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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

#361

Post by graedus »

bitxbit wrote: post #145
shshhdhs wrote: post #136

Earlier quoted context omitted.

I don’t recall him kneeling. I think the commentator was exaggerating

No, I am not exaggerating. https://www.nytimes.com/2008/09/26/business/26bailout.html [“I didn’t know I was going to be the referee for an internal G.O.P. ideological civil war,” Mr. Frank said, according to The A.P.Thursday, in the Roosevelt Room after the session, the Treasury secretary, Henry M. Paulson Jr., literally bent down on one knee as he pleaded with Nancy Pelosi, the House Speaker, not to “blow it up” by…

Thanks, that's an interesting bit of history, I hadn't noticed that before.

Off-topic but ultimately related, here's another "fun" Hank Paulson moment as he talks about inequality with Robert Rubin and Sheryl Sandberg (and I believe Tim Geithner is just off-camera to the left):

https://www.youtube.com/watch?v=ln33wtom1Ow

Re: The Real Cost of the 2008 Financial Crisis

#362

Post by seppin »

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.

That's like saying we shouldn't pay attention to the lessons of the great depression because it was in the 1930s.

Re: The Real Cost of the 2008 Financial Crisis

#363

Post by icu »

dragonwriter wrote: post #358
icu wrote: post #356

Earlier quoted context omitted.

Re: The Fed The Fed is a privately owned bank that is given the monopoly to issue debt backed by the taxation of the State. The U.S. could simply issue debt itself. Even though the President appoints the Fed Chairman and it has the word "Federal" in its name it is not a Government organization. If you don't believe me, try getting ownership information from the Fed via the Freedom of Information Act. For further info…

> Even though the President appoints the Fed Chairman and it has the word "Federal" in its name it is not a Government organization. If you don't believe me, try getting information from the Fed via the Freedom of Information Act. The Fed's own page on the FOIA indicates that the Fed thinks it's a federal agency covered by FOIA. https://www.federalreserve.gov/foia/about_foia.htm

Okay... request information on the ownership structure of each of the Fed banks (i.e. share register) and see how far you get.

I know it sounds crazy but the Fed is simply not a Government organization if it is privately owned.

Re: The Real Cost of the 2008 Financial Crisis

#364

Post by pnutjam »

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…

Your view is popular, simplistic, and wrong. https://www.thisamericanlife.org/355/transcript

Re: The Real Cost of the 2008 Financial Crisis

#365

Post by hndamien »

chimeracoder wrote: post #357
hndamien wrote: post #352

Earlier quoted context omitted.

I'm aware, and it was a joke. "purchasing the illiquid MBS, and through that, reducing the potential losses of the institutions that owned them. Later, it was modified slightly to allow the government to buy equity stakes in banks and other financial institutions" Why would any rational investor purchase dog crap knowingly for the good of society, by spending that society's money on dog crap. Instead, buy the dog, di…

> Why would any rational investor purchase dog crap knowingly for the good of society, by spending that society's money on dog crap. Instead, buy the dog, discounted by the amount of dog crap it has, and squeezed by how desperate the seller is of what is left. I don't think you understand how TARP worked if you think that's even remotely applicable as an analogy > This is how capitalism is supposed to work. Maybe you…

Since you are so wise, maybe you could enlighten me rather than responding with a response that amounts to - you know nothing, please learn more.

This is supposed to be a forum for intelligent discussion.

I literally quoted investopedia for how TARP works - so don't pretend that isn't how it worked. "Purchasing illiquid Mortgage Backed Securities" aka "Toxic Assets" aka "Dog Crap".

Re: The Real Cost of the 2008 Financial Crisis

#366

Post by jhayward »

docker_up wrote: post #334
pitaj wrote: post #323

Earlier quoted context omitted.

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 t…

Instead of bailing out the banks, they could easily have simply been put in receivership, with Treasury as the recevier in control. Simply re-capitalize them from the federal reserve, and they don't have to miss a single hour's worth of operation.

Unwinding the mess of CDOs, etc. would have been long and tiresome but, with a little help from a convenient executive order or two perfectly do-able.

Re: The Real Cost of the 2008 Financial Crisis

#367

Post by koolba »

chimeracoder wrote: post #318
koolba wrote: post #197

Earlier quoted context omitted.

> We don't have to "legislate" the morality but we do have a responsibility for doing _something_. If the government, or specifically the justice system, is going to be involved in that "_something_" then we need laws that can be enforced by prosecutors and interpreted by judges. If you want that to include actions that is currently legal but which you find morally reprehensible (ex: the actions of these finance exec…

> With all the demonizing of wall street in regards to the 2008 crisis, most fail to go back to the true cause of the crisis, i.e. the repeal of the Glass-Stegall Act[2] via the Gramm-Leach-Bliley Act[3] signed by President Clinton in 1999. It took almost a decade but the entire "too big to fail" concept grew from that repeal. As pointed out elsewhere, the repeal of Glass-Stegall was not the problem. Not only do most…

It didn't cause the root problem but it contributed greatly to it ballooning beyond a handful of investment banks to main street ones.

Interestingly it was also involved in the solution as it allowed some of the mergers that softened the collapse.

Re: The Real Cost of the 2008 Financial Crisis

#368

Post by sampleinajar »

rifung wrote: post #333
irrational wrote: post #223

Earlier quoted context omitted.

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.

I think you assume, and rightfully so based on how people discuss this topic, that 'afford' is a black and white numbers game when it comes to mortgages. It's not. I can clearly 'afford' a home mortgage worth the amount I spend in rent each month, but I cannot get a mortgage for that right now. So really the discussion is/was/should be about easing the mortgage qualifications and restrictions. It was not as if people were giving mortgages for million dollar homes to minimum wage workers, and no one would sanely suggest that is a good idea.

Re: The Real Cost of the 2008 Financial Crisis

#369

Post by pjmorris »

Isamu wrote: post #343
pjmorris wrote: post #329

Earlier quoted context omitted.

This talking point has been debunked for years. It's a special favorite of Barry Ritholtz at 'The Big Picture' blog. He observes, empirically, that most sub-prime lending during the crisis was done by banks that weren't required to do so. EDIT: To substantiate and cite, "Nearly $3 of every $4 in subprime loans made from 2004 through 2007 came from lenders who were exempt from the law (CRA)." [0] [0] http://ritholtz.c…

This was a vast potential market and Fannie Mae proved you could get away with serving it, the sky didn't fall for a number of years. So other banks jumped on board. Are you saying they would have taken on this risk if the federal government hadn't moved first? I think there is a clear cause and affect.

If they'd taken the same risks that Fannie and Freddie took, they'd have had similar results, and the market may well have gone on functioning as it had before. "Similarly, the total credit losses incurred by the GSEs are about one-fourth those incurred about by private label mortgage securitizations, which are packaged and sold by Wall Street." [0]

The private banks took greater risks and wound up with worse performance.

[0] http://ritholtz.com/2013/03/the-big-lie-annotated-an-aei-his...

Re: The Real Cost of the 2008 Financial Crisis

#370

Post by simonh »

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.

There’s no law of nature that says this is always required, no. But I’m afraid in the situation the Fed found itself in back in 2008, there really was no other option without a much, much more severe recession. Governments had been massively over spending and actively promoting reckless lending, even legally mandating it in some cases with required ratios of low grade mortgages, for years.

I personally know two people that cashed out tens of thousands of pounds here in the UK by remortgaging and spent it. Plenty of consumers were behaving ridiculously recklessly too. It was a crazy time, and businesses need banks. People need banks. Should your bank holding you accounts and mortgage have been allowed to fail? How about the bank financing your employer? How about both at the same time?

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