Firemorfox t1_iuih1eo wrote on October 31, 2022 at 4:08 PM

Reply to comment by Ashamed-Confection44 in Lehman moments by ProudHeron5768

My point was that there was an explicit lack of regulation for larger institutions especially banks and investment firms.

I understand now that by “over-regulation”, you meant the paperwork, fine print, and laws that drag down smaller companies. I had thought you referred to “over-regulation” that is applied to banks and larger institutions, which is why I disagreed with you.

I think it’s clear we both agree that generally US business regulation as it stands is under-regulated for the rich and over-regulated for the poor.

Ashamed-Confection44 t1_iuii5ik wrote on October 31, 2022 at 4:15 PM

The Fiat system must have ups and downs. It will have bankruptcies and failures. It has too. that's just the way it works.

Over the years, the small banks were choked out with regulation. Now, everything that is left is "too big to fail". The economy and banks are not in trouble due to a lack of regulation (there is definitely a lack of enforcement in some cases). They are in trouble because we've reached a point where there is too much debt in the system and not enough capital to pay it off.

With any debt failure, it is wiped off the books and eases demand on the dollar. If a thousand small banks across the country were to fail you might not even notice it where you live. If Credit Suisse fails, oh you'll notice it.

animalinstinct10m t1_iuiodn6 wrote on October 31, 2022 at 4:57 PM

Both of you are saying the same thing. Age has a little to do with it but more general business dynamics.

People tend to forget banks are businesses too. Just like big box retailers displaced small businesses, so did larger banks.

"Over regulation" was a symptom of over leverage in the system at large. Not the government purposely using it as a tool to disadvantage smaller banks. It was a negative externality.

There was the S&L crisis before the financial crisis and with each subsequent crisis, there is a regulatory effort to prevent the next crisis.

There are many other hurdles for global money center banks, investment banks, etc. including Basel.

Public companies in general had to deal with SOX after 2000 and the dot com bust.

In the end, it comes down to economies of scale and operating leverage. The regulations help to limit the degree of financial leverage generally and does impose significant administrative burdens on smaller institutions but those dynamics broadly apply in various regulatory incarnations across industries.