Banks and crime

Bonam · August 7, 2012

The banks are an apparatus of the government and the government is an apparatus of industry. Screwing over regular people is their raison d'etre.

What an ignorant statement. Industry cares nothing about "screwing over people", it exists to create wealth. It is the job of government to create a society where the most effective ways to generate wealth also happen to help (or at least not "screw over") "regular people".

And, for the most part, our society is actually very effective at that. Capitalism is specifically designed to optimize this: the best way to make money is by selling things that other people want, and a certain level of taxation is imposed to provide services that should not or cannot be effectively delivered via a profit motive (national defense, law enforcement, justice, some types of infrastructure, basic scientific research, social safety nets, etc).

Wild Bill · August 7, 2012

What an ignorant statement. Industry cares nothing about "screwing over people", it exists to create wealth. It is the job of government to create a society where the most effective ways to generate wealth also happen to help (or at least not "screw over") "regular people".

And, for the most part, our society is actually very effective at that. Capitalism is specifically designed to optimize this: the best way to make money is by selling things that other people want, and a certain level of taxation is imposed to provide services that should not or cannot be effectively delivered via a profit motive (national defense, law enforcement, justice, some types of infrastructure, basic scientific research, social safety nets, etc).

I wonder if CC and others here have ever read "Atlas Shrugged". It doesn't matter if you agree with Ayn Rand's philosophy. The book is a great portrayal of what happens when the capitalists and the people of ability go on strike.

It brings home how dangerous it is to take them for granted.

Michael Hardner · August 7, 2012

The book is a great portrayal of what happens when the capitalists and the people of ability go on strike.

It brings home how dangerous it is to take them for granted.

Right. But it's fiction, and supposition. There are lots of systems of political economic power, and the mixed capitalist-socialist system we have now is just the current best one... Easter Island worked well too, for awhile...

Bonam · August 7, 2012

I wonder if CC and others here have ever read "Atlas Shrugged". It doesn't matter if you agree with Ayn Rand's philosophy. The book is a great portrayal of what happens when the capitalists and the people of ability go on strike.

It takes a lot for such people to literally go on strike, however. They love too much the work of their hands and their minds to abandon it. Even in the hopeless gray tyranny of the Soviet Union under Stalin, people of ability (those who were not sent to die in extermination camps, murdered, or tortured to death) struggled on, trying to succeed and excel, and by their labor prevented the whole monstrous curse of a nation from collapsing.

Edited August 7, 2012 by Bonam

Canuckistani · August 7, 2012

It takes a lot for such people to literally go on strike, however. They love too much the work of their hands and their minds to abandon it. Even in the hopeless gray tyranny of the Soviet Union under Stalin, people of ability (those who were not sent to die in extermination camps, murdered, or tortured to death) struggled on, trying to succeed and excel, and by their labor prevented the whole monstrous curse of a nation from collapsing.

And the elite were given a better life in the USSR, same as everywhere. The rich didn't go on strike in the US when top marginal tax rates were 70%, just kept on striving to earn that 30%. For the last two decades, the bulk of the increase in wealth has gone to the top 20%. It's only right then they pay the most in taxes. There is obviously an optimum zone where enough wealth is left to the wealthy to make it worth their while to strive, while not so little is taken from them that the state can't function properly. IMO we'e moving too close to the bottom of that zone, should raise taxes to bring us more in the middle of it.

But this topic is about banking - which in the US has become a corrupt con game. It's one thing for Bill Gates to earn his billions, (and even there of course there's predatory behavior) but people who are just creating scams to get wealthy - that will collapse society real fast, as everybody tries to play the game in one fashion or another, instead of actually creating something to build their wealth.

bleeding heart · August 7, 2012

I wonder if CC and others here have ever read "Atlas Shrugged". It doesn't matter if you agree with Ayn Rand's philosophy. The book is a great portrayal of what happens when the capitalists and the people of ability go on strike.

It brings home how dangerous it is to take them for granted.

Leaving aside the moral degeneracy of Ayn Rand (who after all moaned rapturously about the masculine "will" of a notorious child killer, exposing the sociopathic instincts which underlines her "rich people are superior" thesis);

No one is taking them for granted.

Hell, we're at a pretty pass when society's richest (who are also, by definition, the most politically powerful) are perceived as being somehow victimized.

Edited August 7, 2012 by bleeding heart

Canuckistani · August 7, 2012

Hell, we're at a pretty pass when society's richest (who are also, by definition, the most politically powerful) are perceived as being somehow victimized.

well said. But you've got to give them credit for their genius, or the gullibility of Joe the Plumber.

Bonam · August 7, 2012

Leaving aside the moral degeneracy of Ayn Rand

Moral degeneracy according to your morality, perhaps. Her whole point was that the common morality, based upon the prevalent philosophy, was fatally flawed.

GostHacked · August 7, 2012

The banks are an apparatus of the government and the government is an apparatus of industry. Screwing over regular people is their raison d'etre.

The banks are an apparatus for the corporations, not the government. , but the rest is on par.

Canuckistani · August 7, 2012

The banks are an apparatus for the corporations, not the government. , but the rest is on par.

I think he meant the govt is also an apparatus for corporations, or more accurately the people who control the corporations.

Canuckistani · August 7, 2012

Moral degeneracy according to your morality, perhaps. Her whole point was that the common morality, based upon the prevalent philosophy, was fatally flawed.

Please tell us your morality doesn't admire pedophiles. (Cheap shot I know, but it does arise from what you said here.) She was more than happy to take advantage of the US social systems at the end of her life, doubt she was railing against the common morality then.

Argus · August 7, 2012

What an ignorant statement. Industry cares nothing about "screwing over people", it exists to create wealth.

I know we've come to stretch the term 'industry' a lot of late. But strictly speaking, the banks are not an industry. They don't produce anything.

No one is denying that all commercial entities exist to create wealth. The issue here is that this particular sector (finance) seems to feel that rules and regulations are for other people, and don't really apply to them. They also seem adept at bribery so that the political hacks in charge don't come down heavily on them as they ought to.

Edited August 7, 2012 by Argus

bleeding heart · August 7, 2012

Moral degeneracy according to your morality, perhaps. Her whole point was that the common morality, based upon the prevalent philosophy, was fatally flawed.

Yes, well, most of us are not sufficiently elevated to make deliriously complimentary remarks about the "masculine will" of a convicted child killer.

Rand had no problem with this.

Sociopathy itself is a virtue, evidently (individualistic, will-to-power in her cheap plagiarism of Nietzsche)...which begins, I think, to clarify some of her views generally.

GostHacked · August 8, 2012

I know we've come to stretch the term 'industry' a lot of late. But strictly speaking, the banks are not an industry. They don't produce anything.

They produce/create debt.

No one is denying that all commercial entities exist to create wealth. The issue here is that this particular sector (finance) seems to feel that rules and regulations are for other people, and don't really apply to them. They also seem adept at bribery so that the political hacks in charge don't come down heavily on them as they ought to.

Where is the perp walk for those people? Sure, Madoff did not kill anyone but he killed the livelihood of thousands of people, should be locked up forever.

TimG · August 8, 2012

Big penalties for dealing with Iran. Big penalties for dealing with Cuba. Big penalties for dealing with drug-lords. It appears that the regulators take it very seriously when banks help the government's enemies, but they don't take it nearly as seriously when banks rip off regular people.

What do you mean about 'rip off'? Are you complaining about service fees? They are annoying but are hardly a rip off. Are you complaining about the taxpayer bailouts that become necessary? You do know that not all banks needed bailouts and many that did were innocent parties that bought fraudulent mortgage packages? Condemning all banks because a few crossed the line is quite unreasonable. Are all lawyers crooks because some defend criminals?

Canuckistani · August 8, 2012

What do you mean about 'rip off'? Are you complaining about service fees? They are annoying but are hardly a rip off. Are you complaining about the taxpayer bailouts that become necessary? You do know that not all banks needed bailouts and many that did were innocent parties that bought fraudulent mortgage packages? Condemning all banks because a few crossed the line is quite unreasonable. Are all lawyers crooks because some defend criminals?

So we let the crooks go because not everybody is a crook? Or we don't regulate the banks properly because not all banks crossed the line? Just keep paying trillions when and as needed to bail them out? Privatize profits but socialize losses?

TimG · August 8, 2012

Or we don't regulate the banks properly because not all banks crossed the line?

Do we introduce 3 strikes laws and incarcerate people for stealing pizza because some criminals keep offending over and over again? Regulation of banks is absolutely necessary but there needs to be careful thought about what regulations make sense and will achieve the stated objectives. Regulation for the sake of regulation is the lefty equivalent of the 'lock up and through away the key' policies promoted by some conservative politicians.

Canuckistani · August 8, 2012

Do we introduce 3 strikes laws and incarcerate people for stealing pizza because some criminals keep offending over and over again? Regulation of banks is absolutely necessary but there needs to be careful thought about what regulations make sense and will achieve the stated objectives. Regulation for the sake of regulation is the lefty equivalent of the 'lock up and through away the key' policies promoted by some conservative politicians.

We certainly don't shrug our shoulders, bail out the pizza parlours and just let the pizza stealers walk. And if you see the theft in the banking industry as equivalent to stealing a couple of pizzas, wow.

It was called the Glass-Steagall act, and it worked fine.

Edited August 8, 2012 by Canuckistani

TimG · August 8, 2012

It was called the Glass-Steagall act, and it worked fine.

The trouble is no one on this forum likely has the detailed knowledge of the industry that would be required to determine what works and what does not.

http://www.washingtonpost.com/repeal-of-glass-steagall-not-a-cause-but-a-multiplier/2012/08/02/gJQAuvvRXX_story.html

I have been unable to find any evidence that the Gramm-Leach-Bliley Act — the legislation that repealed Glass-Steagall — was a primary cause of the financial crisis. Imagine a “but for” scenario where Glass-Steagall had not been overturned but the rest of the deregulatory actions had still taken place. Would the crisis have occurred? Without a doubt, yes.

For my part I think one if the root causes of the crisis were government regulations that pressured banks in to making doggy loans based on racial criteria. i.e. the crisis was caused by the wrong type of regulation rather than too little regulation.

Canuckistani · August 8, 2012

For my part I think one if the root causes of the crisis were government regulations that pressured banks in to making doggy loans based on racial criteria. i.e. the crisis was caused by the wrong type of regulation rather than too little regulation.

Well as you say, I don't know enough about it. But I do know that mortgage lenders lent to anybody and everybody, because they could then sell those mortgages to the brokerages to be sliced and diced into an incomprehensible mess. That wasn't caused by regulations that required banks to lend to minorities, it was far bigger and mendacious than that. It was outright fraud. This wasn't just a few black people defaulting on the loans the poor banks were forced to give them. And with Glass-Steagal the retail banks would have been separated from the commercial ones.

Here are some more quotes from your link - none point to the banks being forced to lend to minorities:

The repeal of Glass-Steagall may not have caused the crisis — but its repeal was a factor that made it much worse. And it was a continuum of the radical deregulation movement. This philosophy incorrectly held that banks could regulate themselves, that government had no place in overseeing finance and that the free market works best when left alone. This belief system manifested itself in damaging ways, including eliminating regulation and oversight on derivatives, allowing exemptions for excess leverage rules for a handful of players and creating dangerous legislation.

Here he says Glass-Steagall wouldn't have prevented the crash, but it was lack of regulation (not over regulation) that caused it:

The Fed still would have taken rates down to unprecedented low levels. This would have led to a global spiral in asset prices. The nonbank, lend-to-sell-to-securitizer mortgage originators were still going to make subprime-mortgage loans to unqualified borrowers. Bear Stearns and Lehman Brothers would still have overwhelmingly increased exposure to subprime mortgages. AIG would still have written trillions of dollars in credit-default swaps and other derivatives with zero reserves set against them. The largest security firms and deposit banks would still have charged headlong into the subprime securitization business. And Fannie Mae and Freddie Mac would still have belatedly chased these banks into the same subprime market, just at the peak of the housing boom.

After the repeal, banks merged into more complex and more leveraged institutions.
● These banks, which were customers of nonbank firms such as AIG, Bear Stearns and Lehman Brothers, in turn contributed to these firms bulking up their subprime holdings as well. This turned out to be speculative and dangerous.

So we can say that Glass-Steagall’s repeal allowed the credit bubble to inflate much larger. It allowed banks to be more complex and difficult to manage. When it all came down, the crisis was broader, deeper and more dangerous than it would have been otherwise.

What we should be discussing is the corrupting influence of crony capitalism and radical deregulation. Instead, we find ourselves forced to defend capitalism and free markets. We should be finding ways to definancialize the U.S. economy and reduce bankers’ influence.

The past 50 years have seen a dramatic financialization of the American economy. Wall Street has morphed from serving industry to a Titanic leaving a damaged economy in its wake.

I don't think the article you cited really backs up your contention.

Edited August 8, 2012 by Canuckistani

Bonam · August 8, 2012

The trouble is no one on this forum likely has the detailed knowledge of the industry that would be required to determine what works and what does not.

When it comes to the financial industry and its interaction with government regulations, I'm not sure that there's anyone or even any group of people that would know with a high degree of accuracy "what works and what does not". The system is too large and complex, and not easy to model mathematically. Regulation is a shot in the dark based on what "feels" right to regulators, the consequences are completely unknown at the time of implementation, and often difficult to discern even in retrospect.

TimG · August 8, 2012

I don't think the article you cited really backs up your contention.

That article no. But it does not really get into why repackaging bad mortgages and selling them off got started. Basically banks where forced into these arrangements because of government regulations requiring them to meet racial loan quotas. The repackaging allowed them to meet these quotas without hurting their bottom line. Once they saw they could make lots of money with the scheme then greed took over.

I doubt the crisis would have occurred if the government had not imposed these quota. (i.e. like a heroine addict may never have become addicted if he had not met that dealer who gave him his first hit).

TimG · August 8, 2012

When it comes to the financial industry and its interaction with government regulations, I'm not sure that there's anyone or even any group of people that would know with a high degree of accuracy "what works and what does not".

I agree. But many policy prescriptions are obviously wrong headed from the start (i.e. we may not know what works but somethings we can eliminate immediately because they wont work or the unintended consequences are worse - It takes knowledge to know which regulations fall into this category).

Canuckistani · August 8, 2012

I doubt the crisis would have occurred if the government had not imposed these quota. (i.e. like a heroine addict may never have become addicted if he had not met that dealer who gave him his first hit).

Really? Those poor financiers, just can't help themselves.

TimG · August 8, 2012

Really? Those poor financiers, just can't help themselves.

Do you think a heroine addict has no free will? An addict has choice every time he shoots up but chooses not to exercise it. Bankers also had a choice. But that does not mean the 'dealer' (the government with its racial quotas) does not deserve part of the blame for introducing the addict to the drug.