[A-List] Technical question (Regulation Q interest rate)

[xxxx]

yes there was. it was called "a credit crunch of 1966"---the first
instability of the postwar era, which included a run off on municipal bond
market..

a mild one though....

----- Original Message ----- 
From: "Henry C.K. Liu" <hliu at mindspring.com>
To: "The A-List" <a-list at lists.econ.utah.edu>
Sent: Wednesday, March 31, 2004 6:49 PM
Subject: Re: [A-List] Technical question (Regulation Q interest rate)


> Do you mean the 1987 crisis? I am not aware there was a 1966 crisis.
>
> The Fed's legislative victory was delivered on the back of a larger
issue -
> the deregulation of finance. In companion legislation, Congress repealed
> virtually all of the remaining government limits on interest rates and
> regulation on lending that had existed since the New Deal, much as the
> enactment of the Gramm-Leach-Bliley Act (GLBA) in November 1999 in effect
> repealed the Glass-Steagall Act, the long-standing prohibitions on the
> mixing of banking with securities or insurance businesses, and thus
> permitting "broad banking". The price of money was free at last to seek
its
> "natural" equilibrium in the market place.
>
> The prime rate rose above 15 percent in early 1980 when the deregulation
> legislation reached its final stage. The Democratic Congress voted
> overwhelmingly for a package that condemned borrowers to high cost and
> favored lenders with high returns, by arguing that the benefit of high
> interest on pension accounts justified the high cost of mortgage payments.
> In other words, as Pogo the cartoon character said: "The enemies, they are
> us." The populist Regulation Q, which regulated for several decades limits
> and ceilings on bank and savings-and-loan (S&L) interest, was phased out.
> Banks were allowed to pay interest on checking account - the NOW accounts,
> to lure depositors back from the money markets. S&Ls' traditional
> interest-rate advantage was removed, to provide a "level playing field",
> forcing them to take the same risk as commercial banks to survive.
Congress
> also lifted restrictions on S&Ls' commercial lending, instead of the
> traditional home mortgages, which promptly got the whole industry into
> trouble that would soon required an unprecedented government bailout of
> depositors with tax money. But the developers who made billions were
allowed
> to keep their profits. State usury laws were unilaterally suspended by an
> act of Congress in a flagrant intrusion on state rights.
>
> The political coalition of converging powerful interests was evident.
> Virulent high inflation had damaged the holders of financial wealth,
> including small savers, created by a period of benign low inflation
earlier,
> so that even progressives felt something has to be done to protect the
> middle class. The solution was to export inflation to low-labor-cost areas
> around the world, taming domestic inflation with the export of jobs and
the
> domestic inflation devil - US wages. Neo-liberalism was born with the twin
> midwives of sound money and free financial markets, disguising economic
> neo-imperialism as market fundamentalism.
>
>
> BANKING BUNKUM
> Part 3b: More on the US experience
> By Henry C K Liu
> Asia Times, November 27 2002
>
> http://www.atimes.com/atimes/Global_Economy/DK27Dj01.html
>
>
> xxxx wrote:
>
> >Martin Wolfson argues that the 1966 crisis happened because of the Fed's
> >"refusal to raise Regulation Q interest rate ceiling on large negotiable
> >certificates of deposits" Is this refusal a sign of "tight" or "easy"
> >monetary policy?
> >
> >Regulation Q is a limit on time deposits to prevent the growth of money
> >supply. So if the Fed did not increase the Q ceiling, it means that
monetary
> >policy was not tight. Correct or wrong?
> >
> >but why do keynesians say that the crisis happened becase of tight
monetary
> >policy. do they mean "high interest rates" or "low regulation q ceiling"?
> >
> >Any direct response on this is greatly appreciated
> >
> >3 monetary tools durin a crisis:
> >
> >1) regulation q ceiling
> >2) reserve requirements
> >3) discount rate
> >
> >
> >
> >******************************************************
> >xxxx A. xxxx
> >Doctoral Candidate
> >Department of Political Science
> >Nelson A. Rockefeller College of Public Affairs and Policy
> >University at Albany, S.U.N.Y.
> >135 Western Avenue, Milne Hall
> >Albany, NY 12222
> >xxxx at verizon.net
> >******************************************************
> >"They always say that time changes things, but you actually
> > have to change them yourself." -- Andy Warhol
> >******************************************************
> >
> >
> >
> >
> >
>
>
>