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The Minds Behind the Meltdown

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Re: The Minds Behind the Meltdown

#11
post #9

The housing meltdown happened because there was a housing bubble, and the housing bubble was mostly created by the Government trying to artificially and aggressively influence the market so "everyone can have a home". That's the source. That the banks got involved in it later on and wanted to make easy money is just a symptom and an effect of the initial cause.

Of course, the US government magically controlled the housing markets in Britain, Spain, Ireland, and a number of other countries which experiencec similar housing bubbles and crashes. How'd that work?

Banks borrow from overseas markets. The largest such market by a wide margin is the USA. Cheap US dollars make their way around the world, variously driving up currencies and driving down interest rates offered by banks.

Here in Australia, there's been a great deal of consternation that the "Big 4" banks no longer closely follow the movements in the cash rate set by the Reserve Bank (our central bank). This is because central bank funds have fallen to less than half of the cost of funding for our banks -- they mostly get their cash from the US and relend it Australians.

When the crisis first broke, Australian bank rates rose even while central bank rates fell. And that's because international finance became much more expensive.

Re: The Minds Behind the Meltdown

#12

The housing meltdown happened because there was a housing bubble, and the housing bubble was mostly created by the Government trying to artificially and aggressively influence the market so "everyone can have a home". That's the source. That the banks got involved in it later on and wanted to make easy money is just a symptom and an effect of the initial cause.

Was the government the one giving negative-amortizing option ARMs to buyers without any documented income, then selling the (tranched) loans to investors as "risk-free"?

Re: The Minds Behind the Meltdown

#13
post #9

Earlier quoted context omitted.

Of course, the US government magically controlled the housing markets in Britain, Spain, Ireland, and a number of other countries which experiencec similar housing bubbles and crashes. How'd that work?

Banks borrow from overseas markets. The largest such market by a wide margin is the USA. Cheap US dollars make their way around the world, variously driving up currencies and driving down interest rates offered by banks. Here in Australia, there's been a great deal of consternation that the "Big 4" banks no longer closely follow the movements in the cash rate set by the Reserve Bank (our central bank). This is becaus…

[deleted]

Re: The Minds Behind the Meltdown

#14

The housing meltdown happened because there was a housing bubble, and the housing bubble was mostly created by the Government trying to artificially and aggressively influence the market so "everyone can have a home". That's the source. That the banks got involved in it later on and wanted to make easy money is just a symptom and an effect of the initial cause.

>just a symptom and an effect of the initial cause.

The major problem was that the banks had all that bad debt, not Fannie and Freddie. The government caused Fannie and Freddie to take on a lot of bad debt, but that in no way sank the economy. The stampede for the mortgage securities was all private sector and voluntary.

Saying that Bear Stearns' collapse was a 'symptom' of government policy is the conservative party line, and it's maliciously untrue.

Re: The Minds Behind the Meltdown

#15
post #2

"The meltdown also revealed dangerous links in the financial system few had previously realized—that losses in the U.S. housing market could trigger losses in huge stock portfolios that had nothing to do with housing. It was utter chaos driven by pure fear. Nothing like it had ever been seen before. This wasn't supposed to happen!" The author admits the link here. Then lists all sorts of erratic behavior in the stock…

I believe that the quants actually warned against believing their equations were infallible, but were ignored.
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