The truth is, no matter how much regulation you put in place, someone will find a way around it. And that is what has happened. In America, the banks started selling these packaged investments that were based on property prices continuing to rise indefinitely. What is worse, they sold SWAPS. These are a form of guarantee that if the loans are not repaid, then the investor gets their money back.
Why called SWAPS? Because to call it "insurance" would mean it would fall under the regulatory authority for insurance. But they did not want that. So they called them SWAPS.
So when people are unable to pay their loans, the whole thing started to unravel. That is how banks (or the people in them) will always get around regulations.
It has taken months for the Governments to do what they should have done from the start, take a share in the banks to provide the much needed capital. In this way the Government gets a return on its investment when things turn around.
So now I ask, does anyone really believe that the banks will ever sell back their shares in these banks? mmmmmmm Let me see, times will get better eventually. Government is getting a dividend payment which means it does not need to raise taxes on its people! It is also able to make sure the bank does not get around regulation but rather stays in the 'spirit' of the regulations.
Maybe I am being a cynic. We will see what happens in years to come. I think banks will probably keep the shares.
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