Comments:US President Obama proposes financial reform

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Obama announces new attack on the free market[edit]

First there were the odious bailouts that took money collected through taxation for the advancement of public purposes and bestowed it on private parties who are not constrained in any way to serve the public. Now, as if that were not bad enough, we need new intrusion into the market to counteract the perverted incentive structure that the prior folly created. Is it any wonder that financial institutions are returning to their old practices when they were in fact insulated from the negative market outcome of those practices? They took bad risks, but the government prevented those risks from turning against them to the extent necessary to deter them from replicating their past conduct. In effect the government took bad risks and made them good risks by truncating the downside.

The solution, apparently, is to legally curtail any repetition of the newly incentivized practices by imposing new regulations without regard to whether the subject institutions actually took taxpayer money. Now all banks will be forced to do something else besides pursue their own market interest because somehow small businesses are entitled to receive loans and individuals to receive credit cards with interest rates that do not justify the level of default risk those entities create. How this is related to curing the causes of the financial correction we're left to wonder, but Obama doesn't stop there with entitlement, revealing that banks may be prevented from doing something on the justification that it's "unrelated to serving their customers." Since when do private parties have to act in service of other private parties by legal mandate? That would be akin to forcible subjugation.

I'd say on the whole this announcement is par for the course considering that Obama has shown himself to be ever the font of bad, liberty destroying and unprincipled policy imposed, as always, in the name of the public interest. (talk) 18:12, 22 January 2010 (UTC)Reply[reply]

At this point, most of these private parties owe the public. Those that don't should not be caught up in this, and I don't see any of them worrying about it. And I'm sure they'd be watching this much more closely than us. In fact, watching the video, Obama addresses this directly: firms are free to continue to operate such investments/funds, but they can't mix that accounting up with federally-insured banking; this is an exploitation of taxpayers and a misuse of a system designed to protect consumers. -- (talk) 02:48, 23 January 2010 (UTC)Reply[reply]
"[...] I don't see any of them worrying about it." Have you been following the market lately? As soon as Obama made this announcement there was a precipitous downturn in the stocks due entirely to practically everybody "worrying about it." Even the pundits are saying the downturn was a response by market forces to the implications of this new policy. On the whole, your comments could hardly be more detached from reality. (talk) 05:42, 23 January 2010 (UTC)Reply[reply]

Why is this being done, you ask? They proved themselves irresponsible with the power they were given. Given that it is an institution that holds thousands if not millions of jobs in its hands, It should be obliged to act responsobley. And, tbh, Without feeling the pain of a mistake, you dont learn from it. (talk) 21:37, 22 January 2010 (UTC)Reply[reply]

Well you see, I believe in capitalism, a quaint old system in which participants in the economy are not obliged to do this or that but free to make investments as they please so long as they respect the rights of others (including contractual obligations freely entered, such as charters obliging corporations to pursue profit foremost). Making bad investment decisions is not a breach of anybody's rights or reserved privileges, arguments ad misericordium notwithstanding. I am also at a loss to understand why the government should make them "feel the pain of [their] mistake" when a financial mistake, by its very nature, is any action leading to a bad financial outcome. Isn't this outcome "pain" enough for the "mistake?" At least it would be if the government didn't step in to mitigate it. (talk) 05:42, 23 January 2010 (UTC)Reply[reply]
The people who made the mistakes are not the ones who suffers from it. A corporation or a company does not know "pain". It is the executives who made the mistakes but they are not getting punished accordingly. Without regulations these people would keep running their own banks into bankruptcy by taking excessive risks that can generate maximum short-term profit, the only thing that matters towards their large bonuses. -Funicode (talk) 12:59, 23 January 2010 (UTC)Reply[reply]
That sounds like a bad deal all around for the shareholders. If what you say is true, they can respond by not investing in a venture where the incentives are so misaligned or by changing the incentives to avoid this principal-agent problem. Once again I don't see why the government has to step in to prevent people (in this case shareholders) from making bad financial decisions inimical to their own interest. As for the "pain" language, obviously it's not meant as literal pain, but in fact I did not introduce that language. It's not fair argumentation to dispute against me for responding in kind to somebody else's analogy. (talk) 20:57, 23 January 2010 (UTC)Reply[reply]
You are assuming the shareholders are not speculators and that they are perfectly rational. If that was the case the financial crisis would never have happened. When all other banks are making huge quarterly profits from sub-primes the shareholders would be angry if their bank refuses to take part. The overall bad decisions may be beneficial in the short term, and the shareholders may decide to take risk and bet on withdrawing their money right before things get ugly. Free market does not offer a inherent personal interest in maintaining a sustainable environment; people can always jump onto another sinking boat to scrap more wood. -Funicode (talk) 22:05, 23 January 2010 (UTC)Reply[reply]
No, actually I didn't assume any of that. Speculators are also disincentivized from putting their money in with companies whose structure is such that the corporate agents are encouraged to and engaged in running them into the ground. This creates risk (to put it mildly) that could mature at any time, including while the speculator has an ownership interest. Clearly, speculators would prefer to avoid the exposure even if certain short-term factors may overwhelm that preference. Even then, their valuation will be depressed by the inherent risk.

I don't even know where you get my "assumption" that people are perfectly rational. All I said is that if people are irrational, or if they make a decision which turns out in retrospect to have been bad (this does not entail irrationality under imperfect information), those people just lose. I don't see where the government's intervention is necessary to prevent people from making decisions that could lose them money. You're probably right that if everyone acted rationally this financial crisis wouldn't have happened, but that's not always true of financial crises. If billions of people bet $1000 dollars each on a fair coin toss with a payoff of $10,000 should the coin come up heads, but it comes up tails instead, that could precipitate a crisis even though it was rational for each person to make the bet. That's of course a contrived example, but more subtle real ones certainly exist.

In the second part of your post, you invert your previous scenario by having it be shareholders rather than management destroying value. This inversion makes even less sense. Lets say the shareholders select a strategy that dooms the corporation to failure. The shares they own represent a stake in corporate success with an infinite time-horizon. The corporation may realize some short-term paper profits, but other prospective shareholders (who we have no reason to assume are less clever than scheme's perpetrators) will realize this strategy entails infintely bad growth prospects and they'll value the shares much lower. The shareholders have just succeded in devaluing their own shares. Even if our hapless shareholders manage to turn a profit at this, I don't see where the government comes in. Where have anybody's rights been violated? (talk) 08:50, 24 January 2010 (UTC)Reply[reply]

I observe that people tend to think they can extrapolate growth. If a corporation has sustained 10% growth year over year for 6 years, most people think it should be able to keep growing like that forever. Certainly the stock price is influenced by the risks (as perceived by the shareholders), but it is also influenced by the current growth rate of the corporation and, the worst in my opinion, by the current rising rate of the price of the stock. I do not see why most shareholders would worry about how well the corporation is truly faring if their stock price has not started dropping.

You do not need to violate other people's right to do bad things. Consider a river with only one bridge on it. You buy the bridge and charge a toll on it, and everyone can cross the river. And then you neglected maintenance on the bridge and it collapsed; since the bridge is entirely yours, you have not violated anyone's right and you have suffered the consequence of losing the bridge, but now no one will be able to cross the river. Maybe you have already made a profit from the past tolls you have collected, maybe it was cheaper for you to lose the bridge than to maintain it, and at the end you are not liable to rebuild the bridge anyways. You may argue that the entity to whom you have paid the original price can build another bridge, but the problem is that the collapse of the bridge came as a total surprise, thus hampering all travels while another bridge is being built.

I would like to stress that I am arguing that free market is not flawless, not that this government intervention would work. My prediction is that they are going to pass this law, scrap it a few years later and we all go through this all over again. I feel these temporary measures are more there to appeal to people than to fix problems. -Funicode (talk) 13:03, 24 January 2010 (UTC)Reply[reply]

Stick it to them Mr. President.

  • Get your facts straight Mr IP address. The grinning chimp (Bush) started the no-strings-attached bailouts of his banking buddies. --Brian McNeil / talk 09:36, 24 January 2010 (UTC)Reply[reply]
  • Thanks for the unneeded clarification, but I never said Obama started the bailouts. Unfortunately, we have no choice but to consider them a loss for the taxpayer and for liberty. There's no way to undo the mistake, and certainly not with more policy enlarging the power of government. You said yourself that the bailouts were "no-strings-attached" and indeed the government attached far too few conditions on the recipt of taxpayer aid (even apart from the problem of allowing wealth transfer from taxpayers to private corporations in the first place), but adding post-hoc conditions that did not exist at the outset, as well as punishing banks that did not accept taxpayer money (who have already been punished with implicit taxation by the government intervening on behalf of their competitors), is unjust. Governing is about doing the right thing, not getting even in petty political vendettas. (talk) 20:28, 24 January 2010 (UTC)Reply[reply]

How Did You Get This From That?[edit]

Regarding the titles: "US President Obama proposes financial reform" turned into "Obama launches new attach on the free market."

Just a little spin, maybe?

A little history, which explains something about how things work, when they work, how they otherwise do not work . . .

The laws and regulations of the US are based on the Constitution. An unfinished document, it was nonetheless adopted as the foundation of our representative form of government.

The federal government was empowered, or required, to fulfill the need for a national monetary system. That article was no more complete than the rest of the document, generally. The argument that was avoided in the interest of getting the Constitution adopted by a democratic body, was then taken up in earnest, and never resolved.

Our, and your, discussion of the issue still looks a lot like an argument.

Too bad, that our founding fathers didn't persist in an effort to design a technically sound financial system based in law. Too bad, that we've let our leaders mess with a poorly conceived system throughout the history of the country. Always because we are incapable of reaching a workable agreement.

If the Constitution said that the people's federal government should be responsible for the money, who does the money belong to? Who has the right and responsibility to "control" it?

And, how much do you think the public should be obligated to pay for a "free" market?

Paul BC (talk) 15:45, 25 January 2010 (UTC)Reply[reply]

True that. "free trade" Generally only makes the rich, richer. The country as a whole exeperiences economic growth, but nary a penny "trickles down" (Another weakness of the Bush Economic policy). TBH, politics stopped working when bussiness concerns interfered. (talk) 15:58, 25 January 2010 (UTC)Reply[reply]