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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

#341

Post by Eschatologist »

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…

I think it's important to note that given the revolving doors and deep material connections between financial institutions and the government (and the resultant regulatory capture), there isn't that much meaningful daylight between "government" and "banks".

Re: The Real Cost of the 2008 Financial Crisis

#342

Post by inthewoods »

Isamu wrote: post #300
camelite wrote: post #287

Earlier quoted context omitted.

You, along with very many other people, are assuming the banks were convinced by the government to do something they didn't want to do. You mustn't forget that giving loans to people you know won't be able to pay them back, and lying about their ability to do so, is an absolutely classic form of fraud. Bankers lie their asses off, make big bucks in bonuses, and their banks in the long run are fucked, or not (perhaps…

It was Fannie Mae, the large semi-government housing lender, that was strong-armed into supporting sub-prime lending in a big way. Again for good reasons. This normalized sub-prime lending for others. Not everything has an evil agenda behind it. Sometimes the reasons are fairly ordinary and boring.

Citation?

Re: The Real Cost of the 2008 Financial Crisis

#343

Post by Isamu »

pjmorris wrote: post #329
Isamu wrote: post #190

Earlier quoted context omitted.

>Government shares a significant portion of the blame for this crisis. Agreed, I think the sheer size of the crisis relates back to deliberate policies to support sub-prime lending. The idea was to help people to afford homes even though they would not normally be considered a good risk. But opening this up created a vast new market, like adding a wider bottom tier to an already giant pyramid. Along with the vast siz…

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.

Re: The Real Cost of the 2008 Financial Crisis

#344

Post by inthewoods »

andrepd wrote: post #41
nafey wrote: post #2

But what was the alternative to the bailouts? Another depression? I feel we made it across fairly well.

The bailouts are controversial, but it's the bailouts AND the complete absence of criminal responsibility that's inexcusable. It is well known and documented that the financial crisis was no accident; everybody who headed the financial services industry to the state it was in did so knowingly , knowing full well the inevitable consequences, but not giving a damn because the arrangement let them to become handsomely w…

This times 100 - in my mind it is the major failure of the Obama administration. There should have been heads on pikes - then maybe we'd see better behavior.

Re: The Real Cost of the 2008 Financial Crisis

#345

Post by jdavis703 »

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.

The other side is renting -- where the landlord can raise rents to almost any arbitrary level (well to the market rate, but if you're not making bank it might as well be arbitrary). My understanding is 5-year ARMs where also subject to the whims of the bond market (LIBOR or whatever), so really the difference between renting and mortgaging in this case are just semantics.

Re: The Real Cost of the 2008 Financial Crisis

#346

Post by inthewoods »

koolba wrote: post #35
tokyodude wrote: post #20

Earlier quoted context omitted.

I haven't a clue about the whether the bailouts were important or not. What I feel like I would have liked is for the bailouts to happen AND the top 20 to 100 people from every financial institution to have gone to prison for at least 10 years. The president of Goldman Sachs, the president (or ex-President) of Lehman, etc... etc... What it seems like from the outside is they screwed the world over and completely got…

What crime did each of those executives commit? That’s what needs to be answered. Otherwise your comment reads like a mob chanting “ We want blood! ” Being greedy is not a crime. Taking advantage of lax regulations is not a crime. Being bailed out with tax dollars for risks that paid you off privately if they won is not a crime.

Dick Fuld significantly misrepresented the actual financial health and leverage of Lehman on public financial documents. Pretty clear Sarbox infraction. Nothing happened to him.

Re: The Real Cost of the 2008 Financial Crisis

#347

Post by AnimalMuppet »

sokoloff wrote: post #175
koolba wrote: post #79

Earlier quoted context omitted.

> I see this sentiment fairly regularly on HN. It's the idea that laws can sufficiently encapsulate ethical behavior (the rules) when they're strictly enforced, that they're the best thing we got, so live with it. > But there are many behaviors which aren't "crimes" but which are morally repulsive. I don't agree with that concept. I don't think it's possible to legislate morality and the entire concept is downright s…

> The left is going to have a hard time arguing [rising wages are] a bad thing. Why would the left argue that rising wages is a bad thing anyway? It seems that a significant subset of the left has been beating the “we need higher minimum wages and more wage growth overall" drum for a while. Is it just because they strictly prefer a governmental rather than a natural market solution? Or something else?

I believe that koolba's point was about rising wages in relation to immigration policy. That is, wages rise further if we let fewer immigrants in. But that's a problem for the left, which wants rising wages, but also wants a liberal immigration policy.

Re: The Real Cost of the 2008 Financial Crisis

#348

Post by elhudy »

debt wrote: post #203
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…

Nah you’re throwing the baby out with the bath water. Poor people can’t afford homes and in many cases don’t have proper identification even to buy a home. That’s where the whole NINJA subprime thing came in. But the actual problem was that those loans were being rated AAA when repackaged into a CDO. From that point forward is where the problem began. Tha is, if they were properly rated ‘08 would not have happened. T…

>But the actual problem was that those loans were being rated AAA when repackaged into a CDO.

I was under the impression that the CDO as a whole was being rated well - and the junk loans still maintained their rating when they were packaged. In other words, both parties were aware that the highly rated CDO contained bad loans. Is this not the case?

Re: The Real Cost of the 2008 Financial Crisis

#349

Post by s73v3r_ »

camelite wrote: post #283
hueving wrote: post #221

Earlier quoted context omitted.

Once the framework was in place to give out garbage loans, people across all income levels leveraged the opportunity to get houses they shouldn't have. This just shows how poisonous it is when the government screws up a market by essentially mandating that banks throw away their normal risk assessment process.

What law did the government pass that forced the banks to ignore their risk assessment processes? Particularly, supposing you can point to some law or intervention, why do you suppose the banks are so childish and naive that when a law forces them to do one thing they don't want to do (make dumb loans to low-income groups), they'll respond by over-generalising and doing a whole other bunch of things they hadn't up to…

Exactly. The bankers that did this are still adults, and are still fully capable of taking responsibility for their actions. No one told them they had to make garbage loans.

Re: The Real Cost of the 2008 Financial Crisis

#350

Post by leetcrew »

annabellish wrote: post #324
leetcrew wrote: post #220

Earlier quoted context omitted.

credentialed or not, if somebody told you you could afford something because "prices will always go up", would you believe them?

Do you have a pension? A lot of us do, and a lot of them are just specifically structured investment schemes with some tax incentives, which means they're a seventy year bet that the stock market will "always go up". Historically, that's been broadly true, given decent time scales - just as it was with house prices. I suppose it would be logically consistent to then say that people with pensions are "asking for it",…

in the context of an investment strategy, it is reasonable to assume that the overall market will always eventually rebound after a crash. it might not sometime in the future, but if the entire world market collapses and never recovers, we have bigger problems on our hands than asset allocation for retirement.

that said, there's really no reason to assume that a specific type of asset will continue to appreciate indefinitely, even if it has done so for a very long time.

but we're not even talking about betting hard on a particular asset class. we are talking about massively levered loans whose viability depends on the value of a single building. literally zero diversification. I honestly don't know how anyone could see this as anything but wishful thinking.

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