Comment by dnautics | Hacker News Reader

Comment by dnautics | Hacker News Reader

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"The gradual dismantling of much of the US and international financial regulatory safety net is now regarded as a major catalyst for the Great Recession."

That's the traditional narrative, coming from the regulators themselves. "we messed up, so you need us even more". It also totally ignores the state's role through policy in pumping up several running bubbles - tech bubble, housing bubble, higher education bubble. Why are people encouraged into top-0.1%-enriching investment vehicles, like 401ks or mutual funds or pension funds? Why, because they need to protect themselves from inflation. And who do you suppose creates the inflation? It's not a law of nature; it's the state and its "Regulators". The reason why those peddling the traditional narrative are terrified that we will see by example that inflation is not natural. It is in their interest to pooh-pooh it.

At least bitcoin bubbles are short and only sweep under people who are accepting the risk. Without prejudice to either position on the regulation good/bad issue, the VERY LAST thing we need is more of THESE regulators.

I think this take ignores the history. After the Great Depression, a number of laws were put in place, in particular the Glass-Steagall act ( http://en.wikipedia.org/wiki/Glass%E2%80%93Steagall_Legislat... ) that led to 50 years of relative financial stability. In the 80s and 90s these laws were dismantled, leading as you point out to a series of bubbles.

The point is that we have data: we know what happened with regulation, and with less regulation, and with less regulation things were worse. Suggesting that the solution is to remove even more regulation seems a very strange conclusion to draw from this experience.

(As an aside, I'm not sure why bitcoin bubbles being "short" is helpful. What is the advantage of high volatility?)

> After the Great Depression, a number of laws were put in place, in particular the Glass-Steagall act ( http://en.wikipedia.org/wiki/Glass%E2%80%93Steagall_Legislat.... ) that led to 50 years of relative financial stability.

That's a post hoc, ergo propter hoc fallacy.

There's definitely a chance of that, but I think the repeal of those laws then being immediately followed by a return to damaging volatility is indicative that it was more than just coincidence.

Your assumption is that the crash was caused by the repeal. Another possibility is that the infrastructure and power structure was rotten and over leveraged anyway and the repeal catalyzed the process, because the gsa merely served to conceal the mendacity of the banking industry.

So you're saying the system was greedy and corrupt, that the laws prevented those features from getting out of control, and when we took the laws away they ran wild... therefore we should take the laws away?

no, the system was greedy and corrupt, and the collapse gave us a chance to sweep away the greedy and corrupt parts and increase public skepticism in the system. The laws hid that and gave cover to the continued theft of the general public; and with the bailout, we not only failed to sweep away the bad actors but kept them in place so that they may continue to leech off us. As we continue to blame the loss of the laws for the corruption, we lose sight of the true problem, that the state stacks the deck against us, because now we 'rest in the comfort' that if the state were there, it would have 'saved us', when it's part and parcel of screwing us, all along.

If the two options available are 'post hoc ergo propter hoc fallacy' and 'more catastrophic financial crises', I'll take the fallacy, thanks.

It would be a fallacy if the only connection between the events were timing with no reason to suspect a causative link. Claiming that talking movies caused the Great Depression would be an example of post hoc ergo propter hoc.

The Great Depression was caused by a 40% reduction in the money supply following a decade of easy money fed policies (the "roaring 20s"). It is no coincidence that shortly after the federal reserve was created we had the biggest bubble/crash in American financial history.

In any case, regulation is force. What if some people want to take on greater risk (as you see it) and engage in unstable speculative investment? They should have that right.

Long bubbles are bad because usually they are prolonged by government pumping assets to the rich to cushion their fall under the pretext of stability before letting the carpet out from under the unconnected.

Er...sorry, what? Alan Greenspan was probably the biggest proponent of deregulating finanical markets and he held the most powerful title in international finance for decades. And...he admitted he was wrong.

Sorry, but this whole "let's ignore vast swaths of economic history because I really like libertarianism" thing needs to stop.

If he was all for deregulation then why was he in charge of setting the interest rates? Shouldn't that have been left for the markets?

Don't blame the government. There is only one cause for market irrationality and inflation: human greed.

The government has the job of trying to shape society. Deciding that home ownership is a good thing and giving people tax breaks isn't the same as telling people to buy houses that cost more than they can afford. Encouraging people to go to college doesn't mean that harvard should charge 100X what they charged fifty years ago. It's the role of government to provide incentives and penalties. It's the unfortunate role of the market to pervert and distort those things to maximize profit at the expense of society.

It's easy to think of regulators as some Other that has come in and destroyed our economic eden. The fact of the matter is that things were significantly worse for everyone before we had government regulation. Inflation [1] and economic bubbles [2] existed before the modern financial system. Price gouging, monopolies, child labor exploitation...all reduced by government regulation.

We may not agree on the role of government, but it doesn't make a lot of sense to use them as a boogeyman that is responsible for all of society's economic ills. The idea that mankind was in a perfect state of nature before modern government borders on being religious. The system isn't perfect, but I hope we all can agree that there is plenty of blame to go around.

[1] http://ancienthistory.about.com/od/fallromeeconomic/a/econof...

[2] http://en.wikipedia.org/wiki/Tulip_mania

Inflation is not caused by greed. The us had a deflationary economy between 1860 and 1920 and you would be hard pressed to argue there wasn't greed then. But the standard of living improved and the wealth gap slowly closed.

If there is any greed in inflation, its the politicians channeling assets to the already wealthy, which is what inflation does. The us inflation went haywire after 1970 when Nixon went off the gold standard and not surprisingly 1973 is when the closing of the poverty gap turned a corner and the rich started getting richer and the poor started getting poorer again.

Yea because regulators totally bought and sold bad assets and promoted their sale. Don't confuse regulations with tax breaks.

> Yea because regulators totally bought and sold bad assets and promoted their sale

Yes they did. That is the literal, intentional, lawful purpose of Freddie Mac and Fannie Mae, which are the source of a bubble market for bad mortgages.

Freddie Mac and Fannie Mae do way more than mortgage houses, first of all. Second they are an example of a single entity among hundreds or thousands who also played a roll. Freddie Mac and Fannie Mae are subject to the same Regulatory and market pressures as any other financial institution.

> Freddie Mac and Fannie Mae are subject to the same Regulatory and market pressures as any other financial institution

No. Freddie and Fannie are force-backed government bureaus that risk/waste taxpayer money in the pursuit of American housing policy (i.e. that everyone needs to live in a standalone house).

They are not subject to market pressure, because they are part of the government. That is the very definition of not being part of the market.

You say "government" like the "market" and the "government" are separated by a vacuum. Spoiler alert, the "government" is the single largest purchaser for the "market", they drive the most demand and ensure a stable supply for a large majority of commodities that prop up your "market". They also seem to provide a safe and stable market place.

FMFM are an organization that is subsidized by the government and is held accountable to the government. In the same way Farmers are subsidized and held accountable to the government. In the same way hospitals and eldercare are largely subsidized. In the same way weapons manufactures are subsidized. In the same way fire departments, police, road construction, rail, utilities, and air are all subsidized by the government.

And whoa, low and behold they are all also held to the same regulatory and market pressures any other company are held to. Just that, society decided these institutions are important to THE PEOPLE as a whole to let them go to shit because they don't attract investment because the margins are too thin.

Its not as black and white as you want to make it. Look hard enough at an "market" and you will find government subsidizing it in some way, even when it regulates.

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