Blowing the Whistle on the Mortgage Bubble • Hacker News Board

Re: Blowing the Whistle on the Mortgage Bubble

#31

Post by josefresco » Fri, Jan 25, 2013, 2:41 PM UTC

jstalin wrote: post #12

Our system is strictly based on confidence at this point. Fiat currency, fractional reserve banking, massive leverage, and more systemic debt than the world has ever seen all rely on the fact that big banks are essentially untouchable. We'll never see prosecutions of big banks or their principles. It would break the entire system.

This is an important point, and one that I personally believe explains why we didn't see prosecutions at the highest level. Geithner was instrumental in guiding Obama away from this heavy handed approach, as he recognized (I think quite accurately) that confidence was really the only thing keeping the system from crashing completely.

If Obama had given execs the kind of treatment Larry Summers and the other half of his team wanted (heads on sticks to put it lightly) it would have rocked the investment world and brought much more pain to our economy than many could bear. The American people would have seen justice, but most likely at a substantial cost to the American way of life with ripple (tsunami?) effects seen and felt around the world.

Re: Blowing the Whistle on the Mortgage Bubble

#32

Post by arethuza » Fri, Jan 25, 2013, 2:42 PM UTC

patio11 wrote: post #2

Worth it just for the email in the middle by a Citi underwriter. http://cybercemetery.unt.edu/archive/fcic/20110310201200/htt... I don't agree with every stylistic choice, but that's some of the best professional writing in the fling-a-firecracker-outside-of-your-silo circumstance that I've ever seen. ("I do not believe our company has recognized the material financial losses inevitably associated with the above Citi…

Alistair Darling, the UK Chancellor of the Exchequer at the time of the crisis, pretty much did think that the world was going to end - he had the chairman of RBS (one of the worlds biggest banks, possibly the biggest at the time) phone him up and say that he thought they might be able to last 2 or 3 hours.

[NB I'm pretty sure I've read they were considering going to what sounded awfully like a wartime "emergency" government if the UK banking sector had collapsed.]

Re: Blowing the Whistle on the Mortgage Bubble

#33

Post by AutoKorrect » Fri, Jan 25, 2013, 2:46 PM UTC

gizmo wrote: post #23

martinced wrote: post #15

"industry insiders were ringing the alarm bells" Just as today many economists are ringing the alarm bells: the governments public debt issues (both in U.S., Japan and many countries in the Eurozone) are going to end up very badly. Many central banks (including in the U.S.) have basically become bad banks. Anyone holding medium and long-term public government debt (like many insurance products) are basically bankrupt…

Ug. So many misconceptions and conspiracy theories, where do I begin? 1. The US and the Eurozone are suffering from very different problems. The debt in the US is likely to stabilize at around 80% GDP (source: http://krugman.blogs.nytimes.com/2013/01/24/tim-geithner-is-... ). European countries are in quite a bit of trouble, but it will most likely take the the form of a slow and painful recovery. Greece has already…

'likely to stabilize'? Are you on crack? Congress & O can't even create & pass a budget. They talk about 'saving' a trillion dollars... over 10 years! Our armed forces are still deployed to 3rd-world cesspools that we have no business being in. Debt is going to go up and up until the balloon pops.

Re: Blowing the Whistle on the Mortgage Bubble

#34

Post by mseebach » Fri, Jan 25, 2013, 2:47 PM UTC

gizmo wrote: post #23

martinced wrote: post #15

"industry insiders were ringing the alarm bells" Just as today many economists are ringing the alarm bells: the governments public debt issues (both in U.S., Japan and many countries in the Eurozone) are going to end up very badly. Many central banks (including in the U.S.) have basically become bad banks. Anyone holding medium and long-term public government debt (like many insurance products) are basically bankrupt…

Ug. So many misconceptions and conspiracy theories, where do I begin? 1. The US and the Eurozone are suffering from very different problems. The debt in the US is likely to stabilize at around 80% GDP (source: http://krugman.blogs.nytimes.com/2013/01/24/tim-geithner-is-... ). European countries are in quite a bit of trouble, but it will most likely take the the form of a slow and painful recovery. Greece has already…

So, for your point 1, neither Krugman nor the CBPP report he links to claims that the debt will stabilise at 80%. It will arrive at 80% with a rising slope, not flatten like the "cuts" scenario. Also, good thing you didn't link to anything containing conspiracy theories:

To say what should be obvious: Republicans don’t care about the deficit. They care about exploiting the deficit to pursue their goal of dismantling the social insurance system. They want a fiscal crisis; they need it; they’re enjoying it.

Re: Blowing the Whistle on the Mortgage Bubble

#35

Post by mpyne » Fri, Jan 25, 2013, 2:50 PM UTC

Nursie wrote: post #18

jstalin wrote: post #12

Our system is strictly based on confidence at this point. Fiat currency, fractional reserve banking, massive leverage, and more systemic debt than the world has ever seen all rely on the fact that big banks are essentially untouchable. We'll never see prosecutions of big banks or their principles. It would break the entire system.

Isn't the system, and the whole concept of money in general, all entirely a confidence game?

Exactly. Even when the money was made of gold, it was still worth exactly what people thought it was worth, nothing more or less.

Re: Blowing the Whistle on the Mortgage Bubble

#36

Post by patrickgzill » Fri, Jan 25, 2013, 2:54 PM UTC

pdonis wrote: post #20

pmorici wrote: post #13

Earlier quoted context omitted.

"There aren't any criminal prosecutions because it's hard to prove that there was fraud." That's nonsense. The following exchange takes place in the documentary where Breuer admits the reason these banks aren't prosecuted is because it is basically government policy not to... """ MARTIN SMITH: You gave a speech before the New York Bar Association. And in that speech, you made a reference to losing sleep at night, wor…

the reason these banks aren't prosecuted is because it is basically government policy not to And the reason for that is that it was government policy that created the situation in the first place: wanting everyone to own a home, whether they could afford it or not, and allowing banks to play games to offset the inevitable losses from being forced to give mortgages to people who couldn't afford them. And it was govern…

You are both right and wrong.

The total amount of support given to the banks was far greater than the total amount of ALL residential mortgages everywhere in the USA. Total support given in all the various ways was over $10 Trillion, while the total value of all residential mortgages is under $4 Trillion.

Re: Blowing the Whistle on the Mortgage Bubble

#37

Post by gizmo » Fri, Jan 25, 2013, 3:01 PM UTC

mseebach wrote: post #34

gizmo wrote: post #23

Earlier quoted context omitted.

Ug. So many misconceptions and conspiracy theories, where do I begin? 1. The US and the Eurozone are suffering from very different problems. The debt in the US is likely to stabilize at around 80% GDP (source: http://krugman.blogs.nytimes.com/2013/01/24/tim-geithner-is-... ). European countries are in quite a bit of trouble, but it will most likely take the the form of a slow and painful recovery. Greece has already…

So, for your point 1, neither Krugman nor the CBPP report he links to claims that the debt will stabilise at 80%. It will arrive at 80% with a rising slope, not flatten like the "cuts" scenario. Also, good thing you didn't link to anything containing conspiracy theories: To say what should be obvious: Republicans don’t care about the deficit. They care about exploiting the deficit to pursue their goal of dismantling…

You're correct that the debt will continue to go up after 10 years if there are absolutely no cuts and no revenue increases. But 10 years is plenty time to bring the budget in line with GDP growth, and after the depression is behind us there should be bi-partisan interest in reducing the deficit. I'll be very surprised if the US deficit is over 80% of GDP in 10 years.

The comment by Krugman about Republicans wanting a fiscal crisis to dismantle the welfare system is somewhat hyperbolic. However there are plenty Republicans who claim to care about the deficit but when push comes to shove go for tax cuts instead and then point at the lack of revenues to justify cuts in the welfare system.

Re: Blowing the Whistle on the Mortgage Bubble

#38

Post by [deleted] » Fri, Jan 25, 2013, 3:03 PM UTC

pdonis wrote: post #20

pmorici wrote: post #13

Earlier quoted context omitted.

"There aren't any criminal prosecutions because it's hard to prove that there was fraud." That's nonsense. The following exchange takes place in the documentary where Breuer admits the reason these banks aren't prosecuted is because it is basically government policy not to... """ MARTIN SMITH: You gave a speech before the New York Bar Association. And in that speech, you made a reference to losing sleep at night, wor…

the reason these banks aren't prosecuted is because it is basically government policy not to And the reason for that is that it was government policy that created the situation in the first place: wanting everyone to own a home, whether they could afford it or not, and allowing banks to play games to offset the inevitable losses from being forced to give mortgages to people who couldn't afford them. And it was govern…

[deleted]

Re: Blowing the Whistle on the Mortgage Bubble

#39

Post by deveac » Fri, Jan 25, 2013, 3:04 PM UTC

martinced wrote: post #15

"industry insiders were ringing the alarm bells" Just as today many economists are ringing the alarm bells: the governments public debt issues (both in U.S., Japan and many countries in the Eurozone) are going to end up very badly. Many central banks (including in the U.S.) have basically become bad banks. Anyone holding medium and long-term public government debt (like many insurance products) are basically bankrupt…

>"The problem of socialism is that at one point you run out of other people's money". And that's where we're arriving now.

Ugh. I try my best not to be snarky on here, but here is the wiki explaining what socialism is:

http://en.wikipedia.org/wiki/Socialism

Don't worry, you don't have to read past the first sentence to reveal your complete and utter misunderstanding of the term.

The trend, over the years, has been overwhelming in favor of private ownership of the economic means of production. You're going to need to come up with another word to decry what ails you policy wise if accuracy, not dogma, is your goal.

PolySci 101. It ain't that difficult. Do I really need to GTFY on HN?

Re: Blowing the Whistle on the Mortgage Bubble

#40

Post by BenoitEssiambre » Fri, Jan 25, 2013, 3:07 PM UTC

martinced wrote: post #15

"industry insiders were ringing the alarm bells" Just as today many economists are ringing the alarm bells: the governments public debt issues (both in U.S., Japan and many countries in the Eurozone) are going to end up very badly. Many central banks (including in the U.S.) have basically become bad banks. Anyone holding medium and long-term public government debt (like many insurance products) are basically bankrupt…

"governments are going to default.", "we live in a socialist world bent on confiscating savings (at the benefit of the state) using inflation"

These are contradictory. Governments don't have to default if they inflate their debt away.

Also, money is just pieces of paper or a number in a computer. You shouldn't keep most of your savings in money. Cash is just an agreed upon number meant to help with short term transactions. It's a tool for trading. You don't have real savings until you have something more err... real, like stocks or actual stuff. Inflation can't touch that. If you feel bonds don't offer a good enough return given inflation risks just don't buy bonds! No reason to panic. The world GDP won't drop 25% unless we run out of key natural resources or face some kind of catastrophe, things that would happen regardless of "socialism".

Government debt matters but not in the way you seem to think.