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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

#391

Post by Eliezer »

naravara wrote: post #311
Eliezer wrote: post #284

Earlier quoted context omitted.

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.…

FDIC only ensures bank deposits, such as checking or savings accounts, not mortgages. It's not at all clear what that has to do with the proliferation of subprime lending.

It's a root cause of bank irresponsibility. If not for free FDIC insurance, a bank making risky loans would cause the cost of insuring an account at that bank to rise. Securitization does change this, but all the CDSs on AIG's mispriced insurance on CDOs were ultimately taking place against a background of too-big-to-fail and flat-priced government insurance.

Re: The Real Cost of the 2008 Financial Crisis

#392

Post by paulddraper »

stale2002 wrote: post #298
paulddraper wrote: post #210

Earlier quoted context omitted.

What is the easier, little-bit socialist solution to home ownership?

The answer is to create laws that allow developers to build more housing. The price of housing in many high cost of living is completely unrelated to how much it cost to build the apartment building. Or in other words, the actual construction of the building is the easy part. It is the government that is getting in the way of reduced prices

> The answer is to create laws that allow developers to build more housing

I didn't know reducing regulation on businesses was the socialist solution. But yeah, sounds good to me.

Re: The Real Cost of the 2008 Financial Crisis

#393

Post by dragonwriter »

slg wrote: post #241
paulddraper wrote: post #210

Earlier quoted context omitted.

What is the easier, little-bit socialist solution to home ownership?

Taxes and tax incentives.

But not the current ones.

We should, if we want to use tax policy to promote home ownership outside of the wealthy, be subsidizing principal payments for owner-occupied primary residences meeting certain local and personal affordability standards, and possibly tax-favoring sale proceeds for sales of property when, after sale, it will be owner-occupied primary residence meeting affordability standards.

Re: The Real Cost of the 2008 Financial Crisis

#394

Post by brainwad »

bradleyjg wrote: post #390
brainwad wrote: post #389

Earlier quoted context omitted.

It's bad, which is why after the crisis the Dodd-Frank act was passed to reduce the chances of too-big-to-fail entities failing. So while we taught them they'd be bailed out, it's much less likely they can get themselves into that situation again.

Do you really believe that? Because I certainly don’t.

They are required to hold enough liquid capital that they won't need to be bailed out next time. As far as I can tell, it did work, yes.

Re: The Real Cost of the 2008 Financial Crisis

#395

Post by stale2002 »

paulddraper wrote: post #392
stale2002 wrote: post #298

Earlier quoted context omitted.

The answer is to create laws that allow developers to build more housing. The price of housing in many high cost of living is completely unrelated to how much it cost to build the apartment building. Or in other words, the actual construction of the building is the easy part. It is the government that is getting in the way of reduced prices

> The answer is to create laws that allow developers to build more housing I didn't know reducing regulation on businesses was the socialist solution. But yeah, sounds good to me.

Well, presumably socialists care as much about allowing people to give cheaply as do free market advocates.

I am not sure why a socialist would be opposed to lower living expenses for poor people.

Re: The Real Cost of the 2008 Financial Crisis

#396

Post by lovich »

Eliezer wrote: post #391
naravara wrote: post #311

Earlier quoted context omitted.

FDIC only ensures bank deposits, such as checking or savings accounts, not mortgages. It's not at all clear what that has to do with the proliferation of subprime lending.

It's a root cause of bank irresponsibility. If not for free FDIC insurance, a bank making risky loans would cause the cost of insuring an account at that bank to rise. Securitization does change this, but all the CDSs on AIG's mispriced insurance on CDOs were ultimately taking place against a background of too-big-to-fail and flat-priced government insurance.

Why would a bank spend any money on insurance to cover accounts in the event that they run out of money? That's just the end of the bank, they don't care at that point. It's not like the executive officers would have a chance of going to jail over it.

Re: The Real Cost of the 2008 Financial Crisis

#397

Post by hndamien »

chimeracoder wrote: post #382
hndamien wrote: post #365

Earlier quoted context omitted.

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".

> This is supposed to be a forum for intelligent discussion And yet you began with a sarcastic quip, followed by comparing TARP - a program that has generally been considered a successful part of mitigating the 2008 financial crisis by all mainstream economists, to different degrees - to passing around a bag of "dog crap". That's not what a good-faith intellectual discussion looks like, so don't expect replies to exc…

I just realised you were referring to the sarcasm after your rudeness, to justify your rudeness. Makes sense /s

Re: The Real Cost of the 2008 Financial Crisis

#398

Post by pas »

pjc50 wrote: post #122
pas wrote: post #106

Earlier quoted context omitted.

> a lot more "never again" What do you have in mind? Could you explain this?

Ideally when there is a sufficiently large disaster an inquiry is held which suggests measures to prevent the disaster, and these measures are implemented and enforced. Air safety is closest to the ideal on this. Politics and political economy is often very far from it, especially when it's possible to profit from a disaster. Part of the explicit aim of the bailout was to preserve the finance industry status quo, one…

> Politics and political economy is often very far from it, especially when it's possible to profit from a disaster.

Sure, but financial services oversight is not that far from air safety (NTSB, FAA). The SEC, FDIC, CFTC, FSOC (established in 2010 via the Dodd-Frank Act), the Fed, and a few others are rather technical agencies. If they have enough power to request certain kinds of data from financial institutions and fine them if they are deemed not secure/stable/compliant enough, they can and will prevent any similar upcoming crisis.

The problem is, of course, that rules are gradually rolled back due to politics, and the oversight agencies understaffed and underbudgeted. Thus they are not proactive, they are reactive, and there was nothing they could have done in 2008 when it was already too late. (So the Fed stepped in with QE, and Congress with TARP, and with ARRA - but that was too small, so recovery took too long.)

That said, yes, absolutely the incentives aligned toward preserving the status quo. Which is not necessarily wrong, as doing something radical was likely unhelpful. What needs to be done is clear (better effective proactive expert oversight) but it's politicized. Just like the FCC regulation with the TelComms industry. And so on.

Re: The Real Cost of the 2008 Financial Crisis

#399

Post by pas »

michaelt wrote: post #132
pas wrote: post #104

Earlier quoted context omitted.

There were "reforms" (or at least important fixes, like the stress test based financial sector oversight, and other stuff enacted in 2010 as the Dodd-Frank Act), but visibility was and still is shit. (And now Dodd-Frank is being reversed bit-by-bit, but again, nobody really cares, which is not surprising when there are new disasters every day in US politics.) The Obama stimulus was too small, and it simply took too m…

There were reforms to address banks not holding enough cash - but there wasn't anything to address the misaligned incentives and short-term-ism that rewarded people for mispricing assets.

> misaligned incentives and short-term-ism that rewarded people for mispricing assets.

Yes, absolutely, agreed. But this is the classic problem of not pricing in externalities, like every kind of pollution (climate change), delayed effect on human health, and various second- and higher order consequences.

Legislation should demand better goals (sustainability, health friendliness, inequality-decreasing). As long as tax incentives are broken, we'll continue to see the race for the quarterly profit.

Re: The Real Cost of the 2008 Financial Crisis

#400

Post by pas »

notfromhere wrote: post #171
pas wrote: post #106

Earlier quoted context omitted.

> a lot more "never again" What do you have in mind? Could you explain this?

We didn't break up banks, nor did we reform credit rating agencies much. We basically gave them a big sack of cash and asked them not to do it again. No one went to prison and GS went back to paying out bonuses.

Breaking up banks would create the Bell -> AT&T situation. Sure, better than nothing, as at least there are 3 offspring companies. Though the US has no shortage of competing banks. (But the big banks have too much influence, that's undeniable.)

> We basically gave them a big sack of cash

We had no other choice, really. They paid it back.

> and asked them not to do it again.

There is a long list of new regulation overseeing systemic risk related concerns. (We shall see their effectiveness and longevity.)

> No one went to prison and GS went back to paying out bonuses.

Intent is key for successful criminal prosecution, and it's very hard to prove.

The solution is known, and old. A competent proactive expert non-understaffed and non-underbudgeted oversight agency that can react to the changes in the market/industry (eg new products [investment vehicles, etc.] appearing) without Congress.

And serious compliance regulation that creates a paper trail for proving intent. (To deter people from stupid shit.)

Aaand [corporate] whistleblower protection.

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