What earthly reason can be given for further deregulating financial markets?

A 20 to 30% drop in the market could be very serious if youre retiring anytime soon and given the lack of industrial long term investment because of the markets obsession with short term profit a drop in the market could be a long lasting affair wreaking havoc on the 401 k's of a lot of boomers who will be retiring soon. That and the decreasing national revenues and increased military spending and failing infrastructure will likely lead to a more cuts in our safety net at precisely the time when it is most needed.

 

Not to mention the hidden derivatives market may have a few surprises for us yet if a drop in the market collides with some other unforeseen market event involving say the unprecedented level of student debt or maybe a catastrophe in the commercial real estate market given the death of retail space brought on by the likes of ebay and Amazon.

 

I'm not quite as confident in the ability of our financial markets to recover from a drop quickly enough to sustain a decent retirement for the huge number of boomers who are about to become retirees. Besides what earthly reason can be given for further deregulating financial markets? They've shown us that they have learned to behave with prudence and honesty since the disaster of 2008?

Comments

Jeffry Gilbert Added Sep 13, 2018 - 9:20am
Pigs get fat and hogs get slaughtered. 
Jeff Michka Added Sep 13, 2018 - 4:28pm
Any restriction or regulation of "business" will be communism, Leninism, Marxism, Stalinism, or Maoism incarnate.  What you don't believe banks are totally honest and care only for their customers?  On that basis, banks need further deregulation so they can do anything to turn profits, plowing those profits back into the pockets of the bank's C class.  It's so unfair, otherwise, huh?
Dino Manalis Added Sep 13, 2018 - 4:31pm
 The midterms are a concern, but Trump will be our president until January 2021 at the very least.  Deregulations have to be carried out with expert advice, not politics.
Ken Added Sep 13, 2018 - 4:35pm
Whether you regulate them or not, markets regularly correct themselves.  Even if you don't deregulate the markets at all from this point, there WILL be a correction at some point.  It simply can't keep moving forward without pause. 
 
How quickly it comes back after correcting will be factored by the external economic conditions.  If it is constrained like it was by Obama, then it will take much longer to come back than it would if businesses are more free to innovate and  be profitable.
Flying Junior Added Sep 14, 2018 - 3:57am
Ana Rose,
 
Are you for real?
 
I wish the hell I had put 100k in stock when President Obama towed the car out of the ditch.  Anyone smart and or lucky enough to have left that money in the market after the uncertainty of a Trump presidency would stand to make a killing just about now.
 
But mark my words.  Those guys are going to quietly get out well in advance of new reports of the federal deficit.  It has taken a great deal of time to wrack up the 1.5 trillion $$ in new debt by the Trump administration, but given the pace appears to be accelerating, I'm betting we just might hit 22 trillion $$ by early next year.
 
Hold on kids.  It's going to be a rough ride.
 
Yet the author makes a damn good point.  This stock market boom has Americans with good jobs and retirement savings accounts looking pretty flush just about now.  It might not be the worst time to diversify into less risky investments.
 
Just saying.
Bill Kamps Added Sep 14, 2018 - 1:26pm
Markets always find a way to correct themselves.  Exactly what kind of regulation do you propose, that will stop the next correction after tens years of going up?
Bill H. Added Sep 14, 2018 - 3:19pm
 
If businesses continue to concentrate on short-term profits rather than investing in their infrastructure and employees, a disaster is likely for sure.
 
Bill Kamps Added Sep 14, 2018 - 3:29pm
Bill H, how would you regulate companies so they do what you think is best ?   Other than for reasons of safety, like EPA and OSHA, we dont tell companies how to invest, whether in R&D, their own infrastructure, or their employees.  Even if the government tried, how would they enforce this, since the government cant even now enforce the rules that say companies must hire legal workers.  In fact the government makes almost no effort to enforce this.
 
It is easy to say what companies SHOULD be doing, from some vantage point, but it not so easy to get them to do it, assuming that is even a smart path to pursue. 
John Minehan Added Sep 14, 2018 - 5:41pm
Financial Markets could do with less regulation because such externalities tend to inhibit (or warp) the free flow of information upon which markets rely.
 
On the other hand, some of the things that are part of a broader definition of the "financial markets" (such as commercial or savings banks) are not creatures of the market.
 
Banks exist in the form they do as much due to legislation as demand.  One of the least successful attempts at deregulation was the Garn-St. Germane Depository Institutions Act of 1982, which attempted to save S&Ls by deregulating . . . things that existed only due to enabling law and implementing regulations.
 
Further, derivative instruments are actually insurance contracts.  In their basic form, as futures contracts or crop insurance, they are well understood and have a complex common law. 
 
Although a Chair of the Commodities Futures Commission, Brooksley Born, famously proposed regulating such instruments and was famously kept from doing so, it is difficult what such regulation would have done to instruments that, at that time, were effective and well understood except add a level of unnecessary complexity.
 
On the other hand, since we do not know in detail what Chair Born intended to propose, we can't tell if it would have prevented . . . or worsened  . . . what happened in 2008.
 
 
Ana Ross Added Sep 15, 2018 - 10:35pm
John Minehan
 
The free flow of information upon which financial markets rely are not actually as free as they claim.  Investors with corporate bankrolls are able to trade at speeds the average investor cant imagine.  The cables from corporate workstations are measured in feet to the wall street servers giving them an enormous advantage to other investors.  The very speed of these transactions can be problematic given the nature of automated programs and without some regulation may very well prove to be catastrophic without at least a look into those progams.
 
Derivative contracts are worlds apart from a standard insurance contract.  First insurance contracts are regulated so that the benefits that are contracted for in the event of a failure are guaranteed to be there by the regulators of common insurance. The derivative contracts made by AIG  were untethered to any ability of the company to deliver on its promises.  Part of the 2008 crisis was that assets were rated AAA based in part on the fact that the underlying assets were fully insured.  It was on this basis that the lower tranches of securities were sold to pension funds et al as securities that had the same rating as federal bonds.  Once it was discovered there was nothing securing these assets their prices dropped accordingly to the detriment of the entire world market.
 
 Second you cannot normally buy insurance on the probability of your neighbors house burning down.  With the new derivatives there was nothing prohibiting an investor from buying a contract on AIG speculating on the failure of certain assets.  Goldman sachs was notorious for selling assets then using these derivatives to bet on the failure of the very assets they had just sold.  This also contributed to  the massive amount of money that was being gambled in the wall street casinos to which you and I were ultimately responsible to make good on lest the world itself collapse as we were told. So  I dont buy that the free movement of information is any great boon for the economy overall just wallets of those with enough political influence to escape the consequences of bad decision making that the free flow of information makes possible with more speed than ever before.
 
What could brooksley borne have done? First Opening them up to the same level of scrutiny that other option contracts are subject to would have undoubtedly slowed the sale of these toxic assets.  Making the contracts public would allow investors to see the level of liability the issuer was subject  to as well as look at the assets used to secure the contracts.  An investor would have been able to understand the costs associated with these contracts as opposed to trusting a broker who after all has no fiduciary obligation to tell you the true value of the contracts and could charge whatever he wanted.
 
No we dont know whether her actions would have helped or hurt we dont actually know whether increasing the speed limit to 200 mph will actually result in more highway deaths but its a pretty reasonable bet it would.  Ms. Bornes didnt suggest any regulations, she merely suggested that these derivatives be examined closely before a financial crisis occurs to determine if further regulation might be warranted.  Could examining these cdo, contracts which were after all a relatively new invention, have done any harm to the market for a secret derivative contract whose volume and volatility were unkown?  Again I'm gonna go ahead and say I doubt it.  Ms. Borne turned out to have been prescient which is another way of saying she was right.

 
Ana Ross Added Sep 16, 2018 - 2:00am
Ken
"If it is constrained like it was by Obama,"
 
Do you mean constrained as in the law derailed by Trump requiring a broker to have a fiduciary responsibility to his clients?  This means that your broker doesnt need to keep your financial interests in mind when he shows you a new mutual fund he is being paid to sell.  I for one would rather see the market constrained by having someone paid to advise me on financial matters being legally constrained to having my best interests at heart before he recommends a product to me,  Thanks to Trump brokers will not be so constrained it will cost the consumer trillions of dollars in unnecessary fees over time. 
Bill H. Added Sep 17, 2018 - 1:24am
Bill K.
I am not pushing regulations. I am simply fed up with how companies are willing to partake in practices that in the long run are very harmful to the country. I have witnessed the dishonesty and the greed go from what was a minor exception to what is now the rule in many corporations.
Seems that our current leader fits this mold well and is now making changes that will make this situation even worse.
Of course, his businesses will benefit "Bigley"
Ana Ross Added Sep 17, 2018 - 5:38pm
John Minehan
 
Although a Chair of the Commodities Futures Commission, Brooksley Born, famously proposed regulating such instruments and was famously kept from doing so, it is difficult what such regulation would have done to instruments that, at that time, were effective and well understood except add a level of unnecessary complexity.
 
First Ms. Borne did not propose regulating the instruments, She proposed examining them closely to determine if further regulation would be appropriate.
Second these contracts were anything but well understood at the time, had they been understood there is a very good possibility that nobody would have bought them.  These were bundles of thousands of mortgages whose soundness could not be ascertained because they lacked proper documentation in most cases.  The rating process of these products was skewed because of an incestuous relationship between the ratings agencies and companies that they worked for.  Nobody had any idea about the true value of the products sold and since they didnt appear on any listing nobody knew what the overall volume of these products was.  Opening the available information  to investors could only have been a good for the market and for the economy overall.