1.) By not passing Glass-Steagall in the 1st place.
2.) By not bailing out banks.
Dodd-Frank claims that with their bill, there will no longer be "Too big to fail".
Instead of bailing out banks, we will now start bailing out derivative clearing houses.
Only a moron would assume Dodd-Frank did anything at all to fix the system.
Glass-Steagall is still there.
"Too big to fail" is still there.
Do those 3 things LegendKiller mentioned earlier and you will fix most of the problems with the financial system. Add stop bailing out banks to those 3 things and you will fix 99% of the problems.
So your solution to banks exploiting regulatory loopholes is to give up regulation? I'm gonna have to think that one over for a bit...
Everyone loves to attribute the repeal of Glass-Steagall on the financial crisis but my thesis is that there was so much demand for mortgages and mortgage securities that the bubble pop would have happened with the same severity anyway even if it had never been repealed. Ultimately, the banks would have figured out a way to lend out the money one way or another while side-stepping Glass-Steagall.
Bankers were producing the securities because there was demand from homeowners and to-be homeowners. Americans need only to look in the mirror for the mess - they caused it by wanting the American dream of owning a home, not the bankers. Bankers were only doing what the population demanded. Without that demand, bankers would not have created the securities.
You have it backwards. There was enormous demand-mostly from overseas-for solid as a rock USA securities. Wall Street created a bogus, convulted system of packaging mortgage backed securities (implicitly USA backed through Freddie Mac and Fannie Mae). As the demand for these securities grew, so grew the demand for more mortgages. Lenders-driven by Wall Streets appetite for ANY mortgages, together with the knowledge that if the loans went sour they wouldn't hold the bag, basically totally abandoned any pretense of responsible underwriting practices and would give a mortgage to anyone who could fog a mirror.
It was ultimately a failure to have effective regulation-due to our long standing trend to deregulate and cut regulator's budgets.
To abandon the concept of regulation altogether is moronic. It's like saying my house was robbed and the robber never caught, so we might as well dissolve the police department altogether.
What came first, chicken or the egg?
I will go back to, without greedy Americans who were dead set on buying a home, the crisis would have never happened. You can blame drug dealers all you want but without users, drug dealers would not be creating new strains of more dangerous drugs.
If you put up regulation and it does nothing but cause the entities being regulated to just find loopholes to exploit it, then what's the point? So you feel good and politicians can say "see, we tried!"
Or... you could close the loopholes... maybe?
The way rules are enforced seems to matter, too. The Canadian system is based on principles, rather than rules. It is about the spirit, rather than the letter, of the law. For Dickson, that means “we want to be told everything that is going on. We don’t want to have a list of boxes that we tick because that’s not very effective.” She is particularly disdainful of a legalistic approach. “Having lawyers looking at this line or that clause and debating with you about whether something is do-able or not is not the right conversation to have. The right conversation is the principle. You have to know what risks you are undertaking.”
The bank chiefs seem to get the message. According to Clark, whose TD bank has significant operations in the US: “The message in the US is it’s your responsibility to meet our rules. In Canada, the responsibility is to run the institution right. Julie says [to the CEO]: you are the chief risk officer of the bank.
Our problem is that we have no political will. We have stupid fuck conservatives who balk at the word 'regulation' and the rest of the politicans whittle down any regulatory bill that comes up for vote when armies of lobbyists come out of the woodwork to fuck it up. Edit: That and the fact that we've been deregulating for several decades, thanks to lobbyists again. That and regulatory capture of the SEC and other regulatory bodies.
For some reason I thought of Moses walking down with the ten commandments to a crowd of conservatives. "This is onerous regulation! What about independent contractors?! The market should decide if and when to kill!" And so on and so forth with every commandment.
If the loan is backed by the federal government through Freddie Mac, Frannie Mae, FHA loans, and other methods, why should the banks have to conduct any "due diligence" on their part?When a hair-dresser with no assets goes to every bank in town and asks for 400k to buy a house, they should all turn him/her down. It shouldn't matter how badly he/she wants the house. That's banking 101.
If the loan is backed by the federal government through Freddie Mac, Frannie Mae, FHA loans, and other methods, why should the banks have to conduct any "due diligence" on their part?
You know why banks didn't do 'due diligence' back then? Because the originators pretty much didn't keep the loans. When you originate a loan, sell it to a bank, the bank sells it to an investment bank, the investment bank packages the loan into a security and sells it to some sucker pension fund, why on earth would any of them do any due dilligence? In fact, not keeping the loan incentivizes fraud.
The only time banks cared about being careful with loans was back in the day when banks were privately held partnerships (rather than publicly traded companies) and they kept the loans they originated. Senior execs of those banks held lots of equity in the bank and had every reason to make sure the loans were sound. We're talking way back though.
Also, something else to ponder:
http://bonddad.blogspot.com/2011/11/about-that-gsecra-causing-bubble.html
If the loan is backed by the federal government through Freddie Mac, Frannie Mae, FHA loans, and other methods, why should the banks have to conduct any "due diligence" on their part?
It's actually a bit more complicated than that - the originators vouched for all the underlying notes and sponsor entities (ie banks) had recourse in case of misrepresentation and fraud. Then the banks passed that guarantee on the actual investors, which is why you see sponsors being sued by pension funds and institutional money.
BAC got hugely f'd with the country wide acquisition, that company was nothing but a liability due to the above.
ROFL. This is truly so insignificant that isn't not even worth mentioning. As somebody said, let me know when it hits a trillion, then I'll stop scoffing.
What came first, chicken or the egg?
I will go back to, without greedy Americans who were dead set on buying a home, the crisis would have never happened. You can blame drug dealers all you want but without users, drug dealers would not be creating new strains of more dangerous drugs.