Sorry, for the misleading title. But, I thought it made sense. The Wall Street Journal reports that President Obama is looking to introduce new regulations on banks, curbing their ability to use checking deposits to fund speculation on the market. aletta and Weisman write:
Mr. Obama is also expected to endorse, for the first time publicly, measures pushed by former Federal Reserve Chairman Paul Volcker, which would place restrictions on the proprietary trading done by commercial banks, essentially limiting the way banks bet with their own capital. Administration officials say they want to place “firewalls” between different divisions of financial companies to ensure banks don’t indirectly subsidize “speculative” trading through other subsidiaries that hold federally insured deposits.
This was also reported in a Spanish online periodical in greater depth. It seems to me that this measure will curb the amount of credit expansion, bringing about a new period of contraction. I am not sure that this is a good thing or a bad thing. Economically speaking, it’s a good thing only in the sense that the malinvestments of this post-recession era will finally show themselves. It can also be considered a bad thing, because it’s likely that this will lead to further regulation down the road (I am sure the government will know who or what to blame, in this event). Building on this last point, politically it can be a bad thing, because I am sure that the government will think of a good way to shift the blame on the market.
On the other hand, if a contraction did happen, I could at least say, “I told you so,” to everybody I have been arguing with in real-life.
They will simply place more arbitrary restrictions on what you can invest and what you cannot. It’s jut another step towards full blown socialism.
I don’t know why you think there will be any curb on credit expansion. Obama certainly doesn’t have a clue about what credit expansion even means, and I’m sure his Keynesian advisors who are well connected to the banks would have nothing of the kind.
Besides, how in the world would he finance his welfare plans and war? yes, that’s it. I’m sure one of the regulations would give banks incentives to buy more government securities. In fact, I’m willing to put money on it.
Stock market investors would probably respond negatively to such a measure being implemented (and even while the measure was going through the legislative process). The direction the stock market goes can be linked to general credit expansion, because generally a downward movement in the price of stocks tends to dissuade investors from borrowing. This was one of the major reasons, for example, that credit expansion slowed during the Recession of 1937 (see: Anderson, Benjamin M., Economics and the Public Welfare).
While banks would have other means of investing money, these could also mean less credit expansion. Investment in government securities, while an outlet for bank credit, may cause less of the borrowed money to be temporarily re-deposited (and then, again, fractured and lent out; this is the credit expansion process described by Hayek in Monetary Theory and the Trade Cycle).
I think this actually supports my case.
I’m not so sure. There have been many cases in which banks have handicapped themselves, or that the government has handicapped banks. I don’t think that the government is as smart as you make it out to be.
I just heard part of Obama’s speech on the television, but I wasn’t paying attention. It has something to do from disallowing a bank to become “too big to fail”. It probably also has something to do with allowing banks to lend the people’s money to evil, capitalist speculators.
The “too big to fail” phenomenon is government created, and now they want to intervene in the market and regulate the monstrosity they’ve created–priceless. It’s like the mother who poisons her son in order to take care of him.
As I heard Obama explain it, we need these limitations because when banks profit from excessive risk, they get to keep the money for themselves; when they fail, the taxpayers cover the costs.
I’m not sure which is preferable: Obama laughing maniacally behind the scenes, or being clueless as to the ridiculousness of the above argument.
It’s usually the other way around. The new money spills over into the stock market.
Other then short periods of time during recession, there has never been a case, since the establishment of the Fed, that banks haven’t been fully loaned up. Look at the excess reserve graph from the St. Louis Fed. What is happening now with the excess reserves is extraordinary.
Again, I don’t see any clue to what gives you this impression. The Fed could already limit expansion by not buying on the open market, keep the over the counter discount rate high and even raise reserve requirement above 10%
This is just more BS regulations of pretending to curb the greedy bankers from making bad loans
The banks will buy the securities with new money created out of thin air. The process itself requires credit expansion.
A $1 Million deposit will enable them to buy $9 Million of government securities. This is how the process works.
So you think its just PR? Maybe saving face after the flop of the healthcare bill…
Barak Obama: He was going to save the American Health Care System. He failed but I guess he regulated the banks a little. Take that free market capitalism!
NO. he’s going to advocate for much more regulations. No PR. I just don’t agree with the interpretation that this will somehow affect credit expansion.
Credit expansion and Fed’s backing is what creates the two big to fail. They’re not going to attack the cause. That would mean to go in the right direction. they will go the other way. They will put more planners in charge of the loans. That is all. Until the next bust..
That wasn’t what I was referring to. I will just quote the important part:
“…because generally a downward movement in the price of stocks tends to dissuade investors from borrowing.”
I’m not sure that this really applies to my argument. My argument is accounting for the psychological effects of bear market rallies in the stock market (downwards trends).
Okay? This isn’t very relevant to what I said. I am talking about the likely effects of this new regulation, not what the Federal Reserve could do instead. You might think that I believe that Obama is doing this as a measure against credit expansion explicitly. I would have thought that its obvious that this isn’t what I am thinking (as the opening post implies, the title is me being facetious).
Okay, but compare this to what you quoted.
Thanks for the lesson, but that doesn’t address what I said.
I feel as if I should probably be more specific, and regurgitate what I wrote above, as this is probably going to devolve into a “… no, you didn’t say that” type of debate, but I’m not sure it’s really worth it.
“I mean what’s their ulterior, sinister, special interest serving, motive? ;)”
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