Regulation after Bush
What does the future hold for regulating Wall Street?
Regardless of who wins today’s election, both Barack Obama and John McCain have staked out different positions on issues involving economic regulation – and each is very different than the outgoing president.
The Economists’ Voice looks at what we might expect in the post-Bush era:
While the presidential candidates have been diverted by critical issues ranging from Barack Obama’s taste in lettuce to John McCain’s condo, it’s hard to deny that, once elected, serious questions involving economic regulation—everything from housing finance to alternative energy mandates—will be front and center. And here, at least, the divisions are clear: Obama would use a heavy hand to push the economy back on track, while McCain would do his best to put the free back in free markets.
Or maybe not.
Ever since the New Deal, Democrats have largely accepted the label as the party of regulation—defenders of the weak from the vagaries of soulless capitalism. Republicans, for their part, position themselves as the nemeses of the social engineers and do-gooders who would sap the economy of vigor. But once in office, reality bites. Thus, with more than a little encouragement from Detroit, Ike committed the GOP to the biggest public works project in history— the Interstate Highway System. Richard Nixon imposed price controls to contain inflation, while Ronald Reagan protected the swooning steel industry from foreign competitors and the first President Bush championed market intervention in the name of cleaner air and accommodations for the disabled. The second Bush hasn’t stood on principle either, lavishing seniors with heavily subsidized prescription drugs and supporting bailouts for both investment bankers and the giant private mortgage insurers.
Democrats, of course, have been no better at sticking to their script. Carter deregulated airlines and trucking, while Clinton deregulated telecommunications and nuclear enrichment as well as opening the door to cheap Mexican imports.
Thus, while Obama and McCain may both lull true believers with the bromides of an earlier generation, a subtler mix of ideology and interest group muscle is bound to drive the regulatory agenda once elected. Consider just a few of the big choices ahead.
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Source:
“Regulation after Bush”
Robert Hahn and Peter Passell
The Economists’ Voice: Vol. 5 : Iss. 4, Article 5. (2008)
http://www.bepress.com/ev/vol5/iss4/art5
http://www.bepress.com/cgi/viewcontent.cgi?context=ev&article=1389&date=&mt=MTIyNTc5OTY1Nw==&access_ok_form=Continue
November 4th, 2008 at 2:16 pm
“An election cannot give a country a firm sense of direction if it has two or more national parties which merely have different names but are as alike in their principles and aims as two peas in the same pod.” – FDR
November 4th, 2008 at 2:33 pm
I was thinking about what I might answer if someone asked me what to read about if they wanted to learn how to make money in the stock market, let alone work in the investments field. Reading a simple book on garden variety Investments is both fundamental advice and cynical advice since so little of what involves investments comes from a book like that, but you still need to know what’s in it.
Credit is the big banana, but to get there in the future you will need to know all about derivatives and, hopefully, how most are traded on exchanges. Not like today. Future regulation will encompass stocks, bonds, the current futures and options exchanges, and, hopefully, an exchange where crazy people can place financial bets on whatever makes them itch. If you don’t bet there, then you’re betting with a bookie and on your own. And everything that happens there will be public and settled daily. And steps will be taken to make unregulated derivative investments illiquid as a normal matter of daily commence. The dark markets of ICE and elsewhere will be illuminated or will be marginalized as where crooks go to screw the rubes.
With the transparency, you will see fewer bubbles, except for the new ways to blow bubbles in the future that nobody knows about yet. Since it only took about 5 years to nearly blow up the world economy once the ball started rolling, cutting some slack is not going to be a good idea. Regulation in the coming era will be about as subtle as an anal probe by a proctologist or an alien.
Stocks will still be traded, but they’re regulated ok. Ditto with bonds and options and futures. Someone will figure out how to standardize the forward contract on anything and put it on an exchange. That will be the new innovation.
November 4th, 2008 at 2:50 pm
I still say it’s about being greedy and irresponsible. The way to curb the former is by prosecuting and punishing the latter.
November 4th, 2008 at 2:53 pm
The politicians will do a good job of fighting the last war.
They’ll be woefully unprepared for the next one.
November 4th, 2008 at 3:23 pm
I’m all about the hOpe rally today. The effects of future administration policies are still in the distance, indiscernible, imo. I can only trade what I see right now, which isn’t a lot. And, maybe that’s why the number of posts are down because we are still in no man’s land.
November 4th, 2008 at 3:31 pm
Judging by Maria’s comments on CNBC just now, I think the Dems will ignore regulation and just redistribute wealth. What an idiot.
On a more constructive note, I thought that the article linked below from the FT saying basically “What about all the other swaps?” makes a valid point. We need transparency. If you looks at Fidelity’s money market funds, including it’s alleged treasuries fund, it’s full of currency swaps. We’ve already discussed that the ultrashort and ultralong ETF probably use swaps. And, I even bought a bond fund a few months ago which had a good exposure to yen (just on a hunch), but it turns out some of that exposure is currency swaps. A chain reaction in non-CDS swaps could do lots of damage.
http://www.portfolio.com/views/blogs/market-movers/2008/11/03/exchange-traded-derivatives-why-stop-at-cds
November 4th, 2008 at 3:41 pm
This is why I just can’t bring myself to support either of the two mainstream, established parties. Their actions don’t match their rhetoric, but no one holds them accountable and people continue to vote based solely on what is said. It’s ridiculous.
I know some people that have worked in DC for a long time, and they say there are some plans in the works for HUGE regulation. My Republican friends are afraid that Obama will exacerbate the regulatory push, but as Barry points out, he’s more likely to do the opposite. What a mess
November 4th, 2008 at 3:44 pm
@ karen
I unloaded RIO and VLO today (at ~30% gain) which I picked up a few weeks ago when you said you were nibbling at them.
Figure today’s up market might well be the major part of a rally for an Obama win.
@Steve Barry
Are you out there? Can’t recall seeing you comment here on http://www.rtholtz.com/blog.
Did QID below 60 today move you to add more on?
November 4th, 2008 at 3:48 pm
Mike in Nola @ 3:31
“A chain reaction in non-CDS swaps could do lots of damage”
Maybe they’ll just backstop that also.
Then again, given Obama’s almost certain win, Bush and Paulson may be able to resist their urge to bailout and backstop everything and everyone.
November 4th, 2008 at 3:56 pm
I’ve already seen evidence of McCain supporters/traders over eager to short this rally, and repeatedly having to cover. It may have longer legs than anyone suspects. I’d love to see an Obama win trigger a gap up open tomorrow; but that may just be a fantasy : )
November 4th, 2008 at 3:56 pm
The thing that nitwits like Maria B. and others on CNBC & Wall Street STILL don’t seem to understand is that most average Americans revile all that Wall Street (and CNBC) stands for and doesn’t care what they think anymore. More and more people seem to realize that too often what’s good for Wall Street comes at the expense of everyone and everything else in this country, yet the flacks and hacks on CNBC still operate in a kind of “bizarro world” bubble that’s impervious to all reality outside of Wall Street and NYC.
Do you think Wall Street is a mere shell of its former self/size in the coming years, that this bubble will burst? Perhaps not burst, but like our markets, I’ll bet the air slowly leaks out over time and ends with a whimper…….
November 4th, 2008 at 4:48 pm
Anyone else sold their long positions & took profit? I did….
November 4th, 2008 at 4:59 pm
nyxjf @4:48
“Anyone else sold their long positions & took profit?”
It sure seems like it’s about time that the S&P retraces some of the gain from 850 to 1000.
November 4th, 2008 at 5:03 pm
With all due respect to the consensus opinion expressed here and all over the media that “markets” are or are not sufficiently regulated, I urge you to stop looking at labels like “markets” and “regulation”. Why? Because humans with names and addressess, assets, chronies, friends, interrconnected insider networks, etc. are the deciding factors. So as long as the guilty continue with impunity, the excesses will continue. For example, no amount of congressional grandstanding about steroids for baseball players will stop the abuse in baseball for the same reason. Yes, I know it’s easier to put broad labels on things like political parties and whatnot but it’s intellectually lazy and at times also misleading (sometimes deliberately so). We can all agree that one of the first things a trader learns is to keep his mouth shut unless what he/she says will benefit their trading strategy. This prostitution to profit is in conflict with empirical reality. Hence, the continual cons. So what am I saying, here? NO REPERCUSSIONS FOR ILLEGAL BEHAVIOR WILL BRING NO CHANGE! We need names, dates, events. We need people that post HERE who know damned good and well who a lot of the rats are to go to the authorities with evidence for convictions. We need to stop the status quo love affair of “I’m a good person just trying to mak a little money” and “all the evils of the world are not my problem”. It’s cowardly, craven and socially destructive. Get off your ass and risk something besides a few bucks in a rigged market. This is a big picture site. The big picture is and has always been that today’s pig is tomorrow’s bacon. You say you love your country. I say bullshit. You love you house, car, kids , spouse, family and friends but you could give a shit about your country because outside your circle of people and things, you won’t lift a finger to improve society. I wish I was wrong.
November 4th, 2008 at 5:05 pm
Maybe they can start with this..
“ETFS WITH 300% LEVERAGE TO LIST
Direxion Funds is preparing to list exchange-traded funds this week that would provide 300% leverage to market indexes on both the long and short side and would be the first ETFs to use three-to-one leverage. ”
Does anyone else think that 3x leverage inverse ETF’s shouldn’t be allowed in IRA accounts?
I still have no idea why anyone would want anything to do with these things….
Still 50% long……. my best year ever so far..
November 4th, 2008 at 5:48 pm
@nyxjf: I took today as the gift it was – a chance to get out, sit back, chill out, and wait. Some nicely in the money KOL, UYM and MOS covered some bags I was holding from before October. Kind of depressing I’d be about at the same place if I had done absoultely nothing at all this year but it sure was a learning experience and, as I said, being able to get out roughly break even on the year right now, to me at least, is a gift.
November 4th, 2008 at 5:52 pm
Man, Barry, you have got to be one of the biggest Bush-despising partisans around. I bet you don’t miss a minute of Keith Olbermann. Get over it, dude. I’m no Bush fan, but I don’t live to hate him. If Obama is president eight years, we’ll be sick of him, too. Meet the new boss, same as the yada yada yada
November 4th, 2008 at 6:14 pm
No, I’m more of a The Daily Show fan.
November 4th, 2008 at 7:51 pm
Maybe if Barrak Hussein Obama gets elected Barrys Dow 6800 prediction will become true. Man this new site is not very user friendly. Maybe I will start reading Luskin’s blog. If I am going to read political propaganda I might as well read non liberal propaganda.