What All These Cries For "More Regulation!" Actually Mean

After years of unraveling regulations that "stifled the free-market," we're in the early stages of re-regulating everything. Some of the ideas are good, most are bad. Our regulatory systems and enforcement can always be improved. But let's be honest about what's really going on here.

Every time a market crashes, legislators decry shoddy rules, structures, and enforcement and demand that regulation be strengthened. The SEC was created in the early 1930s after the 1929 crash. Insider-trading laws were tightened after 1987. Sarbanes-Oxley was blown through in the wake of Enron. Etc. And now that the housing and stock markets are tanking again, legislators and the public are once again screaming for "more regulation!"

More regulation sounds great -- until you remember that, in good times, when all people have to do to win is play, they want less regulation, not more. In the bull stock market of the 1990s and the roaring housing market of the mid-2000s, the cries were for government to just get out of the way. People congratulated themselves for having the acumen to make money hand over fist, and were annoyed by "public servants" restricting their ability to do this.

(For example, many experts were screaming for years that mortgage lending had gotten out of hand; It wasn't that no one realized this -- It's that they didn't believe it and/or didn't want to hear it.)

In bear markets, meanwhile, the same folks who were congratulating themselves for being so brilliant in bull markets start losing money by the bushel. It's unpleasant to acknowledge that your success in the good times might have been the result of the market, not you, and it's a lot easier to blame someone else for your current pain. So that's what everyone is starting to do now: blame shoddy regulation. If the downturn continues, the finger-pointing will eventually proceed to prosecutions, scapegoating, and the tossing a bunch of designated villains in jail.

New regulations will also be adopted, all with the aim of preventing "what happened last time" from happening again next time. Some of the new rules will help things, some won't. (Regulators tend to fight the last war, and unless new regulations are adopted with extreme care, they usually create as many problems as they solve).

But as you listen to the cries for this new regulation, remember what people are really crying out for: A way to eliminate bear markets. A way to make the economic cycle as safe as a savings account. A way to make it impossible to lose money while retaining the ability to make it hand over fist.

Can't blame people for dreaming. But it ain't never going to happen.

Follow Henry Blodget on Twitter: www.twitter.com/hblodget

Comments

[Purple Girl]

Regulations are Smoke and Mirrors but it gives US more laws to Indict them On.
Anyone who Invest in the Lottery called WallStreet Knows and should have to survive their Gambling Loses. As for those they love to point at - Home buyers and Credit card Holders- Just blaming the victims- The New Home Buyers should be th efirst to be helped, then those who's lack of employment has Forced them to use Credit Cards to pay the bills. why do you think they Ok'ed for food to be purchased on Credit not long ago (knew they'd starve their 'labor' soon). these Highrollers should face the same System a Regular citizens faces when accused of Income Tax Fraud ( labor for Wages is a EVEN TRADE- no profit to tax!). Freeze & Seize, Prosecute & Sentence with the added charges of intnentionally destablizing the US economy...­TREASON, Reckless Endangerment.

[WIpatriot]

Henry, why does it crash?

Through absolutely no fault of anyone who is involved? Hardly.

I don't see anybody supporting your arguements. Except the playas.
Not here.

[Guitarsandmore]

Henry,

You are talking like an investor. Most people aren't investors and are just trying to buy a house or pay the electric bill and Countrywide is trying to throw them out of the house and Enron is jacking up the electric bill without any reason whatsoever other than to rip off the consumer for fun and profit.

Regulation really should stand for protecting the consumer, not the investor. The investor knows and understands there will be risks. The consumer just wants to buy something at a reasonable price and not get screwed to the wall.

Best Regards,

G&M

[bogananda666]

The climate of government today is to protect the investor class. That's what NAFTA, globalization and all the so called "free trade" agreements are about, protecting the investor class and now with the socialization of investment losses, by the Fed, consumer protection is farther off the radar than ever. It's a sweet deal for Wall St., the government creates loans, deficit spending, and gives the proceeds to the CORPORATE WELFARE KINGS and the principal and interest is paid by others, the individual taxpayers. The Bear Stearns is the example of the future and it's not to benefit consumers.

[snow]

I find this all so absolutely confusing that I glaze over after the second sentence. Truly, I try to understand it all....it would make my father very happy if I did....but I find myself reading the same sentence over and over.....
Someone needs to write "Dollars for Dummies" ...and hand out free copies on Wall Street!
Me....I'll wait for the movie...st­art working on that screenplay!

[Halsey]

snow...you­'re funny..gav­e me a morning chuckle..t­hanks!...

Henry..I am a dreaded stockbroke­r..buying boring things like General Electric..­.I don't like Sarbanne-O­xley...but also deplore Bill CLINTON's dismantling of Glass-Steg­all...my GAWD...the average investor has to put up 50% to buy on margin (I NEVER use margin myself...h­ate it..but)..­. Bear STearns was leveraging itself 90%...that is exactly what prompted 1929....ov­er leverage..­.of COURSE they should have the same high standards mr. john doe investor has.. but yes..the government will over regulate..­instead of...just reinstituting Glass-Steg­all...

by the way..how do we get all those millions of dollars in bonus bear paid their Wharton mba's who created these snake oil investment­s..to give their money BACK to the taxpayers who are bailing them out? just asking

[ranchobob]

No, you are completely wrong. What people are crying out for is the certainty that never again will billions of dollars be traded on, lost, and socked away off shore based on false estimations of what other people's debt will do in the future. Debt should not be a traded commodity.
If you don't get that, then you are not qualified to be blogging about finances and regulation.

In a country where people can't afford health care, where the defense budget is the 10 largest economy in the world, and where we can't afford social security but can afford to trillions for waste and corruption in an immoral and senseless war, people are disinclined to bail out large financial institutions with their tax dollars while the CEOS make HUNDREDS OF MILLIONS of dollars each year.

If you don't get that...

[bogananda666]

well said, than ks

[JScott]

Indeed!!!!
And let's not forget that back in the early 60's -70's time period there were not (as far as I know) any such thing as a subprime mortgage or variable interest rate mortgages, home prices were more in line with wages and this country did just fine but then some folks got greedy and whined about regulation and free markets etc. and found more parties that could be duped into buying this monetized and securitized debt who they could pass the risk down the line to and this is the result.
I'm sure there were 'voices in the dark' who said (but were ignored) that home prices are too high, people can't afford this debt and there will be a disaster in the financial markets.

[Rule Of Law]

You bethca! And we have Greenspan to thank for those as well--He's the one who directed the banks to come up with more "creative" ways to rip off prospective home owners.

[Sundialsvc4]

For the past fifty years or so, Wall Street has billed itself as a singular source of "true wealth." But its "wealth" consists of bits-and-bytes, and little words on little pieces of paper. That is not, and can never be, "true wealth."

No amount of regulation or non-regulation of Wall Street will effect the fundamental policy shift that our nation now requires. We need Rosie. As in "The Riveter." We need Sam. As in "that muscle-bound Uncle." We need to Produce. For ourselves. There is no other way that a nation of more than 320 million people can survive: we must give, as well as take.

Let us dispense with "We Sell For Less" and replace it with something American-style: "We Sell The Best." And most of it, by the way, we consume.

[Rule Of Law]

Henry, you use the pronoun, "People," over and over again to describe those at the very top who are angling for either more or less regulation. That is patently misleading. Paulson, Bernanke, Greenspan et al can hardly be called The People, let alone human!

As for your notion that this new wave of "re-regulation" being proposed by those great minds that got us into this is in any way a populist response to a manufactured economic heist; bullfeathers! We are talking about taking Federal oversight, meaning, in a perfect world, the people and their representatives, and privatizing it--placing all the power for regulating the behavior of the Financial Elites, into their waiting hands. Fox--Henhouse! You get the picture.

And, I will be totally non-partisan; we find ourselves on the brink of economic disaster today due to the actions of two presidents, Reagan and Clinton, whose repeal of the protections that prevented Big Finance from running these shell games has crossed party lines, exposed the liberal vs conservative lie when it comes to stealing from the people--it is we, after all who will end up bailing out these thieves--and shown us that there is only one party in America today. And it's symbol is the Dollar $ign!

[bogananda666]

Not to mention the 1996 telecom bill, singed by Cliton, oops Clinton, among others.

[Rule Of Law]

No wonder Murdoch supports Hillary. Nice faux pas!

[newshawk14]

I find this article Idiotic. The big push for deregulation began with Reagan, one of the results
was the S & L disaster. Both Bushes have continued the pattern, and to a lesser extent Clinton.
The results have been Enron, Tyco, contaminated beef, disastrous products from China, and
not being able to trust our meat products. Right, isn't deregulation great???

[AnotherMcIntosh]

You are absolutely right.

The push for new "regulation" is just double-speak for more de-regulation.

[Rule Of Law]

And party affiliation plays, almost,not role in it. Then Money speaks to both sides of the aisle.

[bogananda666]

Actually Carter started it.

[indypete]

"A way to make it impossible to lose money while retaining the ability to make it hand over fist."

CEOs and politicians already have that!

[PistonMoaned]

Mr. Nail, indypete has just struck you squarely upon your head.

[indypete]

Holy shit! I said something smart? I was just trying to get a cheap laugh with the obvious! Thanks, Piston, you made my day!

[ChibiOne]

Yes, amazing how, every time there's a problem, regulation is put in place....a­nd the problem goes away. The problem is not regulation (although too much is bad, certainly). What happens is people get more money, and more influence, during the good times, and get rid of regulation so they can exercise their greed and make even more money. People somehow believe that a logorithmic curve is a good thing. They forget that the regulation played a *key* part in making the economy stable enough, and fair enough, that *everyone* could make some money...no­t just the people at the top of the pyramid. So, the call goes out for deregulation, talking about the fact that it is getting in the way of them making money. However, it is almost always the case that the methods the regulation are getting in the way of are regulated *precisely because* they are unstable. They produce short term gain with a long-term cost that is unsustainable. Invariably, those playing these "games" know this, and their only solution is to try to put the long-term cost off on someone else, while keeping the short-term gain for themselves. They are literally, to quote another; socializing losses of companies, while privatizing the gains. The public pays for their failures, and the executives and administrators reap the rewards of the successes.

Really stop and think about that.

[montemalone]

The truth is always painfully obvious. I say painfully because for most people it must hurt to think.
What you write is true.
The rich got that way because of the rules that were in place.
The selfish, hateful, greedy bastards just want it all, and screw you for asking.

[archerlane]

What the sub prime mess has shown is the fact that Wall street is a rigged game. The elite money makers of the finance world ALL knew what was happening , they were packaging and selling shit to the world. The FED is a none government entity that is in large part responsible for the mess to begin with and the solution proposed is to keep them in control and give them more power. How stupid of them to think we the public are that stupid.
With this new regulation, you do not here too much on transparency. Tranparency is the last thing the Wall street elite want because with sunshine comes a clear view on how rigged and crooked the game is. Ask your self, If the system is full of self regulation, why, after the subprime mess blew open in August of 2007 are we still finding out about losses? Don't you think that honest, self regulating people would identify the problems quickly to help?
There is more than bad mortgages being hidden from view, selling of counterfeits shares(FTDs), market manipulation "Uptick rule removal" and lack of enforcement of existing regulations. Take a look at Deepcapture.com to gain more insight.

[Robert59]

Great post. And it didn't help matters when Mr. Fed, Alan Greenspan, encouraged people to take out ARMs. I've wondered the same thing about the losses. Today I heard for the first time 1 trillion dollars in write downs. Is that it or will we hear next month they meant 2 trillion dollars?

We have sacrificed the making of tangible goods, things you can actually see, touch, use, for intangible paper to drive our economy. 20 percent of our GDP is tied to the finance sector and only 12 percent tied to manufacturing.

And Wall Street needs more regulation, not less, and if we're all so keen on capitalism, let them go under and if they've committed fraud send them to jail.

More regulation would have prevented these thieves from filling people with their hype. They remind me of drug dealers. Only the top make any real money, everyone else chases chump change.

[bogananda666]

Lack of transparency allows more corruption which is why most corruption is private and why the government is being privatized to allow for more corruption of public funds. That's what privatization is all about. Don't think the politicians don't realize this and get their cut. Bush 2 and Jeb in Florida have lead the privatization charge and in both instances government spending has increased with a decrease in services. That's how corruption is determined.

[xoogman]

Hi,

Isn;t this the .dot com analyst tied to insider trading and scammery ?

[knowhelpnow]

The only good regulations are the ones that are really done. Most of the regulations were either deregulated or just sort of forgotten. Republicans want deregulation but they don't want their elite group to suffer when it burst like the Feds jump in and co-sign for Bear Sterns (WHY) but the homeowners in the millions will suffer this down fall just like we have suffer this stupid tax reform for the rich, I don't know what happened to the trickle down part. I know the CEO's are making unheard of salaries while the average workers income has really lost value. Is this the free market that the Republicans love well I guess it is. We will go back to the early 20th Century when you had the elite and the workers if we do not stop this FREE MARKET stupidity. These huge Corporation don't care about people they care about the bottom line and how much they can make.

[hawkeye58]

Someone else said it, but I'll repeat it. Wall Street wants to privatize profits but socialize their losses.

[bogananda666]

Socialism for the wealthy capitalism for the poor.

[joekonn]

When exactly was Milton Friedman canonized?

This baloney about no regulation is akin to virgin births and golden tablets. In what other sphere of human activity are there no rules? Without regulation either most of us will starve during those 'corrections' or there would be revolution, or, perhaps, a chaotic 'after the 3 world war' scenario.

How about no regulations and no bailouts?

[apduncan1]

I second the motion.

This economy is a Ponzi scheme.

[GJMandinka]

You are right on. Without intelligent regulation, the markets binge and purge. There Are natural market cycles. Intelligent regulation can do nothing but moderate the highs and lows. What we are seeing now as a result of almost no regulation, is an over-consolidated finance sector with debts completely unrelated to actual assets and in some cases (derivates) extending to amounts beyond world gdp. The kind of brewing financial disaster that would make us pine for the halcyon days of the Great Depression. We cannot control market cycles, but regulation can mitigate the extent of the disaster at the bottom of these cycles. I would also argue that government should resume one of it's oldest, historical duties. Government should stockpile resources for bad times. We have a strategic oil reserve. We, until very recently, had a strategic grain reserve; why not a strategic cash reserve? We could keep it in a big bank, maybe somewhere like Kentucky..­.

[JumboBurrito]

There are winners and losers in these speculatory bubbles. Blodgett appers to be saying that the winners and the losers are the same people in different stages of the bubble. But that is not the case.

Predatory lending practices allowed people with poor credit to obtain mortgages. The expansion of the housing market beyond the credit-worthy caused a huge increase in real estate prices. This priced housing beyond the reach of the prudent. But the gullible were persuaded that they had better get in before the prices went even higher.

So who won? Homeowners who had bought their houses before the bubble. Real estate agents who received huge commissions. Developers and construction workers. Loan sharks..

The losers? Young people priced out the housing market. Gullible home buyers who are now facing foreclosure. Taxpayers who are being asked to bail out sub-prime lenders. Homeowners who overpaid for their houses.

Regulation would have prevented predatory lending practices. Housing prices would have appreciated at a slow measured rate. People who actually could afford to buy a house would have been able to buy at a reasonable price.

[Rule Of Law]

Add in the fact that Florida, another nice Republican haven, lead the nation in fraudulent mortgages. And most of those were written for minorities who Never thought they'd be home owners and believed their brokers when they signed on those inflated lines! Look for huge class action suits there--If BushCo still allows the courts to work, that is.