When was US finance & banking deregulated?

Asks Stephen Hicks.

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36 Responses to When was US finance & banking deregulated?

  1. m0nty

    So the spending was roughly constant starting with Bush 42, rising only after the GFC when the government intervened. Looks to me like it was not so much deregulation per se, as a failure of government to keep up with the increase in complexity and size of the sectors. Which is a slightly different story to the regular narrative.

  2. Rafe

    The point is that there has been so much regulation, including OHS, the labour market, tax, green regulation etc that nobody can keep up with the size and complexity of the regulatory quagmire.

    And then the government decides to bail out the losers.

  3. m0nty

    If the spending on regulation hadn’t changed appreciably in the 15 years before the GFC, which covered one or two booms, how can you justify talking about a regulatory quagmire?

  4. JC

    the idea that the US financial markets are unregulated is only something a leftie half wit would believe.

    Regulation starts on the first day on the job on wall Street when a schlep shows up and takes your finger prints which will be sent to the FBI for checking. You can’t get the disgusting ink out of your finger nails.

  5. Infidel Tiger

    Regulation starts on the first day on the job on wall Street when a schlep shows up and takes your finger prints which will be sent to the FBI for checking.

    It’s a pity they don’t slap the handcuffs on then and there too.

  6. JC

    The US financial markets are over regulated and badly regulated, Monster, you ignorant dolt.

    Here, this was the supervision we had.

    1. Internal auditors

    2. Compliance

    3. Legal department

    4. Federal reserve banking examiners

    5. External auditors

    6. State banking examiners.

    7 Futures bodies examiners.

  7. JC

    M0nster

    No amount of supervision will can alter he damage done when there’s a huge dump of a major asset market like the real estate market.

  8. thefrollickingmole

    Regulation (done badly/excessively) leads to complexity, opaqueness and opportunities for massive profits if you “get around” them somehow.

    They also limit competition, make enering a market prohibitively expesive, empower politicans and enrich legislators.

    KISS, backed by fines and jail time.

  9. m0nty

    M0nster

    No amount of supervision will can alter he damage done when there’s a huge dump of a major asset market like the real estate market.

    The real estate market is supposed to be prevented from going into bubble mode by finance and banking regulations. It wasn’t.

  10. Woolfe

    To Quote Tacitus:

    In a state where corruption abounds, laws must be very numerous.

  11. thefrollickingmole

    Woolfe

    Funny how that old out-dated wisdom of the ages keeps being correct.
    Almost as though its the nature of man thats unchangeable or something…

  12. Umm, guys….Hicks’ ZOMG!-scary-looking graph is missing one eensy teensy weensy little fact. Enquiring minds will find it on the top right hand side of this page:

    http://en.wikipedia.org/wiki/Financialization

    He should stick to shooting postmodernists in a barrel.

  13. Woolfe

    TFM,
    Yea weird isn’t it?

    I am a big fan of our Roman ancestors….

  14. Rafe

    Daniel, you will have to explain your point, I suppose you mean that the rise of regulatory costs has only kept pace with the rise of the finance industry as a ppn of the economy at large. But I don’t think it follows that you need more regulations just because the sector is bigger. You don’t need more road rules just because there are more cars on the road.

    PS When are you guys going to stop wasting our time and send a proper cricket team over? Yes I know you got a first innings lead, that made my day, I hate one-sided contests:)

  15. Megan

    I’m with Woolfe, TFM and the Romans. I favour minimum rules, consistently applied with appropriate penalties for breaches. Everything else is up for negotiation. Has been a successful strategy for me thus far.

  16. John A

    THR, so you mean that it was Mr Clinton, the Democrat President, who led the way in de-regulation? Aggh! So why do so many in the US blame Bush 41 and ESPECIALLY Bush 43?

  17. THR

    So why do so many in the US blame Bush 41 and ESPECIALLY Bush 43?

    Well, the legislation had bipartisan support, so Republicans are hardly exonerated. And Bush 43 made the profligacy worse, with two wars and tax cuts for the rich. He also kicked off a round of bailouts. So he’s not exactly blameless.

  18. oil shrill

    “Republicans ….need to do a better job tying Democrats and Washington to the subprime crisis. It’s not hard, yet even their front-runner struggles to make the case. “

    The problem is that the “progressive” legislation of poor governments are not subsequently swept away by good governments. The Republicans do not undo the bad effects of Democrat administrations and their legislative agenda. This is the only blame they bear, one of failure to act decisively and with conviction for fear of offending the medicant classes. It would appear to be racist to stop sub-prime lending.

    Similarily, the current Victorian government does not appear to be doing much to overturn years of ALP misrule. The NSW Liberals are doing a slightly better job. Looking at his time at City Hall, I doubt Newman in Queensland will do much to reverse the green/leftist agenda. Much of the public sector is totally white anted by activists.

  19. sdfc

    That’s actually complete bullshit. The CRA doesn’t explain the surge in risky lending. Fannie and Freddie lost market share during the boom.

  20. oil shrill

    Once Fannie and Freddie were on the gravy train of packaging and securitising subprime loans, everyone else saw this and jumped aboard. They were making money, something financial market are very good at doing and imitating. The regulators were failing to stop them, so how wouldn’t join in? The behaviour spreads rapidly. I am sure the players were aware that the music had to stop at some point.

    Of course, this process of others joing Fannie and Freddie on the gravy train meant that F&F lost market share. They were not as nimble as other more entrepreneural outfits.

    I suggest you are ignorant of how regulated markets work.

  21. Louis Hissink

    I have suspicion a regulated market is an oxymoron.

  22. sdfc

    No OS the surge in subprime lending was driven by the private sector. The blame government knee jerk reaction to everything is becoming tiresome.

  23. Hi Rafe

    The NZ Cricket Team=A Nation’s Shame. I always think of Shaw’s line about the English, not being a religious people, inventing cricket to give them some idea of eternity. For us Kiwis it’s to give us some idea of purgatory.

    Re Hicks: OK so I did a couple of VERY quick n dirty graphs, working off Hick’s figures, but adding finance sector growth since 1960. (I did this in a hurry, so anyone is welcome to offer alternate views or point out the manifold ways I’ve probably screwed it up. I simply added Fed GDP data and the % GDP chart from the Financialisation wiki.)

    The first one is 1:1 finance sector to govt spend, just to give a sense of proportion. At this magnitude, the govt regulatory spend, even during the most heavy handed period in the 60s, is too small in comparison to even see a trend.
    http://www.flickr.com/photos/[email protected]/6485826693/in/photostream

    So I scaled it, and sure enough a deregulatory pattern emerges: regulatory spend starts to quickly fall behind rapid growth of the sector. This fits the standard story, a sustained takeoff in the ’80s sustained over the next 30 years. The number of govt employees even falls below the spend in the noughties, as per this famous photo.

    http://economicsofcontempt.blogspot.com/2008/03/cutting-through-red-tape-with-chainsaw.html

    In other words, there is a very well-known theory that answers Hicks’ question. Why didn’t he mention it?

  24. It is not how much an industry is regulated but whether or not the regulations are good or bad. Simply as possible regulations will always be better in my opinion because they will be more workable. The main problem was not too much regulation. Bad regulation requiring loans to everyone for a house if they can pay for it or not probably along with allowing all sorts of derivatives and trading in regular banking with non-recourse loans meaning the bank wins a bit or loses a lot and the customer can either gain a lot or lose a little. So the bank takes the risk and the borrower will take any major profits. This problem has not been fixed in the US but is obvious. Not sure about US but in Australia a bank can only lend up to 80% of a house value and 60% of an apartment value with any extra borrowed to be covered by insurance. I am guessing this is not the case in US where they can lend any percentage.

  25. Hi Kelly, I agree that it’s about quality not quantity, but that’s not Hicks’ line of argument.

  26. johno

    No sdfc the surge in subprime lending was driven by the governmnet sector. The blame markets knee jerk reaction to everything is becoming tiresome.

  27. oil shrill

    No OS the surge in subprime lending was driven by the private sector. The blame government knee jerk reaction to everything is becoming tiresome.

    why would the “private sector” give subprime loans?

    why would a rational financial institution take on an unacceptable risk? The only circumstances I can think that they would do so is if forced to by government regulation and a guaranteed bailout.

    This is the most regulated of markets, and I note the new US financial services act is 2600 pages long, reflecting the genius of government.

  28. JC

    SDFC

    Andrew Cuomo was HUD secretary. What do you think this speech suggested was happening to lending standards?

  29. THR

    why would the “private sector” give subprime loans?

    Because they securitised them and sold them off for immense profits, whilst bearing little of the risk.

  30. oil shrill

    Because they securitised them and sold them off for immense profits, whilst bearing little of the risk.

    Precisely my point, government intervention and a guaranteed bailout allowed them to turn a regulatory requirement into a windfall. Loony left governments are still clueless why this happens after they force their delusional social requirements on business.

  31. Also, Rafe, I meant to add that the Black Caps are in fact a superb team and I have always backed them 100%…;-)

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