The impossible economy

[wmLambert]

I'm pretty sure you sincerely believe all of that.  Sad.

As Seriati posted:

...nothing about these rules relaxes the requirements on closing the non-compliant toxic waste piles, other than to delay them in certain circumstances to allow reasonable alternatives to be put in place.  If you don't want the delay, then the alternative would be immediate shut down of a significant part of the power grid, or putting the costs of alternative disposal fully on consumers (which would involve - more than likely, moving toxic waste around the country by truck or train - that's a process that risks spreading it everywhere).

So again, the "evil" Trump admin is still putting in place closings of toxic waste piles, at greater rates than Obama's regulation required, and encouraging more recyclying, but "evilly" allowing plants a reasonable amount of time to implement the changes.

[NobleHunter]

You do see the contradiction in your last two posts, right?

[wmLambert]

You do see the contradiction in your last two posts, right?

You do realize that relaxing the Obama dictatorial fiats is not hurting the environment? I, personally recognize that Nature routinely culls unsuccessful species that have been replaced by more viable ones at a rate of tens of thousand per year, yet we get iron-clad rules to protect snail darters and spotted owls when not required. Yes, most EPA regulations deserve to be re-evaluated. Let the Free Market work.

[NobleHunter]

That would be a no. Do you think companies are closing the sites because of the Free Market?

[wmLambert]

That would be a no. Do you think companies are closing the sites because of the Free Market?

What in "...in certain circumstances to allow reasonable alternatives to be put in place" do you not understand?

Will await more bloviating and insult.

[NobleHunter]

And why are they putting reasonable alternatives in place? Because people won't buy their products? Or otherwise refuse to engage in commerce with them?

[wmLambert]

The economy works in good and bad ways. In Midland, Michigan, two dams broke and caused huge flooding. The problem was that the dams were privately owned. and the expected fixes and repairs to them coat upwards of $100 million, and the owner of one dam had an agreement to be bought out in the near future for $9 million where the new owner would have the wherewithal to do the repairs. Of course, Governor Whitmer has announced "investigations." If the investigations show the warnings of possible failure was time-specific, then the owners will be found criminally negligent. The workings of the economy is sometimes easily workable - and sometimes not. In this instance, the economic ability of the owner to do the necessary upkeep wasn't there. but he was working to get it done. Mother Nature stepped in too son for him.

Infrastructure everywhere is a major problem. Obama had many "shovel ready" projects that he took money for which never were begun. The same is still operable. Trump had requested infrastructure funding in his budget that Pelosi refused.

[Fenring]

It amazes me that the "free market" can be seen as anything other than "people will do anything they please unless forced to stop." Forcing can occur due to consumer pressure like stopping buying Nestle products. But more often than not it can only be done on behalf of the people, since they rarely have the wherewithal to keep daily boycott lists and also are unaware of most serious issues unless they become national sensations. Industrialists would dump nuclear waste in local lakes if they thought no one would say anything about it. That anyone should doubt this to be so is just ignorance of history and reality.

[wmLambert]

It amazes me that the "free market" can be seen as anything other than "people will do anything they please unless forced to stop." Forcing can occur due to consumer pressure like stopping buying Nestle products. But more often than not it can only be done on behalf of the people, since they rarely have the wherewithal to keep daily boycott lists and also are unaware of most serious issues unless they become national sensations. Industrialists would dump nuclear waste in local lakes if they thought no one would say anything about it. That anyone should doubt this to be so is just ignorance of history and reality.

Free Market as opposed to big government running everything.

The history of our country is clear: It was the government that charged outrageous prices and tried to pawn off shoddy merchandise, while the private businesses that supplanted them did the job right, charged lower prices, and did it without government subsidies that kept the monopolies afloat.

The school books give the impression that robber barons stepped in to exploit whatever they could, and were a negative point in history. The lesson the books should be teaching is that in the world of commerce, the profit motive, the structure of incentives. and the stifling tendencies of bureaucrats are such that those businesses run by entrepreneurs will consistently outperform those run by the government. Instead, the authors had a bias for a strong central government. When the authors were called on these reports, they agreed that they were not reporting fact, but incorrect, unsubstantiated ideology.

[TheDrake]

If only businesses would operate under Ayn Rand Objectivist principles, then the free market would be awesome. Unfortunately, some can be petty, fraudulent, predatory, conspiratorial, discriminatory, dangerous, and even violent. When left unchecked, we can drag out thousands of examples of bad behaviour. It is unacceptable to say "well you can sue them afterward" because often there is no money left to pay a judgement by that point, employees have been maimed, and lives have been lost in the interim.

Or maybe you think that apartment buildings would be just as safe if we had no building codes and no inspections. Cause, you know, the free market cures all. Or perhaps you would just blame the person who bought the house because its their personal responsibility to know structural engineering, electrical engineering, materials science, and plumbing.

[Kasandra]

Free Market as opposed to big government running everything.

Why are you pretending to ignore all of Trump's intrusions into the "Free Market"?

[yossarian22c]

So the Keynesian model works. When the government runs trillion dollar deficits it boosts the economy. Its amazing, just amazing how that works. The tax cuts were effectively a stimulus to an economy that was going okay and they boosted grown by about 1%.

Unfortunately I think the reduced regulations are short term gain for long term pain. Environmental damage is expensive to clean up. Also the stimulus while the economy is going along pretty well is going to make it hard to respond if we do have another recession. Unless everyone is cool with 2 trillion dollar deficits.

And now we see the tax cuts before Covid made the stimulus measures run huge deficits and we're seeing the effects of cutting regulations, hazardous materials spilled from derailed trains and failing banks. Trump reduced regulations in both areas. Just wondering if everyone else is still all for all those reduced regulations and tax cuts for corporations and the rich?

[Fenring]

To be fair the banks that are failing are do so as a result of bad behavior, not bad regulation. The regulation is pretty strong in the banking sector. What Silicon Valley Bank did was legal, just stupid.

[msquared]

It just means they need more de-regulation and tax cuts. We did not go far enough.

[yossarian22c]

To be fair the banks that are failing are do so as a result of bad behavior, not bad regulation. The regulation is pretty strong in the banking sector. What Silicon Valley Bank did was legal, just stupid.

Regulations were cut for banks that size. Less oversite. SVB didn't do anything that stupid. They just bought too many long term treasury bonds at low rates and got soaked when the bond rates went up. It wasn't some kind of crazy subprime pass the bag scam or a bunch of crazy risky loans to start ups that failed. Their bond portfolio got caught underwater because of rising interest rates. It was poor planning to be that long on long term treasuries at low interest rates, but that is the type of thing that the stress tests and Dodd/Frank were meant to address but those regulations were scaled back for regional banks in 2018.

[Fenring]

Regulations were cut for banks that size. Less oversite. SVB didn't do anything that stupid. They just bought too many long term treasury bonds at low rates and got soaked when the bond rates went up. It wasn't some kind of crazy subprime pass the bag scam or a bunch of crazy risky loans to start ups that failed. Their bond portfolio got caught underwater because of rising interest rates. It was poor planning to be that long on long term treasuries at low interest rates, but that is the type of thing that the stress tests and Dodd/Frank were meant to address but those regulations were scaled back for regional banks in 2018.

You would have to get into the weeds and see what financial sector experts are explaining, but basically it's banking 101 to purchase interest rate hedges against the bonds, so that if one goes up the other goes down. According to these experts their failure to do so was deliberate and like playing the casino, in that they were greedily trying to avoid paying the cost of the hedges and hoping nothing would go wrong. Their bond holdings also far exceed most other banks as a part of their portfolio. They also went for 9 months in 2022 with no chief risk officer. They put most of their bonds into an accounting category called HTM in order to hide losses from appearance on the books. What's more, they kept their total balance sheet just below the amount that would place them in a tighter regulatory category, meaning they very deliberately pushed the risk limits to the max in all categories while not doing their due diligence in risk management. They were pretty clearly acting with wild abandon in a wide variety of ways, and that's why their CEO and CFO are being sued now.

[yossarian22c]

Regulations were cut for banks that size. Less oversite. SVB didn't do anything that stupid. They just bought too many long term treasury bonds at low rates and got soaked when the bond rates went up. It wasn't some kind of crazy subprime pass the bag scam or a bunch of crazy risky loans to start ups that failed. Their bond portfolio got caught underwater because of rising interest rates. It was poor planning to be that long on long term treasuries at low interest rates, but that is the type of thing that the stress tests and Dodd/Frank were meant to address but those regulations were scaled back for regional banks in 2018.

You would have to get into the weeds and see what financial sector experts are explaining, but basically it's banking 101 to purchase interest rate hedges against the bonds, so that if one goes up the other goes down. According to these experts their failure to do so was deliberate and like playing the casino, in that they were greedily trying to avoid paying the cost of the hedges and hoping nothing would go wrong. Their bond holdings also far exceed most other banks as a part of their portfolio. They also went for 9 months in 2022 with no chief risk officer. They put most of their bonds into an accounting category called HTM in order to hide losses from appearance on the books. What's more, they kept their total balance sheet just below the amount that would place them in a tighter regulatory category, meaning they very deliberately pushed the risk limits to the max in all categories while not doing their due diligence in risk management. They were pretty clearly acting with wild abandon in a wide variety of ways, and that's why their CEO and CFO are being sued now.

And why were they able to avoid the regulations by keeping their balance sheet slightly lower? Because Trump repealed them for regional banks. Without that they would have had more scrutiny and couldn't have played those games for higher returns.

[msquared]

You all have it all wrong. They were woke, that is why they went belly up. Didn't you read what Trump said. It is not his fault. Nothing is ever his fault. He was perfect.

[rightleft22]

Corporations are people, but unlike other persons don't require silly things like regulations or laws in order to do the right and responsible things for the greater good of society.

Corporations first concern is society and then its shareholders and profit. No big government regulations required which only harms the people.  Trust and don't verify no need to worry your sweat little head. All will be well.

[Fenring]

And why were they able to avoid the regulations by keeping their balance sheet slightly lower? Because Trump repealed them for regional banks. Without that they would have had more scrutiny and couldn't have played those games for higher returns.

This is a fair point, but no matter what the regulatory line was someone was always within their powers to skirt toward the edge and abuse it. Now this bank was a bit unique because their business model was literally to do business with mostly the riskiest clients in the world, and so it would maybe be hard to limit the size of their bank to $49.99B if people were throwing money at them. But you could just find some other bank sized $49.999B who chose to do things just as risky, and they would have gone under just the same. The main difference is the smaller the bank the more likely the Fed would just let them go bankrupt, whereas a $250B bank apparently can get a de facto bailout. Btw I've heard from some ex-Fed bankers as well as ex-treasury people, and this type of bailout for this type of bank is unprecedented, so whether it was this bank or one sized $49.999B (prior to Trump regulatory change) it should rightly have gone under based on expectation. The best argument you could make for the distinction here is that it's 'better' if smaller banks go under, but less desirable for a larger bank to fail. Either way if someone wants to act like an idiot and run their company into the ground they'll find a way to do it. The regulation wouldn't stop them doing that. And by the way, the banking regulations on the larger banks have to do with the types and quantities of reserves they have to have, but do not dictate how well they have to run their business. If Morgan Stanley used the wrong hedges or calculated everything poorly, or made other bad business decisions, they could go out of business too, regulation or no regulation. You can lead a horse to water...

[Fenring]

By the way, you all seem to think I'm making some kind of anti-regulation argument, which is totally missing the point. If I had my way I'd probably require more regulation than any of you could stomach. You'd probably call me a dictator. My point is that Trump may have opened the gate wider than it had been before, but no one forced them to run their business in this fashion.

[yossarian22c]

By the way, you all seem to think I'm making some kind of anti-regulation argument, which is totally missing the point. If I had my way I'd probably require more regulation than any of you could stomach. You'd probably call me a dictator. My point is that Trump may have opened the gate wider than it had been before, but no one forced them to run their business in this fashion.

I agree the bank could have self regulated. But they didn't and they failed. Just another reminder why we have these regulations to begin with and the costs of repealing them.

[Fenring]

I agree the bank could have self regulated. But they didn't and they failed. Just another reminder why we have these regulations to begin with and the costs of repealing them.

Here's Steve Eisman's (from The Big Short, whose regular focus is on bank solvency and liquidity) recent take on Trump's regulation change, which allowed SVB to avoid the regulatory stress test. I'm transcribing this from a CNBC news segment:

STEVE: When President Trump passed that bill and raised the threshold from...I think it was 50 to 250...now I think that was bad. I think Elizabeth Warren has a real valid point about it. But we looked at the stress test for last year, and the stress test for last year had about a line in it about rising rates, and the rest of the entire stress test was about credit. So even if Silicon Valley had been in the stress test, given what the stress test says, I don't think the regulators would have caught it. And, you know, the stress test is basically fighting the last battle; that battle's been won in the large banks. They're better capitalized, their risk even within that capital is much narrower...you know, as Warren Buffet says, when the tide goes out you see who's naked? This is a different tide. This is not a credit tide, credit quality in the United States is really good. This is a tide of a mistake, which is, some of the regional banks, especially those with a lot of deposits above 250, bought long-term bonds at very, very low levels, and have massive mark-to-market losses. That's why Silicon Valley failed. Also they failed because they had a very, very concentrated type of deposit base which has very big herd mentality. 
MELISSA LEE: So it would be very hard to regulate, I mean even if you applied the stress test to a Silicon Valley, that may not have detected the interest rate risk.
STEVE: The stress test that they had would not have detected their problems.
MELISSA: Right, because no one was looking for interest rate risk on the balance sheet, you're just looking for liquidity...
STEVE: Credit. That's what the stress test has been for the last ten years.

I've heard similar remarks from others. This is a new kind of problem, since it's been 30 years since rates went up this fast, and the banking business is different now than it was then anyhow. The issue wasn't with SVB's types of holdings, which were all 100% reliable, nor was it with their reserve ratios, which were fine. It was primarily a bad business model (trusting your deposits to flaky and non-earning tech companies) along with cowboy risk management. Anyhow I was only pushing back on throwing this in with the anti-deregulation bandwagon, since as you can see it's affecting banks where Trump's regulation would have made no difference, and certainly Trump had no effect on Credit Suisse's current predicament.

[TheDrake]

I would tend to guarantee that some person at SVB modeled this scenario, and was shouted down out of greed, denial, or company politics. The problem wasn't that they served flaky, risky customers. It's that they allowed themselves to be infected by the swashbuckling tech startup culture when they are a bank. So they ultimately shared the fate of the majority of tech startups, it just took longer than most of those.