxpayers because they'd be on the hook for the $250k minus the amount that the banks already paid into the FDIC.
 
RightinNYC said:
I'm assuming that the argument is that it would hurt the depositors because they would lose everything above $250k, and if it were a really catastrophic collapse, it would hurt the taxpayers because they'd be on the hook for the $250k minus the amount that the banks already paid into the FDIC.
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That's currently the case though, isn't it?
 
Ethereal said:
And the CDS's failed because the housing market collapsed. You're treating an effect like it was the cause.
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But why did the housing market collapse? Had banks not had these investment vehicles of CDOs (falsely rated AAA by credit rating agencies that were paid by the banks selling the CDOs themselves and who ignored rapidly increasing mortgage defaults) and the CDSs to insure them against defaults on the payment of those CDOs, it gave free license to give home loans to anybody who asked for one, as there was no risk, particularly with the backstop of the U.S. Government bailing them out if things crashed.


Well, the implication is that we must remove the perverse elements from the system, so the free-market can work as intended. What we have now is not a free-market, and please, when I say free-market, do not think that I'm talking about anarcho-capitalism.
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Perhaps there are better solutions to avoiding a future crisis. Clearly this would only address part of the problem. I've been mulling it over and am not certain this law is the correct one, but it does appear that banks have been reckless with their investment capital and that if they fail, it will require government bail-out, thus it is non-optimum and requires remedy.
 
MC.no.spin said:
But why did the housing market collapse?
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Because a large portion of it was a government-created bubble.

Housing was heavily subsidized by fiscal policy:

The American Dream Downpayment Initiative (ADDI) was signed into law on December 16, 2003. The American Dream Downpayment Assistance Act authorizes up to $200 million annually for fiscal years 2004 - 2007. ADDI will provide funds to all fifty states and to local participating jurisdictions that have a population of at least 150,000 or will receive an allocation of at least $50,000 under the ADDI formula. ADDI will be administered as a part of the HOME Investment Partnerships Program, a formula grant program

American Dream Downpayment Initiative - Affordable Housing - CPD - HUD
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Many lenders were "encouraged" by the government to service the poor:

The Community Reinvestment Act (or CRA, Pub.L. 95-128, title VIII, 91 Stat. 1147, 12 U.S.C. § 2901 et seq.) is a United States federal law designed to encourage commercial banks and savings associations to meet the needs of borrowers in all segments of their communities, including low- and moderate-income neighborhoods.[1][2][3] Congress passed the Act in 1977 to reduce discriminatory credit practices against low-income neighborhoods, a practice known as redlining.[4][5] The Act requires the appropriate federal financial supervisory agencies to encourage regulated financial institutions to meet the credit needs of the local communities in which they are chartered, consistent with safe and sound operation (Section 802.). To enforce the statute, federal regulatory agencies examine banking institutions for CRA compliance, and take this information into consideration when approving applications for new bank branches or for mergers or acquisitions (Section 804.).

Community Reinvestment Act - Wikipedia, the free encyclopedia
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Interest rates were kept artifically low for too long:

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And the money supply had been doubling about every ten years:

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Quite the recipe for disaster.

Had banks not had these investment vehicles of CDOs (falsely rated AAA by credit rating agencies that were paid by the banks selling the CDOs themselves and who ignored rapidly increasing mortgage defaults)...
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I believe there's already a law against fraud.

...and the CDSs to insure them against defaults on the payment of those CDOs, it gave free license to give home loans to anybody who asked for one, as there was no risk, particularly with the backstop of the U.S. Government bailing them out if things crashed.
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Are you saying AIG's top executives were all stupid enough to insure a bunch of mortgages they knew would fail?

Perhaps there are better solutions to avoiding a future crisis. Clearly this would only address part of the problem. I've been mulling it over and am not certain this law is the correct one, but it does appear that banks have been reckless with their investment capital and that if they fail, it will require government bail-out, thus it is non-optimum and requires remedy.
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The banks were defintely reckless, but so were the American people. The only reason both parties were able to engage in such wrecklessess is because the government provided them the means.
 
RightinNYC said:
I'm assuming that the argument is that it would hurt the depositors because they would lose everything above $250k, and if it were a really catastrophic collapse, it would hurt the taxpayers because they'd be on the hook for the $250k minus the amount that the banks already paid into the FDIC.
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Most high ealth peole understand the limitation andberak up their accounts, either between banks or different types of accounts to maintain this less than $250 K exposure. Even a dope like me had moved money around to avoid this potential problem.
 
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