Inaccurate assumptions. Fin Reg revisited.

This website is not about politics. I don’t know enough and it is does not interest me. There are so many other website that do it much better. I am making an exception, I make this exception not because I want to, but because I have to.

I wrote that I supported financial regulation. It was said tongue and cheek, it will have an overwhelming negative effect on the financial industry if the industry does not evolve fast enough. As an individual trader, it is good for me in the short term. What our government does not seem to understand, is when it telegraphs itself or makes legislation that is “logical” to public and not to an industry it does so at the expense of the public. The public needs the industry or the government would not be involved. What does a traders, entrepreneurs do? We exploit market inefficiencies, caused by government, regulation, irrational behavior, solve pain points, etc.

The video below made me sick to my stomach, which was soon followed by disappointment and sadness. For our government to come to some of the conclusions is irresponsible. Their choice of words were irresponsible.

The medium in which they choose to share their message says it all. Video at the end.

“Growth was fueled by careless risk taking by big banks.”
The careless risk taking was only done by the banks, not the homeowners. This conclusion makes me sick. As you listen further, it becomes evident how the US government defines risk. Spoiler alert: Risk apparently only happens when there are losses. If you are winning there is apparently no risk. Hey government, without risk there is not upside for most of us. The road to upside is paved by those who failed.

“Pretty big stake of unintelligible mortgage from big bank.”
You created the paperwork through regulation and people not accepting the risk. You know how I feel about disclaimers. They are made for people without intelligence in most cases.

“You might just think your bank would just put that IOU in a safe place while you went about making your payments…”
Why would anyone think that? A bank must make a profit, they do so by lending. You do not expect Mc Donalds to keep the money after you buy a Big Mac. A bank diversified their risk by selling the “IOU”, freeing up capital to make more loans. This is part of the reason small banks are having a problem. They are realizing the full loss.

“And, as a often happens when gamblers play with other people’s money, or money they do not have Big Bank bet big, and lost big.”
That is an embarrassing assumption, it should never be made by a person or government that is influential. A gambler by its definition, I am not saying banks did or did not, is going to gamble. It does not matter what they lose, they gamble because of the psychological reward they receive. The amount of loss or gain is secondary.

“Wall Street Reform also closes the loophole that allowed the big banks to gamble…”

You are right it does close the loophole, now only a few people can get through it. I thought you were all about distributing wealth to the people, regulation distributes it to the wealthy.

“And if some financial firm still gets itself in trouble despite the stronger regulation, well then it gets shut down.”
Unless it is AIG? Most “big banks” paid back their TARP payments by July 2009. Are we talking about financial firms or big banks?

“Rest a little easier…. protected from the irresponsibility of others.”
I rest by being able to control my destiny not the government controlling my destiny. I know I am not like most people. The easy way out is always the hardest.

“..the bank was so big the entire economy was affected.”
This ties back to the governments belief that bank involvement is only risky when it leads to losses. Are they saying the bank is only capable of negatively contributing to the economy. What happens when the government gets too big to fail?

“As a result millions went unemployed, small businesses could not get credit, middle class was squeezed…”
Credit is an awful thing, it lead to big bank gambling, right? You want them to make the same mistake twice? People hate uncertainty, businesses make financial decisions because of uncertainty. That decision is to hoard cash. Should they lend to everyone or should they not. You can not lend to everyone and not diversify the risk. That will fail.

“If you lost your job you couldn’t make your mortgage payments. Worse, because of falling home value you were not able to sell it either without taking a big loss putting you at risk of foreclosure by the big bank.”
Big banks do not put you at risk of foreclosure, not paying your mortgage does. Take responsibility for your actions. I realize ever case is different. Unemployment is a terrible thing. A house is an investment, any investment can lose value. Especially when a government makes it socially acceptable to not pay your bills even if you can afford to.

“And, to make matters worse, everyone’s 401k probably took a big hit too.
Again, it is an investment, it is a risk. The losses were extended because of policy uncertainty and a refusal to act. Liquidation and/or hoarding cash happens when their is uncertainty.

“..government had to bail out the big bank using your tax dollars.”
If you think GM and AIG are big banks. The TARP money was returned with interest by most of the banks over a year ago.

“This risky behavior by Wall Street has to be stopped.”
Once again, why did you not stop it in 2003 or 2004? Oh yeah it is only risky when you are losing. Wall Street behavior is dictated by what the government and its people do. The first person up the hill gets the arrows. No one wants to start a trend they only want to take advantage of some part of it.

“..consumer financial protection agency will have the sole job of reining in the big banks.”
I will believe it when I see it. As far as I understand it, the group is just consolidating itself from other agencies. The oversight will be done by appointment from the President. It takes a strong person to be objective if you can fired for disagreeing.

I am not comfortable criticizing anything unless I have solution. I do not have a solution other than stop ignoring/distorting the facts and all parties need to accept responsibility. We are becoming a participation ribbon society and it kills me. That is not what America is about.

I do not have a problem with the government for blaming the banks. They did play a part, just not the part they portrayed. But the problem did not occur because they sold the loans. The problem was an insurance product that was not risked/priced correctly. The product allowed anyone to pay next to nothing for insurance on your neighbors house that was inevitable going to lose value because of supply. I remember talking to someone in 2004 and they were worried about a housing bubble. So government, be more active and less reactive. Like anything that is reactive it will be an over compensation. We will be having this same discussion about bonds sometime in the future.

Please leave your feedback.

Here is the mashup I created. Turn the volume down on the ride side video for maximum viewing potential.

YouTube Doubler

One Response to Inaccurate assumptions. Fin Reg revisited.

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