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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

#231

Post by Lavery »

In a lot of ways, the current expression of the tech sector (certainly from a valuation standpoint) and the startup scene particularly feels like a consequence of the response to the financial crisis. Critics of the Fed spent years loudly worrying about how the various QE programs were going to drive up inflation. Of course, this didn't materialize, at least as measured in the usual basket of goods and services. What did happen was a broad and sustained inflation in financial assets / collapse in yields that drove everyone further out along the risk curve, with VC being the furthest point out.

The tie in to inflation is darkly amusing the because the classic precursor to inflation is wage growth. Broadly, there hasn't been any--except in the tech sector, which has seen a veritable explosion in pay from where it was a decade ago.

Re: The Real Cost of the 2008 Financial Crisis

#232

Post by School-Cotton »

chiefalchemist wrote: post #85
seanmcdirmid wrote: post #76

Earlier quoted context omitted.

Financial terrorism isn’t even defined as a crime. It would have to racketeering or something, not easy things to prove even in gang/mob cases. Legislative neglect also isn’t a crime that lawmakers can be prosecuted under. You can, however, not vote for them during their reelection campaign. You can also vote for lawmakers that would bother to push for such laws. For better or worse, western countries are generally s…

Perhaps. Not being snarky but how do you establish precedent if you don't try? In the context of justice, I find it troubling the (US) gov made no effort.

> how do you establish precedent if you don't try

It's unclear whether you know what "precedent" means in a legal context.

Re: The Real Cost of the 2008 Financial Crisis

#233

Post by School-Cotton »

voodootrucker wrote: post #212
koolba wrote: post #35

Earlier quoted context omitted.

What crime did each of those executives commit? That’s what needs to be answered. Otherwise your comment reads like a mob chanting “ We want blood! ” Being greedy is not a crime. Taking advantage of lax regulations is not a crime. Being bailed out with tax dollars for risks that paid you off privately if they won is not a crime.

The crime was massive fraud by the credit rating agencies: https://en.wikipedia.org/wiki/Credit_rating_agencies_and_the...

As I commented elsewhere credit rating agencies are not the same things as banks. Why should bank executives be prosecuted for something credit rating agencies did?

Re: The Real Cost of the 2008 Financial Crisis

#235

Post by hueving »

ghostly_s wrote: post #186
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…

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

"rolling the dice" on taking on more subprime loans in Fannie Mae/Freddy Mac.

https://www.theatlantic.com/business/archive/2011/12/hey-bar...

Re: The Real Cost of the 2008 Financial Crisis

#236

Post by petra »

api wrote: post #227
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.

Wasn't this a predicted result of offering cheap loans? And if so,why was this the route chosen?

Re: The Real Cost of the 2008 Financial Crisis

#237

Post by voodootrucker »

School-Cotton wrote: post #229
voodootrucker wrote: post #208

Earlier quoted context omitted.

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.

Perjury then?

https://www.businessinsider.com/goldman-sachs-lied-2011-5

Re: The Real Cost of the 2008 Financial Crisis

#238

Post by Ntrails »

raesene9 wrote: post #49
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…

As to CEOs being irreplaceable sure, but they're also very focused on not going to jail. Personal liability for top execs which might actually result in jail time is a powerful incentive for those execs to ensure their companies don't engage in that kind of behaviour.

No. It's an incentive to change the corporate structure.

Sorry, but it's simply not that simple.

Re: The Real Cost of the 2008 Financial Crisis

#239

Post by api »

petra wrote: post #236
api wrote: post #227

Earlier quoted context omitted.

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.

Wasn't this a predicted result of offering cheap loans? And if so,why was this the route chosen?

Americans (even some center-left ones) hate the idea of directly supporting anything, so cheap loans were used as a substitute for directly operating and funding public colleges. Same with housing.

Directly supporting people is "socialism," a handout, and is seen as supporting laziness and vice. A loan must be paid back, which allows many Americans to view it as something encouraging responsibility and virtue. It all comes down to the puritan work ethic.

The problem is that government backed loans are just an indirect way of giving welfare, and a monstrously perverse and inefficient way to boot. It drives price inflation which gets captured by the vendors of the products/services in question (existing home owners, builders, universities, etc.) instead of those you're trying to help and it creates debt bubbles that represent a danger to the overall health of the economy.

Overall it's probably worse than doing nothing due to the price inflation it generates. Housing was reasonable across much of the USA prior to the 'oughts. The housing bubble destroyed home affordability, an effect which as I said persists to this day.

Re: The Real Cost of the 2008 Financial Crisis

#240

Post by slg »

learc83 wrote: post #214
slg wrote: post #193

Earlier quoted context omitted.

You see a similar thing with student loans. You can't make any reasonable system work when you set the requirements to be that everyone should be able to afford to go to college and free market lenders are the ones responsible for making that happen. I imagine that the first condition is one that most people agree one. So instead of making college cheaper for those people who can't afford it, we decided that we need…

We haven't guaranteed student loans since 2010 when the government started directly issuing student loans. Today 91% of student loan disbursements are public loans that are funded directly from the treasury. The remaining new private loans aren't federally guaranteed (although we still make it difficult to discharge them in bankruptcy).

Undergrad students are limited to $31k or $57.5k in federal loans (including only $23k of subsidized loans) depending on whether they are a dependent or not. [1] That is still not enough for many students to attend their college of choice.

I will admit I chose the wrong word in my prior comment when I said guaranteed since that has a very specific meaning in this context. I was using that phrase more colloquially because there are other ways that the government protects the lender beyond a literal guarantee. For example, student loan debt cannot be discharged in a bankruptcy like mortgages, medical debt, or credit card debt. This was done because a private lender is normally heavily disincentivized from loaning money to someone with no credit history, no collateral, no income, and no expectation to start making payments on the loan for years.

[1] - https://studentaid.ed.gov/sa/types/loans/subsidized-unsubsid...

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