Geithner to Outline Major Overhaul of Finance Rules

In an unregulated market, supply and demand set the interest rate. That is, if people are saving money, then banks have a big pool of money that they can loan from. If this is the case, there will be a low interest rate. Conversely, if people are spending, then the bank's pool of money is smaller. Thus creating higher interest rates. That's what happens when a free market regulates the interest rate.

But...

The Federal Reserve has a number of tools which can be used to manipulate the interest rate. If the banks have a small pool of money to lend from, then, naturally, the interest rate will be high. But that's not good, say Keynesians, because it's harder for people to get money to spend. So the FED artificially lowers the interest rate and makes it appear to people that there is more capital available (of course, this is not really the case). So now investments that didn't make sense with a higher interest rate, suddenly make sense with this artificially low interest rate.

So then, how is this an example of an unregulated, free market?

If the Government's manipulation of the interest rate is your only definition of regulation, then you are wasting my time.

Clearly it's not the only example of regulation; it's a good example though. The reason it's a good example is because the FED is the most influential institution behind the economic crisis.

And I will take your "failure to respond" to my claim that we do not have a free market, as agreeing with me.

I do not agree with you and I'm not interested in your red herring tangents. De-regulation caused our financial meltdown, precisely as a lack of regulation caused the Savings and Loan scandals. You can list all the auxiliary causes you like, but a lack of regulation is by far the single greatest cause.

And it's getting fixed, so deal with it.

Deregulation did NOT cause the current crisis. More regulation is merely focusing on correcting the consequences of the problem instead of the problem itself; that is, the Federal Reserve.

And if anyone's guilty of red herring, its your attempt to refocus the argument on "how many examples of regulation can you give me?"

Recap. You claimed that the government wasn't regulated. I gave an example, which Greenspan even admitted to, that showed we are detached from a free market. Then you say you want more examples. Red herring my fault? I don't understand.

Anyway it's baffling how the Obama goon squad, along with all the other Keynesians believe that we are going to inflate our way out of this mess.

The only thing I'm dealing with is the fact that nothing is getting fixed. We are just making the bubble bigger, and when it does pop (and the market is finally allowed to fix itself), then the pain will be that much greater.

i dont believe that neocongo can comprehend the concept.

when the government gets involved, it all goes wrong.

Deregulation did NOT cause the current crisis....

ah...it largely contributed to the problem. I actually work with various regulations. I've had to deal w/ various different regulators. I predicted (years ago) the issues that would be created by vast deregulation (though, I didn't predict to this extent).

My only guess is that none of you have worked for or with financial entities. Otherwise, you would know different.

You can make the argument that more regulation would have lessened the severity of this crisis, and to some extent, it might be true. But the fact is, you cannot regulate everything. It will not, and cannot happen. No person, nor group (besides the entire market as a whole) is smart enough to do so. If we regulate anything other than the FED, we are focusing on a consequence of the problem rather than the problem itself.

I also want to add this: The Austrian School of Economics has been predicting this crisis for years, and to this extent. The Austrian School also managed to do it without considering deregulation. In fact, F.A. Hayek won the Nobel Prize in Economics in 1974 for showing the the boom-bust business cycle was a direct result of central bank credit expansion. This, of course, artificially lowers the interest rates. As a result, new investments suddenly make sense with these low interest rates (when they otherwise would not). Moreover, since resources are limited, this drives prices up.

The constitution knows best and our politicians don't.

Why are we surprised when politicians play politics? It's not like they are supposed to be real adults... they are, after all, politicians and don't have real jobs and aren't playing around with their money.

"I have come to the conclusion that politics are too serious a matter to be left to the politicians."---
Charles De Gaulle

Your President Bush tried that with Lehman, and the results were so devastating, they didn't try it again.

Did you notice that? Did you?

Wake up dude. Your de-regulated, supply side fantasy park is closed.

They tried to late, they messed with our economy so much that they can't stop.

Our economy is meant to be a Free Market and our government has grossly disfigured that.

Let the banks fail. The economy is the responsibility of the people and NOT the government.

A free market is a market that is free of government intervention and regulation, besides the minimal function of maintaining the legal system and protecting property rights

A free market is one that regulates itself without the fed interfering.

Bush just made things worse with his first "stimulus".

Bush and Obama are the same person. Same shit, different wrapper. Do some research, dude.

neocongo -

What was so "devastating" about letting Lehman Brothers go belly up?

Afterall, the earth did not escape from its orbit and head straight towards the sun (to borrow an example from Thomas Woods), an unprofitable company was eliminated from the market and thus freed up squandered resourced which could be bought by profitable organizations.

everyone needs a big brother to tell them NO dont do that.. oh good luck trying to get a loan from all the banks that you'd let die, or actually what really matters, everyone being able to get loads and money.

Kuklamania -

If the banks do not have money to loan, that means people are not saving. Therefore, there is no money that can be loaned. Unless, of course, the FED steps in and deceives people into thinking that more capital exists than really does, in fact, exist. If that happens, more loans are taken out, and more resources are squandered (because the market cannot support all these investments). As investors learn that they have borrowed money only because of a manipulated interest rate (via the FED), they either redirect their resources, or can do nothing but file bankruptcy. When this happens, the market needs to readjust. So here's my question to you: if credit got us into this mess, how is more credit going to solve it?

It's like Keynes' fantasy - permanent boom.

One more thing, Kuklamania. If everyone needs a big brother, as you have claimed, who is big brother? And, moreover, who is big brother's big brother?

This self-refuting argument you have posted actually shows the absurdity of a centrally planned economy. The market is smarter than any one person, or subset of the market. The market not only is best at regulating itself, but it is necessary that it be allowed to regulate itself if we want stability.

What was so "devastating" about letting Lehman Brothers go belly up?

OMG, do any of you even have a job, let alone a job dealing with corporations that have suffered from the cross-collateralize instruments?

cybexg -

Welcome to the conversation. How about an example?

We don't even need The Department of Homeland Security!

We also don't need the Federal reserve, IRS, Department of Education. That is all up to the states.

The states are meant to be sovereign from the federal government. It's all gotten to inflated.

It is important to understand that regulators are not omniscient. It is not feasible for them to anticipate every possible thing that could go wrong with whatever industry or activity they are regulating. They are making their best guesses when formulating rules. It is often difficult for those being regulated to understand the many complex rules they are expected to follow. Very wealthy corporations hire attorneys who may discover a myriad of loopholes to exploit and render the spirit of the regulations null and void. For this reason, heavy regulation favors big business against those small businesses who cannot afford high-priced attorneys.

The other problem is the trust that people blindly put in regulations, and the moral hazard this creates. Too many people trust government regulators so completely that they abdicate their own common sense to these government bureaucrats. They trust that if something violates no law, it must be safe. How many scams have “It’s perfectly legal” as a hypnotic selling point, luring in the gullible?

Many people did not understand the financial house of cards that are derivatives, but since they were legal and promised a great return, people invested. It is much the same in any area rife with government involvement. Many feel that just because their children are getting good grades at a government school, they are getting a good education. After all, they are passing the government-mandated litmus test. But, this does not guarantee educational excellence. Neither is it always the case that a child who does NOT achieve good marks in school is going to be unsuccessful in life.

Is your drinking water safe, just because the government says it is? Is the internet going to magically become safer for your children if the government approves regulations on it? I would caution any parent against believing this would be the case. Nothing should take the place of your own common sense and due diligence.

These principles explain why the free market works so much better than a centrally planned economy. With central planning, everything shifts from one’s own judgment about safety, wisdom and relative benefits of a behavior, to the discretion of government bureaucrats. The question then becomes “what can I get away with,” and there will always be advantages for those who can afford lawyers to find the loopholes. The result then is that bad behavior, that would quickly fail under the free market, is propped up, protected and perpetuated, and sometimes good behavior is actually discouraged.

Regulation can actually benefit big business and corporate greed, while simultaneously killing small businesses that are the backbone of our now faltering economy. This is why I get so upset every time someone claims regulation can resolve the crisis that we are in. Rather, it will only exacerbate it.

Ron Paul wrote this on 11-11-2008.

Ron Paul 2012!

LMAO. What a tremendous apology for de-regulation.

Care to elaborate, or are you planing on making your point through rhetoric?

Got to say...I read the bbar's quote of RP's words much the same way as Neocongo has (meaning, I agree w/ Neo).