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FinReg: Trying to Legislate Adulthood

|Includes: GS, The United States Oil ETF, LP (USO), XOM

To recap:

A lot of people wanted to have things, and didn't have the money. Houses, consumer goods, office buildings, government benefits. Instead of doing what an adult would do, which is wait, save some money, and buy the things they needed and wanted when they could afford them, they borrowed the money to get the things they wanted right away. To be fair, I suppose that there was a big system set up to encourage them to do this. Advertising, government policy of various types, some cultural pressure, political pressure, we can go into this if you want.

There were plenty of people around willing to loan them the money to do this. Mortgage brokers, credit card companies, commercial banks, government bond dealers, politicians. The adult thing to do would have been to say "no" to some of them, but once again, the system was set up for "yes", and a lot of these loans got written, and there were a lot of charges put onto credit cards.

So, what to do with all of these mortgages and credit card debt and soveriegn debt that were taken out by people that could not reasonably pay them back? Well, an adult thing to do would have been to take the high risk ones, bundle them together with other high risk ones, and charge enough interest to compensate the lenders for their risk. Instead, they were mixed in together with a lot of good loans, and then the ratings companies, and we all know who they are, gave them a nice high rating, and the interest rates were kept nice and low, and no one, well almost no one, could tell the good from the bad. Pretty immature, to hide all of those bad loans in with the good and not tell anybody about it but that's what happened.

These bundled loans of various types (CDO's, commercial paper, sovereign debt) were traded back and forth, and a whole system of insurance, derivatives, and other financial instruments were developed by the so-called financial engineers, and this whole system was basically done with play money, since the underlying financial instruments were only loosely connected with adult-based reality.

Then, when the system collapsed, the government(s) involved said to the people that perpetrated it: "Do-Over, you do not have to suffer the consequences of your childish actions, all is well, we will take care of this and you can go back to your play money game"  The governments fabricated a lot of money out of thin air, and the game started back up again. Where did the goverments involved get this money? Well, rather than doing the adult thing, and getting it from the people that benefited from the system by raising taxes or interest rates to re-adjust the system, they borrowed it from someone who would not know the difference, the nation's 3-year olds. Here is the big injustice, as I see it.

Now, a law has been passed, FinReg, so called financial regulations, which basically set out a few rules to re-introduce adulthood into each of the layers of the system: More regulations at the bottom levels, put some controls at the mid-levels. Was there any regulation put on at the top level, to keep the government from saying "do over" and bailing out the next catastrophe? There is no talk of this. There is also minimal talk of going back through the system and making people accountable for the collapse of the system as it previously existed.....

So will all of this work? Oh, maybe in a broad sense to at least put a bureaucratic drag on the system, maybe there is some benefit to that...but until a system is set up to encourage people to be adults, I think we have not seen the end of it.

I will go back to writing about oil. If I am wrong on any of this, please feel free to comment.



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