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06/12/2011

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Luap Namgurk

Yes, but one of these days we will finally devise a system whereby regulators will not be captured. Furthermore, we will finally convince people to work half their day for the community and the rest for themselves and their families, day in day out, and with enthusiasm and productivity unmatched by any other country. The dream lives on! America’s decline continues.

Jwalker

Two points on Becker. First, members of Congress and the Senate were enablers and (considering the opposition to Elizabeth Warren) continue to enable capture of agencies. Second, I am very interested in part of Simon Newcomb's quote "By expending a fraction of {their} profit, the proposers of policy A could make the country respond with appeals in their favor…Thus year after year every man in public life would hear what would seem to be the unanimous voice of public opinion on the side opposed to the public interests” And yet the Supreme Court has ruled this Free Speech.

NEH

This seems to be a classic "Fox in charge of the Hen house" argument with Fannie May and Freddie Mac as culprits. Not too mention, disingenous. I do believe that the true scenario is much deeper and more insidious. What of the private Financial Institutions who created the new and fabulous Mortgage Secured Financial Instruments that became toxic and were swallowed up by the likes of Fannie May and Freddie Mac. Were the Regulators also not captured here? Talk about buying and selling "Pigs in a poke" and a true lack of Market Regulation. Perhaps what the Nation needs is a Financial Industry "Pure Food and Drug Act"...

TANSTAAFL

On this issue, Becker's analysis is more persuasive than Posner's.

The commenter above who wishes that "one of these days we will finally devise a system whereby regulators will not be captured" should go sit in the corner and read Hayek.

Vinny Margott

I think different government agencies that were supposed to either regulate or oversee these GSEs ended up as advocates instead.

david

great article! thanks for your post!

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Robert Kelly

Please look up Bill Black's work on control fraud. I think we have a concensus on the need to reregulate appropriately. Too bad it always takes a crisis to realize it.

NEH

tanstaafl, Hayek this, Hayek that, Hayek! Hayek! Hayek! If Hayek were the great God of Political Economics we certainly wouldn't be in the fix we are today and the World would be a Utopia. But he ain't and we aren't... ;)

Paul

It's become quite painfully OBVIOUS that the ENTIRE U.S. Federal Government has been 'captured' by a handful of U.S. financial corporations such as GOLDMAN SACHS. The Obama administration (just like its predecessor) doesn't even feel the need to disguise the fact any longer. Why should they? WHO IS GOING TO DO SOMETHING ABOUT IT ANYWAY?

Moreover, it is equally clear that the U.S. suffers from INSTITUTIONALIZED FRAUD. The die is cast and nothing will change these facts other than a MASSIVE POPULAR UPRISING.

Unfortunately for Americans however, morbidly obese, oversexed deadbeats with a preference for fast-food and pornography are NOT the ideal revolutionaries. Which means that YOU CAN STICK A FORK IN AMERICA ..BECAUSE IT'S D-O-N-E!

Mardik

A little bit more "hope" a little bit more "change" towards socialism and a little bit more time and things will work out fine.

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LHF

According to Morgenson, there was definitely corruption involved at least at Fannie Mae. The CBO report noted above showed that Fannie executive Jim Johnson, while claiming the opposite, was lining his own pockets rather than passing along the subsidy resulting from Fannie's quasi government status to home buyers. AND, he served on the boards of private companies, including Goldman Sachs and colluded with Angelo Mozilo, enriching them both, while he served on the board of KB (or HB?) Homes. Johnson got loans for his own fabulous homes as a "friend of Angelo." Regardless, he has never been held accountable and still wields enough power that some who provided information to Morgenson wished to remain anonymous.

Describing a visit from Fannie Mae employees as similar to a visit from the mafia was how one brave bureaucrat described his dealings with them. This is more than "regulatory capture."

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Michael Brophy

We do all of course have our own opinions but probably wonder at their soundness or balance; so we appreciate very much your analysis. Like 'observer' in the next post I found only the idea, 'whereupon the industry lost all confidence in government policy' with the fall of Lehman perhaps too telescoped an idea. Of course part of Greenspan's justification for the low interest rates was to prevent too much of a shock after 9-11. They say something like it is useful to have the central banker as a friend and Greenspan did keep the economy going long enough to keep the war president Bush in power and allow for the demonstration of the success of the surge; so we didn't have 2 great war failures in a generation. That also would have harmed the national interest.

NEH

Michael, And so the "success" of the Surge has been achieved by massive deficeit spending at the tune of 11 - 13 billion dollars a month (depending on the reports). Couple this with the massive tax cuts and Financial Fraud which were supposed to stimulate the Economy and didn't; resulting in a massive Recession/Depression. And so we are now confronted by the specter of massive budgetary crises at not only the Federal level, but also at the State and Local levels.

The fact of the matter is, we can no longer afford long term military adventures overseas. As for "2 great war failures in a generation" this generation will have to learn to get used to it. Like the Vietnam Generation did. We survived that failure in Foreign Policy and we can and will survive this one.

It's all about "Guns and Butter" and at present we just can't afford Guns. Perhaps, if we reinstitute the lost taxes, we can afford both "Guns and Butter"...

Michael

In the words of an early American, 'Gentlemen cry, "Peace, Peace, but there is no peace."' We were in a war with an autocracy and a spin off of an autocracy of the Middle East. It would have cost us more than $10 billion a year to have been defeated in that crisis. People have seen that it is not us but the autocracy that has fallen and people have risen against autocracies there.

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Lynn Chu

The issue with Fannie is that it was a national insurance plan, a development program for the US, post-Depression, to pool mortgage debt, guarantee and resell it. Fannie institutionalized this process. In doing so, it eliminated all the economic checks and balances by which banks up to that time made loans, held them on their books, then had to find willing buyers, should they wish to make new loans. Over time, this had the effect of building the banks up to much larger size than if Fannie hadn't been around funnelling all the banks' loan books off for resale after affixing its US government guarantee. This national insurance program process also tended to turn banks from savvy lenders concerned about debtor loan quality, into mere volume processing bureaucrats, lending under rules for loan quality that Fannie set. It was in fact, in its day, a brilliant program, as lending of mortgages certainly was easily routinizable, and it proved excellent for the country; in the 30s, according to Raghuram Ragan in his book Fault Lines, the average home mortgage was 50% down and no more than 5 years to pay off. However, for banks later to walk off with this Fannie process of securitization, for themselves, on a mass scale, with no intelligent oversight or proper regulation, in my view violated the spirit (at the very least) of the Securities and Securities Exchange Acts of 1933 and 1934. The economic checks and balances missing from the Fannie packaging process now needed to be reinstated. Each "package" being sold was equivalent to a company in which shares would be sold to the public. But there was no arms' length transaction or due diligence going on in the missing enterprise packaging step. The securities laws centralize checks against the potential for fraud in all dark pools, which all enterprises inherently are, in the form of detailed rules about material disclosures, and transparent public exchange trading. In the securities situation you also inherently have an arms' length transaction with due diligence in all dealings between a (reputable) investment bank, and the enterprise seeking to sell shares in itself. These missing economic transactional steps needed to be reinstated by regulators. Instead, the fad of the 1980's-90's was a generalized cry for "deregulation," which translated to regulators, pleasingly, as "don't bother to do any work."

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Just Energy

People have seen that it is not us but the autocracy that has fallen and people have risen against autocracies there.

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