[Maflynn]

I'm sure this may spiral down into partisan bickering which may push this thread over into the PL but I hope some salient points and answers come out of my question which is geared more about the economy then democrat vs. republican.

It seems Obama, is setting the tone of his administration, so much so that he's promised increased oversight on financial institutions, allowing states to tighten emissions and generally holding corporations more accountable.

My question is that in this poor economy, does it make sense to increase regulations and thus make conducting business more difficult? I would think that you want to allow businesses more flexibility (within reason of course) to try to turn a profit.

Am I missing something?

[OreoCookie]

I don't think you can answer the problem in such full generality. Part of the problem of the pre-collapse financial system was the lack of regulation: banks could do whatever they want without having enough securities to vouch for their customer's money. Then they'd make losses, but these losses would be covered by tangible assets and not `paper assets'.*

There are other instances when regulations are in place already, but are meaningful: export of certain technologies (weapons systems, dual use technology, etc.) and most people are fine with that. Developed countries also depend on the continuous service of certain basic industries (electricity, water, telcos, internet, banks, etc.) so that a reasonable amount of regulation makes sense here to ensure continuous service.


* As a matter of fact, my conviction that more regulations are necessary in the banking sector comes also from the fact that I don't think any main stream politician can resist the pressure to do something to `rescue' people's accounts. That protects banks from the market forces. Either you let them go down with all the consequences implied (very little regulation) or you have a reasonable amount of regulation that makes a collapse less likely.

[Maflynn]

Originally Posted by OreoCookie 

* As a matter of fact, my conviction that more regulations are necessary in the banking sector comes also from the fact that I don't think any main stream politician can resist the pressure to do something to `rescue' people's accounts. That protects banks from the market forces. Either you let them go down with all the consequences implied (very little regulation) or you have a reasonable amount of regulation that makes a collapse less likely.

I'm not against regulation in general, but I wonder about all of the oversight and tightening that is going to occur. For instance, I used to work for a public company and we were bound by sarbanes-oxley. While the idea of this type of oversight sounded like a good idea in light of Enron. The bureaucy it created stifled all work. Instead of spending 80% of my time developing, I now spent 80% of my documenting and getting sign offs of what I was going to change. We also had to hire a whole staff of people just to govern if changes were properly signed off. The result is that the company was less likely to respond to market changes quickly because of the bureaucy imposed on the company. The cost of that regulation is also staggering.

So my fear is akin to that, more oversight means that corporations will be focusing more on covering the behinds then looking forward.

[mattyb]

Originally Posted by Maflynn 

I'm not against regulation in general, but I wonder about all of the oversight and tightening that is going to occur. For instance, I used to work for a public company and we were bound by sarbanes-oxley. While the idea of this type of oversight sounded like a good idea in light of Enron. The bureaucy it created stifled all work. Instead of spending 80% of my time developing, I now spent 80% of my documenting and getting sign offs of what I was going to change. We also had to hire a whole staff of people just to govern if changes were properly signed off. The result is that the company was less likely to respond to market changes quickly because of the bureaucy imposed on the company. The cost of that regulation is also staggering.

So my fear is akin to that, more oversight means that corporations will be focusing more on covering the behinds then looking forward.

Sarbannes Oxley, lol. What a great big WOMBAT* that was/is. I wasted 18 months of my life on that tripe.

I'd love to now how companies can be run : efficiently, minimizing corruption/maximizing oversight yet can still be dynamic. The next managment guru who comes up with these solutions is going to make a bomb.

*Waste Of Money Brains And Time.

[turtle777]

Regulation doesn't do much, companies will go at great lengths to find "creative" solutions around regulations.

I think it's essentially f***ed up to blame (de)regluation for the problems we're in.

The root of our current issues are American consumerism and greed. Those two can't be battled by more regulation.

-t

[Maflynn]

Originally Posted by turtle777 

I think it's essentially f***ed up to blame (de)regluation for the problems we're in.

I think the lax over-sight and risky investment (fueled by greed) were in large part responsible for the wall street meltdown

The root of our current issues are American consumerism and greed. Those two can't be battled by more regulation.

Agreed, and therein lies the problem for the recovery, everyone is saying keep spending to get the economy going but yet it was a our over-spending that helped cause this mess.

[turtle777]

Originally Posted by Maflynn 

I think the lax over-sight and risky investment (fueled by greed) were in large part responsible for the wall street meltdown

In essence, people wanted to keep their cake, and eat it, too.

Wall Street provided that kind of cake. And people went buck wild over it.

I just fail to see how more regulation would keep this from happening.

-t

[olePigeon]

Originally Posted by turtle777 

I just fail to see how more regulation would keep this from happening.

Maybe not more regulation, but existing regulation needs to be revamped so there's more accountability. AIG, Merrill Lynch, Goldman Sachs, etc. executives are literally stealing billions of dollars from Americans with absolutely no strings attached. They should be put in prison.

CEOs and other executive positions need to be held accountable and to stricture ethical guidelines. A CEO should not be making 8 a 9 figures a year while their company is going bankrupt. They should not get million dollar bonuses while simultaneously laying off 5,000 needed employees.

[ghporter]

Oversight ≠ "regulation." Good oversight means "you WILL follow sound procedures and we'll catch you if you don't," while regulation says "cross your 'i's' and dot your 't's" because that's how it's worded in the regulation. Very different things. We NEED good oversight, but we don't need a bunch of useless rules that track stupid, useless trivia without watching the soundness of the institution and how well its executives are stewarding their investors' (both stock holders and customers) money.

[OreoCookie]

@ghporter
IMO that's semantics, because you will never be able to say where one stops and the other starts.

I have no idea what `Sarbannes Oxley' is, but it doesn't sound it is what I have mind with due oversight/regulation of essential industries.

[olePigeon]

Just read today that over 90% of the CEOs and executives of banks and lenders are still employed. The very people who had the final say in what lead us into this rut still have their jobs. If anything, they should be the people that are unemployed.

[Laminar]

Originally Posted by olePigeon 

Just read today that over 90% of the CEOs and executives of banks and lenders are still employed. The very people who had the final say in what lead us into this rut still have their jobs. If anything, they should be the people that are unemployed.

Have 10% of normal people become unemployed since the fallout?

[Maflynn]

Originally Posted by olePigeon 

Just read today that over 90% of the CEOs and executives of banks and lenders are still employed. The very people who had the final say in what lead us into this rut still have their jobs. If anything, they should be the people that are unemployed.

Lets not fool ourselves, we got ourselves into this "rut". If people didn't take on enormous amounts of debt, took risky loans and mortgages and over-spent beyond their means we would not be where we are now. Financial firms certainly have culpability, but they were not the sole cause.

[ort888]

It's not always that simple. My wife and I do all right for ourselves, but we are far from wealthy. When we went to buy a house 3.5 years ago, we went in looking to buy a house for $150k or less. That was our goal. A small bungalow in a semi-decent neighborhood, which is very possible in the midwest for that amount of money.

At any rate, we had never done this before, but everyone all around us was "house-crazed" the house market was nuts, and a lot of people we knew were buying houses. So we figured it was a good time to make the plunge. We contacted a real-estate agent that was recommended to us by a good friend and started looking at houses. It was right then that I figured out their game. They want you to buy as expensive as a house as possible. They accomplish this by first showing you the crappiest of crappy houses that are in your price range and then slowly going up the price scale until they show you something a little more expensive that makes everything else look like crap. They really were trying to get you to move up into something that costs a bit more. They also constantly talk about how great the real estate market is and how flexible loaning is these days, and how this person did this and that person did that and blah blah blah. They have it down to a science. Very slick.

Long story short, we found exactly what we were looking for and more on the second day, but the house was $169k. We bit the bullet and bought it because we were in a bit of a time crunch and wanted to get out of our apartment before we were married.

We were also pre-approved for a $350k loan, which was absolutely ridiculous. I guess what I'm trying to say is that the real estate company and mortgage company were fighting with us to spend more every step of the way. It was pretty obvious what they were doing, even as it was happening.

If we were idiots, we would have moved into a $250k house with a horrible adjustable-rate loan and we would be hurting. Luckily we aren't idiots.

What's my point, I don't know. I guess my point is that it takes two to tango. A greedy homebuyer and a greedy lender. Everyone was and is greedy.

[olePigeon]

Originally Posted by Maflynn 

Lets not fool ourselves, we got ourselves into this "rut". If people didn't take on enormous amounts of debt, took risky loans and mortgages and over-spent beyond their means we would not be where we are now. Financial firms certainly have culpability, but they were not the sole cause.

I understand it's not only their fault, but they're being rewarded for it.

[mattyb]

Originally Posted by Maflynn 

My question is that in this poor economy, does it make sense to increase regulations and thus make conducting business more difficult? I would think that you want to allow businesses more flexibility (within reason of course) to try to turn a profit.

The bold words are what divides you, me, half the posters in the PWL, Obama, etc etc etc.

[turtle777]

Originally Posted by ort888 

What's my point, I don't know. I guess my point is that it takes two to tango. A greedy homebuyer and a greedy lender. Everyone was and is greedy.

Uhm, yeah, except if you demand personal responsibility.
Then there's only the greedy homebuyer. Period.

This is where America is rotten to the core: it's always someone else's fault, or at least, a shared fault. BS. Unless someone makes you buy a house at gun point, how can you blame anyone but yourself ?

-t

[ghporter]

Originally Posted by OreoCookie 

@ghporter
IMO that's semantics, because you will never be able to say where one stops and the other starts.

The semantics of it are crucial. Most regulations, as I said, are not aimed at really overseeing, but rather filling out forms or filing reports. Who cares if the institution can fill out forms if their executives make bone-headed decisions that put the customers' money at risk? It's not a trivial distinction here, it's a whole different point of view.

For example, bank examiners look at things like whether or not accounting is done accurately, timely and completely, but they also look at "why did you approve these loans, and what's your plan for dealing with a situation where they aren't repaid?" If the executives have bad answers, there's trouble. Unfortunately, the Federal Government has been moving toward reducing the number of examiners and the frequency of exams, so with the huge number of banks making stupid loans that went bad really fast, there was no time to identify a pattern of stupid lending and take action to stop it.

[turtle777]

Originally Posted by ghporter 

The semantics of it are crucial. Most regulations, as I said, are not aimed at really overseeing, but rather filling out forms or filing reports. Who cares if the institution can fill out forms if their executives make bone-headed decisions that put the customers' money at risk? It's not a trivial distinction here, it's a whole different point of view.

I agree with Glenn here. The distinction is crucial, and it seems like there are too many people that don't get it. Dismissing it as semantics is a sure way we'll bog down the economy with red tape to no avail.

-t

[ghporter]

I have to point out that I worked for several years in "Quality Assurance." The term was changed from "Quality Control" because of the impression (based on the way the rules were written) that QC "only allowed so much quality" as opposed to making sure that every job and every action was taken in such a way as to assure the highest quality. Those semantic differences change the way people think about the whole program, and once the name was changed from QC to QA, we actually had a lot more cooperation from workers and work centers. We went from wearing "black hats" to being the folks workers asked how-to questions of. Everybody won.

In the case of the difference between "oversight" and "regulation", there's a lot of negative baggage associated with "regulation" based on who writes those regs (as in Congress) and how well previous regulations have worked to ensure high quality and low waste (as in "abysmally").

[hyteckit]

Regulations ~ Laws
Oversight ~ police officers, courts, and judges

What good are regulations without oversight? Say the posted speed limit is 65mph. If no one is every being fined or pulled over by the highway patrol or police enforcement for going over 65mph, how many are going to obey the posted speed limit sign? Not many.

Also, just because some laws are stupid and useless, doesn't mean all laws are useless and stupid. Same applies to regulations. There are regulations that needs to be updated, replaced, or simply removed. For example sarbanes-oxley. Sarbanes-Oxley definitely needs to be updated or replaced with something else. I bet Sarbanes-Oxley cut down productively by at less 30%. But I do believe some regulation is needed to prevent another Enron.

[OreoCookie]

Originally Posted by ghporter 

The semantics of it are crucial. Most regulations, as I said, are not aimed at really overseeing, but rather filling out forms or filing reports. Who cares if the institution can fill out forms if their executives make bone-headed decisions that put the customers' money at risk? It's not a trivial distinction here, it's a whole different point of view.

I have a different definition of the two, for me regulations and oversight are two sides of the same coin. Hyteckit put it very elegantly: regulations are the rules and oversight is the enforcement of the rules. Perhaps our ideas of the two terms are different, but I don't want to enter a (in my view rather) fruitless discussion on what the two terms are really supposed to mean.

I think when it comes to the two our opinions are not that far away anyway.

Originally Posted by ghporter 

For example, bank examiners look at things like whether or not accounting is done accurately, timely and completely, but they also look at "why did you approve these loans, and what's your plan for dealing with a situation where they aren't repaid?" If the executives have bad answers, there's trouble. Unfortunately, the Federal Government has been moving toward reducing the number of examiners and the frequency of exams, so with the huge number of banks making stupid loans that went bad really fast, there was no time to identify a pattern of stupid lending and take action to stop it.

I think one of the troubles here is that in America specifically, the main measure of success are short-term measures: quarterly profits, etc. Much more important than that is sustained growth and robustness to endure hard times. Of course, the government can't and shouldn't force this point of view onto private entities, but in vital industries, it should be made harder to not sacrifice long-term stability in favor of short-term profits. (I'm thinking of regulations/oversight regarding modern key infrastructure industries here.) We need banks, electricity, phones, internet, roads, water and such. Cut one off and it will severely impair any first-world country.

Some former colleagues of mine (theoretical physicists, mathematicians) went to banks. They were employed for optimization, and one of those optimizations was to maximize the amount of available capital without breaking any of the banking rules (some capital is set aside as assurance/security). Of course, people will always try to skirt the rules …