US Federal Agency to sue big banks over mortgage securities

Y'know, the more I hear about how we can't do eminently sensible things because of the Constitution, the more I feel like the damn thing needs to be thrown in the garbage and redone.

That would require a violent revolution and refounding the country from the getgo.

Or alternatively, civil war.

Or we need to invent a time machine and assassinate the founding fathers before it got drafted.

Because that's just about as likely to happen as anything else.

Eminently sensible to you.

Personally, I take issue with both capitalism and socialism. However, there's nothing around that happens to be better, so...

I fail to see how instituting a higher level of punishment for banks is a bad idea. And I especially don't understand why it would need a constitutional amendment.

edited 2nd Sep '11 9:09:54 PM by DrunkGirlfriend

Nationalizing a bank that couldn't pay its debts after breaking regulation is, assuming the government proved its case on the regulations, technically legal. Just nationalizing all the banks is not, however...

And let's be honest. Nobody is really talking about nationalizing ALL the banks. Just the big banks that are neck deep in fraud.

Although lets get down to brass tacks. What we're really talking about here is legislation that would deal with corporate crime, one with real teeth that could possibly act as a real deterrent.

Or, in the case of nationalization, make corruption irrelevant-

-well, okay, that's too much to ask for, but it'd be corruption in a decidedly different direction.

Corruption is corruption, no matter who's hands do the deed...

WRONG!

Corruption isn't just a buzzword, USAF. The corruption of bureaucracies is a corruption that leads to maximization of influence. The corruption of private enterprise is a corruption that leads to profit maximization. These two different corruptions lead to wildly different results. If we want a results oriented society-and I'm sure we do-then we can't just throw blanket statements around about false equivalencies.

...well, I was approaching it from a moral/ethical standpoint, but, if you want to be economically technical...

He's being very economically literal. How it works, is that for competitive markets, profit should approach opportunity costs. Meaning that while there's an accounting profit, there's not an economic profit. That's the 101 theory at least. Profits should equal the standard rates available in terms of capital funding.

Let's say that a company needs 1 million in capital to operate, and there's currently a 5% interest rate. In theory, the perfectly competitive company should be producing at a level where at it's making $50k profit. If it's not then it's not efficient and this is seen as "corruption" in the system.

I actually disagree, not that it's wrong in theory, but that in practice purely competitive markets are very rare, and as such shouldn't be held up as the ideal. (Which in economics they are) And they're almost never consumer facing. (We're talking markets for plentiful raw materials. Wood, wheat, rice, corn, etc.)

In any case, as I said, this isn't about permanently taking over the banks. It's about introducing proper and effective disincentives into the system in such a way that isn't going to topple over the whole thing.

Here's my understanding of the financial meltdown. Companies need to have assets that equal a certain percentage of what they owe. They need a certain amount of leverage, and they need to maintain it. Now what happened for the financial meltdown, is that a lot of those assets dropped in value. What this did was to push other firms, in terms of their investment in these assets, below required leverage levels, and so on. Letting firms go broke makes a much bigger hit to these assets than allowing them to slowly deflate, which gives banks time to recover.

So while just letting the banks go under may be an option in terms of providing disincentives, there are massive potential downfalls to that (including a complete fiscal meltdown). So the trick is to find a way that both provides disincentives, while at the same time insuring that if a company does go kapoof, that all the tied assets and investments don't get zeroed out overnight.

A temporary government takeover does this.

I need to keep score on how many times people tell me this here and how many times, therefore, I don't understand it...

Either way, it still strikes me as a decidedly unhealthy way of doing things. It seems like every time there's a financial crisis we decide to do more and more strange things, until eventually nothing is the same anymore...

Well, to call it "each and every time" is a bit on the wrong track, as it doesn't really happen all that often. The last real financial crisis was what..the S&L in 1990?

And yeah, each time governments try to introduce disincentives into the system but the problem is that even still disincentives to bad corporate behavior is something that simply doesn't scale right. We're fining multi-billion dollar companies a million and thinking that's a real disincentive. Yeah.

Actually USAF, the problem with the Financial Market meltdown is that we really haven't changed anything so far. The CPA is supposed to have the power to protect consumers (hence the name) but in practice has been denied the budget to operate and has been unable to appoint any staff members because of Republicans in congress.

To be fair, forensic economics would let us determine the fines. It just so happens the fines would have to be greater than the damage caused to society by said bad behavior, meaning that they're nigh infinite...

edited 2nd Sep '11 11:43:24 PM by TheyCallMeTomu

Not in the United Kingdom but thats a different argument.

USAF: The British Government nationalised Lloyds Banking Group and part nationalised H Bo S and these aren't worse off than being privately owned.

@ USAF:

...and it would be hard to Nationalise those Banks anyway when they are based abroad — including — according to the BBC, Deutsche Bank (German), Nomura (Japanese), and Societe Generale (French) as well as British-based banks.

It would involve stepping on a lot of toes, and it's a world banking system now, which makes measures like that a lot more difficult, especially if you are a foreign Government.

edited 3rd Sep '11 6:01:59 AM by Greenmantle

Greenmantle, it's the US, if there was a will, there would be a way.

Whale, that is irrelevant. Also, the idea of being able to punish people for crimes retroactively strikes me as rather unfair...

Well, if you can't stop them pre-emptively because they wrote the laws and gave themselves effective immunity...that's unfair too.

Justice, it's a complicated path.

Blueharp! I saw you around but haven't been in the same thread as you yet. Welcome back... or at least, welcome back to the parts of the forum I hang out on.

So, blueharp, tell us how the bankers got themselves special protection and "helped" to write the Gramm–Leach–Bliley Act...

edited 3rd Sep '11 8:14:38 AM by USAF713

Well, the Gramm–Leach–Bliley Act basically gave the banks deregulation, and since they provided somewhere around 200 million dollars worth of campaign contributions, I think it's fair to say that they got what they wanted.

Which was presented as freedom from regulation.

It's stuff like this that makes me glad I do banking with a credit union...

Personally I don't see how you could sue the banks in an effective manner without nationalizing them. Either you take them for everything they're worth, collapsing the economy in the process, or you half-ass it and they pass the costs off to customers, ruining the assets of millions. Nationalizing them prevents both outcomes.

edited 3rd Sep '11 12:29:38 PM by Ratix