re: #436 lawhawk

A regulatory scheme that does what exactly - that prevents prices of real estate to rise according to market pressure?

That’s exactly what’s implied by your statements.

Prices rise and fall - and the risk of loss on any business decision is to be borne by the parties to the decision - the banks and the individuals.

Since the banks have more exposure - they’re lending to more people while the borrower only has to worry about their particular instance, it behooves the banks to be more conservative in lending practices.

That’s where the government gets involved - because they want to expand lending to meet social policy agendas - increased homeownership, minority homeownership, etc.

And by dumbing down the lending standards, we got people incapable of repaying borrowing vast sums that could never conceivably be repaid even in flush times - and the moment the real estate market corrected, threw vast portions of bank portfolios into the crapper. In fact, banks that were more conservative in their lending managed to survive the crisis alright (and bought up those that didn’t).

There are no doubt many ways to skin the regulatory cat: restrictions on leverage, restrictions/disclosure on the use of swaps, restrictions (via the tax code) on the overall size of an enterprise, restrictions on the use of securitization, better transparency over the ratings process…(And repealing the laws of supply and demand is clearly not on the agenda, but thank you for the straw man exercise.)

I don’t have a clue which is right. What I DO know is that the “financial regulation is bad, evil and unnecessary” theme died under the hundreds of billions of dollars WE had to pay to recapitalize the banking system. (And please don’t trot out the “the government made them do it” argument. That is simply false. Nobody made Countrywide or New Century sell NINJA loans, and nobody made Citi securitize them and keep the crap tranches for their own account.) The old scheme failed. There can be no denying this. The real question is “what comes next?”, and I don’t pretend to have a definitive answer to that. But I am distressed that the question itself seems to have fallen off the back of the sled.

I am not comfortable trusting Citi, B of A, Goldman and JP Morgan Chase with our public fisc. But so long as they are “too big to fail”, that is just what we have done. They gamble, and if they win, THEY win, and they lose big, WE lose. How is that acceptable to you? Blaming the damage caused by the collapse of the real estate bubble on individual homeowners is utterly disingenuous. It is as if the entire banking and finance system were simply innocent bystanders. They weren’t.

So my question to you is: what’s YOUR answer? Steady as she goes? No change needed? Lloyd Blankfein seems like a nice guy, so we’ll let him hang onto the keys to Fort Knox? Whatta ya got?