WHERE IS REGULATION NEEDED?

(This post is modified from one on the Motley Fool METAR  Board.)

There are many industries that can be deregulated. Interstate trucking was regulated by the "Commerce Clause" (Interstate  Commerce Act of 1887) but was finally deregulated by Jimmy Carter in the Motor Carrier Act off 1980.  The industry went through a difficult two years afterward of mergers and failures. A relative who worked in this industry said that ultimately he thought the consumer benefitted. The airline passenger industry may be another.  It was regulated by the Air Mail Act of 1925 and the Air Commerce Act of 1926.  Its deregulation was completed by President Carter in 1978.  I'm not sure in this case that the flux in the conversion is over yet, though I'm sure that over all there are benefits to the consumer.

Financial institutions cannot be degregulated. We are seeing the problems of doing so in our present economic situation (We are seeing that more regulation of derivatives is needed, not less.), but we are not alone. Financial institutions continue to be scandelous. The laundering scandal by Standard Chartered Bank involving $250 BILLION has followed hard on the scandal of involving lying about their LIBOR rates, principally by Barclay's. I take little comfort in these two scandals, brought to light just this year, are not primarily involving U.S. financial institutions.  Subpoenas for the scandal have now been received by Citigroup and J.P. Morgan Chase as well as by Deutsche Bank, HSBC, and Royal Bank of Scotland.

We have seen that financial insitutions will take every opportunity to make a quick buck, will lie, and cheat. It is very difficult to make them stick to their honest business of taking in money at some interest rate and loaning it out at another in a responsible way.

I am hardly alone in thinking that some financial insitutions have gotten too big and too diversified. Even David Stockman (Ronald Reagan's first OMB chief) feels that Glass-Steigal needs to be reinstated.


http://www.npr.org/blogs/thetwo-way/2012/08/14/158790727/british-bank-agrees-to-340-million-settlement-over-laundering-charges
http://money.usnews.com/money/blogs/the-smarter-mutual-fund-investor/2012/08/10/the-libor-scandal-and-you
http://www.bbc.co.uk/news/business-19276506
http://www.nytimes.com/2012/08/14/opinion/paul-ryans-fairy-tale-budget-plan.html?src=me&ref=general

SEPTEMBER 11, 2001 & THE FINANCIAL COLLAPSE

I realize that there are tens of thousands of people whose lives have been changed to various degrees: loss of a father or mother or brother, etc. It is not only the pain at a missed relative or friend, it can mean selling the house, maybe not going to college, all sorts of things. And it did change our nation in that we have been at war ever since in Afghanistan and Iraq (the big two), but Yemen and other places too in different degrees. In addition to the thousands of Americans and foreigners who died in 9/11 or suffered life changing injuries, there are more thousands who have died or suffered life changing injuries in our subsequent wars in lands far away.

But in my case, and that of millions of others, 9/11 didn't change our lives at all, as nearly as I can tell. I had already been retired for 6 years. It is true that the tech and biotech bubbles burst affected our investing style to a significant extent, and we incurred significant financial loss. I had never gotten involved in corporate bonds before or preferred stocks. But I do not see how these are related to 9/11. The housing boom affected our life in that we sold our home and moved to a lower cost state with some tax advantages just before the housing crash that has been with us since. The low interest rates in effect since the burst of the housing bubble certainly have consumed a lot of time trying to find something relatively safe that has a decent yield. Can we sell our current home and move to a retirement center? I don't know.

If I had to pick something that affected my life in this century, it would be the collapse of our financial industry due to deregulation and lack of regulation of the financial industry by the Bush Administration.* All those weird derivatives and synthetic derivatives left unchecked. It ruined our economy for the rest of my life and maybe forever. Places that have heavy regulation of their financial industry have done rather well such as Texas (a surprise) and Canada. You can deregulate industries like trucking and maybe the airlines. There will be pain, but the entire economy is not at hazard, and, maybe after some years, we come out ahead. The financial industry is different. They can't be left unchecked. As much as 9/11 may have affected America, it is the collapse of the financial industry that has most affected America. For example, Federal revenues are at a 60year low as a percent of GDP.

Where was I when the economy collapsed? I don't know. Perhaps September 15, 2008 was the date. That was when Lehman Brothers declared Chapter 11.

* President Clinton helped by signing repeal of the Glass-Steagal Act.