Libertarians pine for an unregulated economy. They have no idea what trouble that would be.
I wrote before about mortgage fraud. The mortgage industry was largely unregulated and bank employees and mortgage brokers were paid bonuses based on how many mortgages they wrote, not on how may good mortgages they wrote. Regulations and rules were loosened to the point where "liars loans" based on "stated assets and income" were issued, based on "zip code appraisals" - the brave new world of lending. In other words, you could buy a house by saying you made $500,000 a year and had $5M in assets - even though you were unemployed and broke. And so long as the house was in the same neighborhood as a bunch of expensive homes, you'd get the loan - never mind it was a broken-down hovel.
It was a situation ripe for fraud, and the fraudsters jumped right in. I wrote about the technique before - you use straw buyers to flip the same house again and again, until the "value" (based on the sales price of these sham transactions) shows the house is now worth three times what it was. Each time, the "seller" takes out cash at the closing table (which he hands over to the crime boss) and eventually, once the game is flogged to death, they default on the loan and walk away with all that cash. The straw buyer's credit is ruined, of course, but he finds that preferable to floating face-down in a canal near Miami.
If you don't understand how that works, don't feel bad - most people don't get it. They think "mortgage fraud" was something banks did to people, not vice-versa. And yes, a lot of "little people" got their tits caught in the wringer because they saw the "prices" of houses skyrocketing (due to these sham sales) and decided that, they too, were going to "get in on this real estate thing" - and of course, most of them lost their shirts. Collateral damage.
That may sound callous - particularly if your folks lost their house in 2008 or so. But I noted again and again in this blog that there are people in this world who will, given the choice between ending world hunger and having another dollar in their pocket will take the dollar. From their perspective, screw humanity, where's my hot meal? So the mortgage fraudsters made millions on these deals, but the collateral damage was in the billions - of not more.
And yes, the same thing is going on today, a mere decade later, and no one seems to see the pattern.
The problem was - and is - that regulations in the mortgage market were loosened. When banks started issuing "liars loans" and then bundling them as mortgage backed securities and people started buying those securities - without a lot of oversight in the entire process - the whole thing went to hell. This is the Libertarian paradise so many idiots pine for. A little regulation now and then is a good thing. We have laws against people going into a bank with a gun and holding the place up. We should have laws against the banker looting the place from the inside. And we did at one time - guess which party claims these are laws "inhibiting free enterprise"? And they are right, if you define "free enterprise" as fraud.
A few articles a have come out lately illustrating how NFTs have fallen from a billion-dollar industry to mere millions. Most are worth a tiny fraction of what they once were worth - a classic "bubble" economy. The entire market - and that of crypto in general - was unregulated and this was touted as a feature by Libertarian wanna-bes. Freed of all this restrictive regulation by the SEC, their dreams could soar! And crash.
During the heyday, some NFTs sold for millions and the trading volumes were high. Since the market was totally unregulated, I suspect that many if not most of these transactions were straw-man sales designed to hype the price of NFTs. "Look! It went up 1000% in value! It must be a sure thing!" Never mind that the "value" was specious - just one straw-man shell company taking money out of their left pocket and putting into their right pocket (of another straw-man shell company - both having the same owner).
And again, there is collateral damage. A huge portion of most cryptocurrencies are owned by a small number of people - a few thousand according to some sources. To make money, they need to hype the price of their crypto or NFTs and get someone to actually buy the damn things in a non-straw-man transaction. The Internet to the rescue. We've all seen how easy it is to convince people online that the world is flat, paper mache aliens exist in Mexico and that the moon landing was faked (and vaccines cause autism, and CoVid was a government plot and.. well, fill in the blank). So you go online with an army of trolls and bots and you hype this crap and you can get away with it, because it is not a "regulated security" - or so you claim. And by the time the SEC gets on the job, well, you've walked away with millions - or hundreds of millions.
Of course, even regulated securities are at risk if regulations are loosened or enforcement is defunded - again something Republicans do when in power - as well as gut the IRS. Hey, if you can't defraud investors and skip out on taxes, that's no fun - right? And yea, even Democrats get in on that deal from time to time.
So in the last few years, we have seen penny-stock pump-and-dump go mainstream, with bots and trolls hyping obscure and dead-end stocks like AMC movie theaters and GameStop video game stores. What's not to like about going to the movies? Paying $15 for a ticket and $20 for popcorn and then having to deal with a poacher in your "reserved seat" and some teenager who is talking through the whole movie or another idiot holding up his phone trying to video it. Again, regulations - back in the day, they'd toss your ass out for doing things like that, but today, they are too afraid of confrontation and lawsuits to they engage in laizze-faire customer service - and wonder why people shy away.
Video game stores? The latest releases of consoles have no physical media devices. People download games online and buy consoles online as well. GameStop was and is a dead-end business. But by hyping the stock, they caused "little people" (collateral damage) to buy shares, which drove up the price, making the forecast self-fulfilling. It is the same effect in the penny-stock pump-and-dump, only amplified 1000 times.
The collateral damage, in addition to the fools who bought these hyped stocks (or worse yet, options) was the markets themselves. When markets became a vehicle for fraud, people stop investing. Which brings us to the IPO - the biggest con out there in the last 20 years.
Back in Henry Ford's day or maybe that of Alexander Graham Bell (no relation) you issued stock to raise money to build factories or run phone lines and establish the business. Today, you do an IPO which is not an "initial" offering at all, as insiders already own shares in the company. Some IPO prospectuses are so bold as to outright say that the purpose of the IPO is to provide a vehicle allowing the insiders to cash out - at the expense of over-enthusiastic stock buyers (collateral damage, yet again). Once again, the Internet and even the "legitimate" financial media are complicit in this, hyping each new IPO as the chance to "get in on the ground floor" when in fact, you are getting in on the third or fourth or tenth floor - if you are lucky.
Again, these things are loosely regulated and worse yet, people don't read the actual prospectus, but read a tweet or a newspaper article hyping the latest drop. You can, legally, issue stock in a company whose prospectus says, in bold letters, that you plan on taking the investor's money and spending it on hookers, gambling, booze, and cocaine - and so long as you stated this, you would not be breaking any laws by doing so. Woe be to the investor who fails to read the prospectus, but instead listens to the shouting guy on the financial channel.
Sadly, we went through all this before - back in 2008, and every decade or so back to 1929 - and before! American history is a history of boom-and-bust, and often this is by design, as people make money when stocks soar - and make more money when they crash. After the 1929 bubble burst, we instituted regulations that banks had to have money on hand (and were insured by the FDIC in case they didn't. And banks were forbidden to speculate in stocks. The stock market was regulated so that it was a lot harder to just offer shares in a wholly fraudulent company. And for a while, this worked - until people petitioned to loosen the rules again, and the fraudsters found new work-arounds for existing rules.
And like clockwork, the small investor throws hundreds or thousands at "the next big thing!" and loses it all, while the man behind the scheme rakes in millions, if not billions.
A little regulation in the marketplace is a good thing. We need to know that the food we buy isn't tainted, the water we drink won't kill us, that the gasoline we buy isn't watered-down. We have rules in place to make sure of these things, and yes, "government bureaucrats" enforce these rules. And the people who complain about the rules and the bureaucrats are usually the folks trying to con the rest of us. "Can you believe some pencil-neck at the EPA won't let me set fire to my 300-foot high pile of used tires? I mean, how else am I supposed to get rid of 'em?" That sort of thing.
Sadly, it seems this pattern will continue, again and again, unabated, so long as people can be sold on something-for-nothing and get-rich-quick.
Hang on, it's gonna be a bumpy ride!
