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The Real Cost of the 2008 Financial Crisis

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Re: The Real Cost of the 2008 Financial Crisis

#221

Post by hueving »

Avshalom wrote: post #201
ptero wrote: post #173

Just a personal observation / data point as a lot of folks everywhere are saying "put bankers in prison" any time they recall 2008 crisis. This is from the US, no idea how things played out in other countries: Government shares a significant portion of the blame for this crisis. It required raising affordability of homes (i.e., loans) for lower income families. They might as well legislate away entropy, friction or g…

the increase in mortgage originations was shared across the whole distribution of borrowers, and that middle- and high-income borrowers made up the majority of originations even at the peak of the boom. Compared to prior years, middle- and high-income borrowers (not the poor), as well as those with medium and high credit scores, made up a much larger share of delinquencies in the crisis relative to earlier years. htt…

Once the framework was in place to give out garbage loans, people across all income levels leveraged the opportunity to get houses they shouldn't have.

This just shows how poisonous it is when the government screws up a market by essentially mandating that banks throw away their normal risk assessment process.

Re: The Real Cost of the 2008 Financial Crisis

#222

Post by ergothus »

hueving wrote: post #215
rando444 wrote: post #209

Earlier quoted context omitted.

What about the people that didn't have good intentions? How do you feel about Lehman's Repo 105 maneuver where they intentionally used a Tobashi scheme to hide their losses from their investors? The state of New York went after Ernst and Young on fraud charges for helping facilitate the scam and E&Y ended up paying a $10mil fine. Is this justice? It doesn't feel like it.

Lehman went bankrupt. It seems they got precisely what they deserved. If the only problem were the bad actors it wouldn't have been a systemic collapse.

A company going bankrupt does not mean any decision makers were negatively influenced enough to not repeat the actions. I doubt THEY went bankrupt.

I don't know enough to say if your conclusion is true or false, but I dont follow your logic. Why can't bad actors, if they are pervasive, cause a systemic collapse? From what I heard, incomes were fabricated, risks downplayed, and policies ignored. The insurance against the risk was priced on false premises. How can these bad acts (by bad actors) not cause a risk of systemic collapse?

Re: The Real Cost of the 2008 Financial Crisis

#223

Post by irrational »

ptero wrote: post #173

Just a personal observation / data point as a lot of folks everywhere are saying "put bankers in prison" any time they recall 2008 crisis. This is from the US, no idea how things played out in other countries: Government shares a significant portion of the blame for this crisis. It required raising affordability of homes (i.e., loans) for lower income families. They might as well legislate away entropy, friction or g…

It did help out some families though. We were able to get into our home using a 5 year 0% interest loan. It was the only way we could afford it. Later we refinanced it to a normal 30 year loan, but there is no way we could have afforded that when we were first getting started. I'm not sure how people just starting out are able to afford homes now. Our home's theoretical value has doubled in price in the last few years and there is no way we could afford to rebuy it now, even with a 0% 5 year mortgage.

Re: The Real Cost of the 2008 Financial Crisis

#224

Post by nabla9 »

wonder_er wrote: post #185
rottyguy wrote: post #166

Earlier quoted context omitted.

I hope this doesn't come across as me trying to justify what happened but can anyone be explicitly about what laws were broken and who should have gone to jail? I know there was a bunch of outrage but want to cut through all that and get at exactly the issue.

There was a time when fractional reserve banking [0] was considered simple fraud (it wasn't called "fractional reserve banking" at the time, it was "bankers using for personal gain assets that were owned by another and stored for safe keeping at their bank.") So, as banking gets complex, the laws get complex. Once we decide fraudulent (fractional reserve) banking is legal, most of the rest can be whitewashed with eno…

I challenge the relevance of your point of view. Always bringing up federal reserve banking is not relevant.

World has changed and narrow money under fractional reserve is less relevant today. Crypto or gold coin can't change the system when the system does not run on narrow money. That's why federal banks have less control today than ever before.

Capital ratio requirements limit banking more than reserve requirements. Do you agree or disagree?

Swiss people had a change to quit fractional reserve banking few months ago using popular vote. When the facts were presented, many people were surprised to learn that only 20% of the money assets in Swiss banks were under fractional reserve banking system and only thing abandoning it would do is that normal people would have to have to keep more cash in their account. Massive financial industry in Switzerland is not running on narrow money.

Financial crises don't start with narrow money. There are more and more assets that are almost as liquid as money under normal circumstances[1] but they are not money. Within just few hours you can turn them into cash [1].

----

[1]: Normally very money-like liquid assets separate from broad and narrow only during crisis. Other asset types stop being liquid but central banks provide money so that shops can stack their shelves and people can buy food and gas and not to loot to survive.

Re: The Real Cost of the 2008 Financial Crisis

#225

Post by School-Cotton »

annabellish wrote: post #69
compcoffee wrote: post #59

Earlier quoted context omitted.

> Then while we (working class) were dealing with the fallout On the ground, parts of the financial services and the "working class" were responsible. This story that it was simply a bunch of innocent people trying to fulfill the American Dream of owning a home is hogwash. People were knowingly buying property beyond what they could afford because prices would "always go up" and they could flip it to a greater fool.…

I really feel like this is just victim blaming. When financial advisors are telling people they can afford something because prices will always go up and will give them those loans, working out a payment plan they say that is affordable, how on _earth_ is it the fault of the people who believed financial experts on financial matters?

Never trust someone who's trying to sell you something.

Re: The Real Cost of the 2008 Financial Crisis

#226

Post by hueving »

TimJYoung wrote: post #205
ghostly_s wrote: post #186

Earlier quoted context omitted.

What was the vehicle by which US gov't 'required raising affordability of homes'?

Yeah, I want to know that, also. My understanding is that anything explicitly backed by the government (Fannie Mae) was your standard 30-year mortgage with the normal requirements. The interest-only loans, variable-rate loans, etc. were all originated through the brokers like Countrywide and packaged/sold as securities.

"In 2006, Fannie and Freddie insured 70% of all subprime loans so they needed to keep these loans viable"

https://en.wikipedia.org/wiki/Federal_takeover_of_Fannie_Mae...

Re: The Real Cost of the 2008 Financial Crisis

#227

Post by api »

ptero wrote: post #173

Just a personal observation / data point as a lot of folks everywhere are saying "put bankers in prison" any time they recall 2008 crisis. This is from the US, no idea how things played out in other countries: Government shares a significant portion of the blame for this crisis. It required raising affordability of homes (i.e., loans) for lower income families. They might as well legislate away entropy, friction or g…

It also drove house prices crazy, a process that continues to this day and has ironically made housing permanently unaffordable for huge numbers of people. The housing bubble created a "new normal" for house prices that's frankly absurd when considered as a fraction of median income.

It's very similar to the story with student loans. Easy student loans have driven tuition costs as crazy as housing costs.

Re: The Real Cost of the 2008 Financial Crisis

#228

Post by rukittenme »

irrational wrote: post #223
ptero wrote: post #173

Just a personal observation / data point as a lot of folks everywhere are saying "put bankers in prison" any time they recall 2008 crisis. This is from the US, no idea how things played out in other countries: Government shares a significant portion of the blame for this crisis. It required raising affordability of homes (i.e., loans) for lower income families. They might as well legislate away entropy, friction or g…

It did help out some families though. We were able to get into our home using a 5 year 0% interest loan. It was the only way we could afford it. Later we refinanced it to a normal 30 year loan, but there is no way we could have afforded that when we were first getting started. I'm not sure how people just starting out are able to afford homes now. Our home's theoretical value has doubled in price in the last few year…

I'm curious about your situation. Can you provide additional financial information? Price of the home, area of the country, salary at date of purchase.

Re: The Real Cost of the 2008 Financial Crisis

#229

Post by School-Cotton »

voodootrucker wrote: post #208
lucozade wrote: post #32

Earlier quoted context omitted.

Is it their failure you believe they should be jailed for or something else? Do you believe that the CEO of any company that fails should be jailed or just banks? There was undoubtedly plenty of hubris, greed and incompetence to go round. I also believe that some of what occurred should, in hindsight, have been illegal. But having some sort of sacrifice to appease the gods is a little outdated. Oh, and yes, all the C…

No new laws are needed. The credit ratings agencies fraudulently mislabeled loans. This was criminal behavior and was not prosecuted. https://en.wikipedia.org/wiki/Credit_rating_agencies_and_the...

Regardless of whether that's true, the posters above were talking about employees of investment banks, which are not the same thing as credit rating agencies.

Re: The Real Cost of the 2008 Financial Crisis

#230

Post by ksdale »

debt wrote: post #203
ptero wrote: post #173

Just a personal observation / data point as a lot of folks everywhere are saying "put bankers in prison" any time they recall 2008 crisis. This is from the US, no idea how things played out in other countries: Government shares a significant portion of the blame for this crisis. It required raising affordability of homes (i.e., loans) for lower income families. They might as well legislate away entropy, friction or g…

Nah you’re throwing the baby out with the bath water. Poor people can’t afford homes and in many cases don’t have proper identification even to buy a home. That’s where the whole NINJA subprime thing came in. But the actual problem was that those loans were being rated AAA when repackaged into a CDO. From that point forward is where the problem began. Tha is, if they were properly rated ‘08 would not have happened. T…

I agree completely with you, but I remember during the crisis that a large part of the outrage was directed at banks "taking advantage" of the poor by lending them sums that they couldn't hope to pay back.

I can remember a couple years later trying to buy a house and being surprised that the formula for loan size was so concrete. They didn't care what you actually spent your money on, just that your payments be no larger than 30% of your income. Because we're frugal, we could have afforded quite a bit more house than they were willing to lend to us for. Indeed, we paid way more in rent than we could get for a monthly mortgage payment. We ended up wishing that the banks had tried to "take advantage" of us because that would have meant giving us more latitude to manage our own affairs.

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