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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

#331

Post by moate »

chillacy wrote: post #325
moate wrote: post #317

Earlier quoted context omitted.

Based on different economics. Even the more socialist leaning EU nations aren't dealing with straight up Communism. China's big problem right now is actually that they brought so many people out of poverty that they're focused on controlling inflation. Also, they have a state controlled media that reports only what the state wants. Helps smooth over the rough edges with praise of their great and successful system.

China’s system is probably better characterized as “State Capitalism” than communism, since the workers don’t own the means of production.

We could just go with "Russian Communism" as well and call it a day. Your point is valid, it's not proper Communism as Marx envisioned.

Re: The Real Cost of the 2008 Financial Crisis

#332

Post by docker_up »

394549 wrote: post #303
pitaj wrote: post #268

Earlier quoted context omitted.

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…

> 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. Why couldn't the stockholders get wiped out when a TBTF bank gets bailed out? To me, that seems like a fair compromise that protects the…

Bear Stearns and Washington Mutual shareholders got wiped out. I know this because I lost tens of thousands of dollars, unfortunately.

Re: The Real Cost of the 2008 Financial Crisis

#333

Post by rifung »

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 apologize if this is insensitive in some way but I genuinely am hoping to understand and learn. Why is allowing families to buy a home they otherwise can not afford a positive thing?

If a family can not afford a house then they can choose not to own a house. I can understand the point of increasing access to affordable housing, but allowing more people to buy homes seems to have the opposite effect.

Re: The Real Cost of the 2008 Financial Crisis

#334

Post by docker_up »

pitaj wrote: post #323
394549 wrote: post #303

Earlier quoted context omitted.

> 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. Why couldn't the stockholders get wiped out when a TBTF bank gets bailed out? To me, that seems like a fair compromise that protects the…

You don't need to bail out banks to protect the economy.

Yes, you do. If they are by definition too big to fail, then them shutting down could cause runs on banks. When people's confidence in banks crashes, then very bad things happen to our financial system which is predicated on the idea of people keeping their money in banks and bank accounts.

Even people pulling their money out of money market mutual funds almost caused a collapse of the monetary system, which is why the Fed had to secure those.

Re: The Real Cost of the 2008 Financial Crisis

#335

Post by rifung »

pitaj wrote: post #271
OscarCunningham wrote: post #267

Earlier quoted context omitted.

Wouldn't directly supporting people also produce price inflation?

Yep, what the parent commenter didn't say was that pumping money into any system almost always results in prices going wayyy up to absorb the new demand. This happens regardless or whether it's loans or direct subsidies.

I believe the way laws generally deal with this is to only allow subsidies when the price is under some cap. Sadly we (or the US) don't do this for education it would seem

Re: The Real Cost of the 2008 Financial Crisis

#336

Post by inthewoods »

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…

Amazingly there wasn't even a requirement for basic income checks when issuing a mortgage - that came after the crisis.

If we look at the mortgage pipeline, the problems become obvious, but none of them have to do with the government, except in that the government should have regulated.

Start with the mortgage origination companies like Countrywide who could easily offload mortgages to the other banks to collateralize. Since these companies could completely offload their risk, they were highly incentivized to give a mortgage to everyone.

Move on to the rating companies and the big banks creating financial products of doom and you've got the whole mess. All without the government "creating the problem." I do agree, however, that the government giving these companies an implied put option via a bailout gave them every reason they needed to take huge risks.

Still amazes me that no one from the banks ended up in jail.

Re: The Real Cost of the 2008 Financial Crisis

#337

Post by DesiLurker »

tootie wrote: post #304
brobdingnagians wrote: post #3

Earlier quoted context omitted.

We haven't escaped the depression; the bailouts and quantitative easing simply delayed it for a bit, and the more it is delayed, the worse it will be. It would be far better to have economic corrections along the way with little dips than to keep the house of cards going on worse and worse foundations until it all falls apart in a large depression. Little distortions can be corrected in the short term, but keeping th…

In the long run, we're all dead.

I hear that tongue in cheek response many times but that's not true in its spirit, we will be survived by our next generation & they by theirs.

Unless you are talking about ultimate heat death of universe. but then if you truly are that fatalistic then why bother commenting?

Re: The Real Cost of the 2008 Financial Crisis

#338

Post by howard941 »

nafey wrote: post #2

But what was the alternative to the bailouts? Another depression? I feel we made it across fairly well.

I believe too many made out fairly well and by not wiping out the shareholders we've created a gaping maw of a moral hazard. Corporate governance is in tatters, has been since roughly the 80s when the goal became quarterly earnings at all costs.

Wiping out the shareholders when bailing out would have incentivized the next set of shareholders to police their investment. Now the only disincentives are executive compensation and some additional express limits on dividends.

Re: The Real Cost of the 2008 Financial Crisis

#339

Post by inthewoods »

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.

I never understood why Dick Fuld wasn't put in jail. He deliberately misled investors on the amount of leverage they were operating under. I thought Sarbox, which required the CEO and CFO to sign off on their public financial statements, would have caught this.

Re: The Real Cost of the 2008 Financial Crisis

#340

Post by [deleted] »

Isamu wrote: post #300
camelite wrote: post #287

Earlier quoted context omitted.

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…

It was Fannie Mae, the large semi-government housing lender, that was strong-armed into supporting sub-prime lending in a big way. Again for good reasons. This normalized sub-prime lending for others. Not everything has an evil agenda behind it. Sometimes the reasons are fairly ordinary and boring.

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