The Real Cost of the 2008 Financial Crisis • Hacker News Board

Re: The Real Cost of the 2008 Financial Crisis

#281

Post by dhimes » Tue, Sep 11, 2018, 5:20 PM UTC

nostrademons wrote: post #144

dhimes wrote: post #90

Earlier quoted context omitted.

Without reading the book or even TFA, I'll comment on the concept of everybody doing the "right thing" leading to bad outcomes. I have a hunch that this is a pretty universal law, and the only way to mitigate it is through regulations that ban some of those "right things." I think that honest, moral players welcome good regulations because it keeps them from having to go down a slippery slope.

The other way to mitigate it is to incentivize some of the players in the system to ferret out and report wrongdoing on the part of other players. Think of short-sellers in a market: they can profit handsomely by identifying fraud or irrational exuberance, taking a position opposite it, and then loudly reporting the fraud so everyone knows about it. The legal system is also setup like this, as is the U.S. government:…

Now that's an interesting idea. I wonder if it could work in practice? If (a) fraud is obvious enough to invite this; (b) most fraud as such; and (c) the long-term downside to fraud is way worse than the upside?

Re: The Real Cost of the 2008 Financial Crisis

#282

Post by akiselev » Tue, Sep 11, 2018, 5:21 PM UTC

pc86 wrote: post #140

josefresco wrote: post #83

Earlier quoted context omitted.

Confidence in the market , and preventing panic was the highest priority, which is why no bank executive was punished in any meaningful way. Frontline did a great piece on this, which I watched years ago. Not sure if this is it: https://www.pbs.org/wgbh/frontline/film/meltdown/ I believe it also explains why the election hacking of 2016 wasn't and isn't being addressed fully. If the US were to admit actual votes were…

When people who know what they're talking about talk about "election hacking," they know that no actual hacking took place. They were Facebook ads. That's it.

You're kidding, right? There is an unsealed speaking indictment from the Department of Justice [1] that details the GRU hacking operation that released the DNC emails.

[1] https://www.justice.gov/file/1080281/download

Re: The Real Cost of the 2008 Financial Crisis

#283

Post by camelite » Tue, Sep 11, 2018, 5:21 PM UTC

hueving wrote: post #221

Avshalom wrote: post #201

Earlier quoted context omitted.

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.

What law did the government pass that forced the banks to ignore their risk assessment processes? Particularly, supposing you can point to some law or intervention, why do you suppose the banks are so childish and naive that when a law forces them to do one thing they don't want to do (make dumb loans to low-income groups), they'll respond by over-generalising and doing a whole other bunch of things they hadn't up to that point wanted to do (make dumb loans to middle- and high-income groups).

Re: The Real Cost of the 2008 Financial Crisis

#284

Post by Eliezer » Tue, Sep 11, 2018, 5:22 PM UTC

camelite wrote: post #274

hueving wrote: post #221

Earlier quoted context omitted.

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.

What government interventions caused the doubling of subprime lending from 2004 to 2006?

FDIC insurance. A private insurance market for bank accounts sends a price signal about reliability. Subsidizing that insurance in a way that doesn't eliminate the price signal and the customer risk, like requiring 20% private insurance for 90% of the account face value and the govt providing the remaining 80% insurance at the same price or at a discount, could make sense if insuring more accounts was a policy goal. Having the government ensure everything for free with no internal price differentiation just tells banks they might as well go wild.

Re: The Real Cost of the 2008 Financial Crisis

#285

Post by imgabe » Tue, Sep 11, 2018, 5:23 PM UTC

pas wrote: post #81

imgabe wrote: post #57

Earlier quoted context omitted.

It was not failure. It was at the very least gross negligence, if not outright theft and fraud.

Civil society decided that retroactive application of laws is a very bad idea. So prevention is the name of the game. But that requires competent regulators and oversight. Compliance and reporting laws, and so on. Investigators with staff and time, prosecutors willing to chase a case, and of course independent judges. The SEC and DoJ could have tried to bring more charges, and they got billions in deferred prosecutio…

It would not have to be retroactive. I don't believe that there weren't existing laws violated that could have been pursued. For instance, there's a documentary called "Small Enough To Jail" about Abacus bank - a small family run bank that was the only one to be prosecuted for mortgage fraud due to NINJA loans, although practically every bank was doing this at the time. That's just one example.

Re: The Real Cost of the 2008 Financial Crisis

#286

Post by mc32 » Tue, Sep 11, 2018, 5:28 PM UTC

pitaj wrote: post #268

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…

Don't forget another thing the government did: previous bailouts. When large banks were told they were "too big to fail", they heard "your risks will be subsidized by taxpayers", so of course they took on more risk. We should have let the banks fail, if they really were going to. Another thing: monetary policy causing business cycles, or making them much worse. The recent money-printing by the fed is super scary to m…

I think this began earlier with the S&L scandal decades(?) earlier. Some fave saving but not much happened to the guilty parties... A sad state of affairs.

Re: The Real Cost of the 2008 Financial Crisis

#287

Post by camelite » Tue, Sep 11, 2018, 5:30 PM UTC

Isamu wrote: post #190

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…

>Government shares a significant portion of the blame for this crisis. Agreed, I think the sheer size of the crisis relates back to deliberate policies to support sub-prime lending. The idea was to help people to afford homes even though they would not normally be considered a good risk. But opening this up created a vast new market, like adding a wider bottom tier to an already giant pyramid. Along with the vast siz…

You, along with very many other people, are assuming the banks were convinced by the government to do something they didn't want to do. You mustn't forget that giving loans to people you know won't be able to pay them back, and lying about their ability to do so, is an absolutely classic form of fraud. Bankers lie their asses off, make big bucks in bonuses, and their banks in the long run are fucked, or not (perhaps the taxpayer will bear the burden). The disgustingly simple explanation is that bonus money doesn't get clawed back. If these poor little bankers were getting bullied by the government into doing something against their interests, why the hell did they lie their asses off about their borrowers' financial prospects. Why wouldn't they say, 'sorry guv, you gotta look at these numbers, the black and brown folk coming to us for house loans simply aren't viable'

Re: The Real Cost of the 2008 Financial Crisis

#288

Post by tooltalk » Tue, Sep 11, 2018, 5:34 PM UTC

camelite wrote: post #283

hueving wrote: post #221

Earlier quoted context omitted.

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.

What law did the government pass that forced the banks to ignore their risk assessment processes? Particularly, supposing you can point to some law or intervention, why do you suppose the banks are so childish and naive that when a law forces them to do one thing they don't want to do (make dumb loans to low-income groups), they'll respond by over-generalising and doing a whole other bunch of things they hadn't up to…

I guess the following would be a good starting point of discussion: https://www.forbes.com/sites/norbertmichel/2015/01/26/govern...

Re: The Real Cost of the 2008 Financial Crisis

#289

Post by pjmorris » Tue, Sep 11, 2018, 5:35 PM UTC

danharaj wrote: post #200

pjmorris wrote: post #196

Earlier quoted context omitted.

If we're going to be capitalistic, apply Bagehot's dictum (from 1873) "in times of financial crisis central banks should lend freely to solvent depository institutions, yet only against sound collateral and at interest rates high enough to dissuade those borrowers that are not genuinely in need" [0] I feel like, jail or no, the financial executives who got us into the mess - and who haven't really gotten us out yet -…

We shouldn't get any banking advice from anyone from the 1800's.

If you're seeking to broaden your perspective, you might find "Bagehot's Dictum in Practice: Formulating and Implementing Policies to Combat the Financial Crisis", written by a director at the Fed, to be worth your time.

[0] https://www.federalreserve.gov/newsevents/speech/madigan2009...

Re: The Real Cost of the 2008 Financial Crisis

#290

Post by ashwinaj » Tue, Sep 11, 2018, 5:40 PM UTC

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…

Here's a simple hypothetical question: If you or I were to steal a pack of gum from a store and were caught we would have been charged with a misdemeanor. And it would remain in our background record for 10 years.

What does a banker have to do before he/she can be charged with at least a misdemeanor? You're right about the government having a hand in the crisis, but this is ridiculous that no banker was charged.