Should Individuals Be Regulated Like Wall St. Banks?

[Marcus Bryant]

http://business.theatlantic.com/2010/02/since_the_beginning_of_the.php


The average American deserves protection not only from Wall Street, but also from himself. What if, hypothetically, we imposed regulations on individuals similar to those imposed on banks? Here are three ideas for saving average Americans from our own worst impulses....

[ElNono]

I'm too big to fail!!!!

[balli]

I know the column is about economics, but in general? I'd say yes. People these days need to be thought for. They can't handle thinking, on their own. It's going to take a strong and cruel hand. Hopefully mine.

[Winehole23]

I think your avatar already gave us some insight in that vein, but I applaud your frank and confiding expression, balli. :toast

[Winehole23]

The bubble in housing really wasn't possible without a lot of dumb buyers. The backup in inventory is still two years. WTF?

[angrydude]

no. What half the media doesn't seem to understand is that banks are different from other big businesses and people. Banks are the money supply and things get really screwed up when they mess that up.

[boutons_deux]

"bubble in housing really wasn't possible without a lot of dumb buyers."

take two to tango, but for some reason you right wingers always say it's the citizen at fault, NEVER the corporation.

and was made possible by a lot of predatory, very smart, dishonest lenders, regulated and non-regulated, who NEVER should have written the mortgages, but knew they didn't have to service the loan, knew they could sell pocket their fees, and dump the (crap) loans into the financial netherworld.

Dumb buyers seem to have disappeared now that federal regulations on mortgages are being enforced on mortgage lending, and non-regulated lenders have disappeared.

To avoid regulation, the TBTF regulated banks formed non-regulated lending subsidiaries so they could get into the slimey bubble inflating.


One financial reform should be that lenders must be forced to service the loan to maturity (like in DK where there was no housing crisis).

[Drachen]

I read the article, and I like all that is imposed, though I didn't understand the part about 6 times debt/income. How can you go over 1X debt to income? or is it saying total debt to yearly income? For example if you have credit cards totalling 10k debt, 2 car loans totally 20k and a student loan for 10k, then you couldn't get a mortgage for more than 140k if you made 30,000? (30,000 * 6 = 180,000 - 10,000 - 10,000 - 20,000 = 140,000)

[Winehole23]

"bubble in housing really wasn't possible without a lot of dumb buyers."

take two to tango, but for some reason you right wingers always say it's the citizen at fault, NEVER the corporation.You forget who you're talking to.

I've blasted the banks, the rating agencies, the Fed, the GSE's, AIG, the erstwhile broker-dealers and financial banking in these pages, but I so much as mention that there is responsibility on the other side of the transaction too, and I turn into "stereotypical" right winger.

I can see it for what it is, boutons: hackery above and beyond the the high expectations you've already created for it.

[Drachen]

Boutons:

We all know how successful supply-side regulations are from our experience in the War on Drugs.

Kidding aside, why not regulate both sides? Honestly, despite what the author says, what he proposes are just more bank regulations anyway. For example, the BANK can't lend to a borrower who has less than a 20-30% down payment. He didn't say that banks can lend however they see fit, but if a person takes out a mortgage for a house with a less than 30% down payment, then they go to jail/pay a fine. Just another bank regulation, the title of the article is misleading. Doesn't mean I dont agree with the proposals.

[mogrovejo]

The banks aren't living beings. The decisions are made by individuals - all of them. Regulating banks is not that different from regulating individuals.

And when there's too much liquidity in the market, people (individuals or those associated in corporations like banks or others) will create a cycle of malinvestment.

[coyotes_geek]

Makes sense. Banks and people behave the same way. Both want the freedom to make whatever decisions they want to. When those decisions don't work out to their liking both look to others to bail them out.

[boutons_deux]

"why not regulate both sides"

banks WERE regulated, but the Repug Exec didn't enforce the regs, while blocking Spitzer/NY and a group of dozens of other state that tried to block predatory lending.

When the FEDERAL regs says the lender will not lend unless it sees at least 2 years of IRS, bank, rent, credit card, utilities papers, (which is NOW how it is), no deal.

What else is there to reglulate on the borrower's side.

The regs/federal penalties are also in place for lying on mortgage applications, but banks and non-bank lenders accepted "stated income" and made Liar's Loans anyway.

[Winehole23]

The notion that lenders and consumers can be kept out of trouble by some virtuous scheme of regulation has obvious political appeal, but not so obvious applicability to history. Regulation has yet to "break" the business cycle.

OTOH, it would seem improvident not to limit our losses beforehand, or at least cushion the impact of them, by limiting the exposure of the US taxpayer to the risk TBTFs take on, now that we know socializing the risk (in case of default) is a structural feature of capitalism in the US.

As long as the banks do their due diligence, very few borrowers will prove to be uncreditworthy, but they didn't, we crapped out big time, so now comes an article in the Atlantic saying the government ought to regulate savings and debt levels for individuals too.

[mogrovejo]

People, bank managers or guys looking to buy a new house alike, make bad decisions all the time. Given bad incentives - like artificially cheap money - those bad decisions will multiply and become massive.

If people making bad decisions is a valid reason to institute regulations, then there's no reason why the access to fast food or alcohol shouldn't be regulated. Or one's sexual behaviour. It basically justifies all the current prohibitionist laws and then more.

[Winehole23]

If people making bad decisions is a valid reason to institute regulations, then there's no reason why the access to fast food or alcohol shouldn't be regulated.Alcohol is regulated. Fast food is regulated in some places. Your point?

[Winehole23]

For the record, my answer to the banner question is no, and HELL no.

[Marcus Bryant]

For the record, my answer to the banner question is no, and HELL no.

Sure, but this does seem to be the inevitable result of the managed economy. Uncle Sam, in addition to taking a significant chunk out of individuals' incomes annually, sees fit to take control of their household budgets.

Hence the proposal to require individuals to purchase health insurance. Perhaps soon enough we will have a federally mandated budget which every American must follow (how about limits on what we can spend on fast food?)

"Let's Move!"

[Marcus Bryant]

Of course, a majority would be perfectly comfortable with a federally mandated household budget, pleased that someone else can worry about it while they view classic episodes from Survivor: Heroes vs. Villains.

[ElNono]

Of course, a majority would be perfectly comfortable with a federally mandated household budget, pleased that someone else can worry about it while they view classic episodes from Survivor: Heroes vs. Villains.

If they do one more season of Lost, I'll let them write my shopping list too...

[mogrovejo]

Kidding aside, why not regulate both sides? Honestly, despite what the author says, what he proposes are just more bank regulations anyway.

There aren't "regulations for banks" and "regulations for individuals". That is nonsense. The crazies who favour regulations for banks but refuse regulations for individuals are know-nothings. A regulation strikes certain acts that result from certain decision making processes. Only individuals, acting individually or through co-operation with others, can act or make decisions. A regulation prevents something to be done - by actively limiting one or the other part of doing it, it becomes applicable to everybody, not just for the part being formally regulated. The idea that "regulating banks" isn't a burden on the liberty of individuals, and not only of those who own/work for banks but all individuals, is an absurdity produced by mediocre brains.

[Marcus Bryant]

Yet individuals expect their own unique bailouts from the federal government.

[ElNono]

Yet individuals expect their own unique bailouts from the federal government.

Why not? What makes bankers 'special'? (yes, I'm being sarcastic, or maybe not)

[mogrovejo]

Yet individuals expect their own unique bailouts from the federal government.

In the end, all bail-outs serve individuals. It's not like GM or Goldman Sachs are grateful for the bail-outs: their shareholders and workers are.

[Winehole23]

The bondholders. You left them out.