How the banks ignored the lessons of the crash • Hacker News Board

Re: How the banks ignored the lessons of the crash

#31

Post by cynicalkane » Thu, Oct 01, 2015, 4:45 AM UTC

nikatwork wrote: post #30

cynicalkane wrote: post #27

Earlier quoted context omitted.

In general, banks that break regulations don't result in people going to jail because individuals take action to avoid personal responsibility for anything. There are literally hundreds of thousands of pagers of them, nobody really understands them, and regulators decide which ones to take seriously according to the political winds of the day. At top banks a major purpose of the regulatory department is to make sure…

> literally hundreds of thousands of pagers of them, nobody really understands them BaselII[+] and friends are relatively clearcut and are designed to prevent credit meltdown. The rules and reporting requirements are baked into Bank software and dataflow. Auditors will spank you with fines, and will revoke your accreditation for serial offences. This can force an involuntary acquisition. > there are tens of thousands…

I was replying to the poster who was wondering why people don't go to jail when banks break the law.

I was making the charitable assumption he was talking about banks that were breaking laws. Most of the significant regulatory actions taken against banks do not involve Basel capital requirements. With regards to the financial crisis, simply being bad at running a bank isn't a crime.

While we're on the subject, political leaders and voters do not really understand the distinction here either. Capital requirements are separate from, for example, anti money-laundering, but in the eyes of voters it's all more regulation against the evil banks.

Re: How the banks ignored the lessons of the crash

#32

Post by asmithmd1 » Thu, Oct 01, 2015, 4:47 AM UTC

nugget wrote: post #11

rhino369 wrote: post #8

Earlier quoted context omitted.

It's a mistake to treat banks like a monolith. The banks making the worst choices really did pay the price. Three of the five biggest investment banks in the USA either went bankrupt or were sold off for pennies on their previous value. Fannie and Freddie were essentially bankrupted. These companies share holders were wiped out. That's exactly what happens with other businesses in bankruptcy. Well, other than Bear an…

Who went to jail for breaking the law?

Jon Corzine is a perfect example of how the American apparatchik can steal billions of dollars and not even be threatened with prosecution:

http://www.vanityfair.com/news/business/2012/02/jon-corzine-...

Re: How the banks ignored the lessons of the crash

#33

Post by mikeyouse » Thu, Oct 01, 2015, 4:51 AM UTC

nosuchthing wrote: post #9

rhino369 wrote: post #8

Earlier quoted context omitted.

It's a mistake to treat banks like a monolith. The banks making the worst choices really did pay the price. Three of the five biggest investment banks in the USA either went bankrupt or were sold off for pennies on their previous value. Fannie and Freddie were essentially bankrupted. These companies share holders were wiped out. That's exactly what happens with other businesses in bankruptcy. Well, other than Bear an…

Seemed like a net win for the surviving banks with all the reduced competition, cheap real estate in default, and near 0% Fed rate. https://www.fdic.gov/bank/individual/failed/banklist.html

The banks loathe low rates.. They make most of their profits on interest margin which is greatly compressed in ZIRP environments.. Their margin is literally the lowest it's been since at least the early 1980's. [1]

It's no surprise then that bankers are the ones clamoring loudest for interest rate hikes. Bill Gross, Lloyd Blankfein, Robert Shiller, insurance & pension execs are all begging Yellen to raise rates while the people in charge of companies that actually sell physical goods are telling her to hold off.

[1] - https://research.stlouisfed.org/fred2/series/USNIM

Re: How the banks ignored the lessons of the crash

#34

Post by HighPlainsDrftr » Thu, Oct 01, 2015, 5:20 AM UTC

I've thought for a long time - it doesn't matter if these banks broke the law - they tried to fly to high and broke a lot of citizens. I'm not a fan of government bailouts. But if it happens, they should split the bank up into smaller pieces; ban the management from working in the industry as management again, and give the new remaining company a bit of support to get going again.

Bailouts shouldn't come without a price to pay to the people involved.

Re: How the banks ignored the lessons of the crash

#35

Post by digi_owl » Thu, Oct 01, 2015, 5:22 AM UTC

anigbrowl wrote: post #28

liamconnell wrote: post #19

Great article. At the risk of fear mongering, the point about supermarkets was very powerful. "Greed is good" is fine until the money controls the entire infrastructure of society. I live in Argentina, where so many factories were abandoned in our 2001 crisis that workers decided to re-open many of them. Would American workers have it in them if there were a serious liquidity crisis?

The problem with this is that a factory making stuff is useless if people don't want or can't afford the product. The Marxist labor theory of value asserts that value s created when something is made rather than sold, but 1000 pairs of shoes sitting in a warehouse miles away from any consumers who might want to wear them aren't making anyone better off.

More accurately its that the value is set by the labor required.

Beyond that for most people in a capitalist system, the basic process was one of commodity > money > commodity. Meaning that people made stuff to earn money, to buy more stuff.

But for the capitalists instead it was money > commodity > money+. Putting money into the production of stuff so as to earn even more money on sales.

Now where Marx went off the rails was with factory machines. He was sadly working under the preconception that workers were being exploited, and so ended up badly muddling the impact machinery has on the value definition.

Re: How the banks ignored the lessons of the crash

#36

Post by retrogradeorbit » Thu, Oct 01, 2015, 5:43 AM UTC

AnimalMuppet wrote: post #23

retrogradeorbit wrote: post #17

Earlier quoted context omitted.

In order to find evidence an investigation needs to be conducted. So, if there is no investigation, there is no evidence, and thus no law breaking.

All right, but in order for an investigation to be reasonable, there needs to be a basis for accusation, or something . We don't just say "AnimalMuppet must be guilty of something; let's start an investigation to find out what."

So you are arguing there was no basis for investigation? Ok then. Whatever.

Re: How the banks ignored the lessons of the crash

#37

Post by Animats » Thu, Oct 01, 2015, 6:09 AM UTC

From the article: "The problem with today’s banks is that those who accept the risks are no longer those who get stuck with the bill."

Much of the trouble comes from financial deregulation. There used to be laws in the US which forced considerable isolation between different parts of the financial system. There was the Glass-Stegall Act (1933-1999), which kept banks and brokerages separate. There used to be a separation between savings and loan companies and commercial banks. Savings and loan companies used to have to lend locally, and actually send people to building sites to see how construction was coming along before advancing more money. There was the Utility Holding Company Act, which limited public utilities to a tree depth of 3 in stock ownership, just so they could be regulated more easily.

With all that separation, parts of the economy could get into trouble without cascading. A stock market crash didn't affect banks much. The savings and loan mess of the 1980s didn't clobber the stock market.

2008 might have played out very differently if the former head of Goldman Sachs, Henry Paulson, hadn't been Secretary of the Treasury. President Bush was prepared to let banks and brokerages go bust, in keeping with his conservative principles of letting the market decide. Paulson was the one who pushed for a bailout. At the point Lehman went bust, Goldman Sachs was about a month from going bust, too.

Re: How the banks ignored the lessons of the crash

#38

Post by rorykoehler » Thu, Oct 01, 2015, 6:48 AM UTC

cjf4 wrote: post #26

jellicle wrote: post #21

The lessons of the crash were: absolutely no one went to jail, and every banker involved made nearly as much money during the worst years of the crash as during any other year. So, what's the problem?

Ultimately so did the taxpayer. Those bailout loans everyone likes to complain about were some of the best investments the federal government has ever made.

You tell that to all the people who lost their jobs and homes. I'm sure they'll be delighted.

Re: How the banks ignored the lessons of the crash

#39

Post by thrownaway2424 » Thu, Oct 01, 2015, 6:49 AM UTC

cjf4 wrote: post #26

jellicle wrote: post #21

The lessons of the crash were: absolutely no one went to jail, and every banker involved made nearly as much money during the worst years of the crash as during any other year. So, what's the problem?

Ultimately so did the taxpayer. Those bailout loans everyone likes to complain about were some of the best investments the federal government has ever made.

I doubt those loans had anywhere near the ROI of, say, the land grants for the transcontinental railroad, the Louisiana Purchase, or the Alaska Purchase.

Re: How the banks ignored the lessons of the crash

#40

Post by wavefunction » Thu, Oct 01, 2015, 7:18 AM UTC

olewhalehunter wrote: post #22

liamconnell wrote: post #19

Great article. At the risk of fear mongering, the point about supermarkets was very powerful. "Greed is good" is fine until the money controls the entire infrastructure of society. I live in Argentina, where so many factories were abandoned in our 2001 crisis that workers decided to re-open many of them. Would American workers have it in them if there were a serious liquidity crisis?

>Would American workers have it in them if there were a serious liquidity crisis? Asian real estate tycoons would own the area before the workers could pronounce "transpacific capital monitoring". much less before they were told factory was being shut down.

All I have to say to that sort of apocalyptic scenario is that possession is nine tenths of the law. Hard for 'Asian Tycoons' to be absentee landlords, were they to try.