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Can We Survive the Next Financial Crisis?

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Re: Can We Survive the Next Financial Crisis?

#71

Post by chadbaud »

oihoaihsfoiahsf wrote: post #51
chadbaud wrote: post #48

Earlier quoted context omitted.

The banks did cause it to happen. They had an insatiable appetite for mortgage backed securities and would shop credit rating agencies (who were newly public companies) to get a AAA rating on total garbage they knew would explode. Municipalities and pension funds would buy AAA securities even though the originators and packagers of the mortgagers knew they were garbage. It was a big fraud caused by the bankers greed.

Yes, the banks were part of the cause. That is not in dispute, as you can see by reading my previous comments. But they would not have been able to commit their fraud without the aid of credulous buyers willing to purchase far more house than they could afford. That's all I'm saying.

In a functioning market, a buyer would not have received a loan, no matter how much they wanted to over extend themselves. But, because fraud was being committed from the rating agencies, investment banks and mortgage originators, they got the loan.

I understand what you saying, but I think you underestimate the lack of accountability that allowed people to get loans they were not in the best interest of anyone.

Re: Can We Survive the Next Financial Crisis?

#72

Post by airstrike »

camjohnson26 wrote: post #8
acconrad wrote: post #2

One of the few times Bettridge's Law of Headlines doesn't apply. "Survive" is an extreme word here, but I do see a big issue w/ index funds. Perhaps an unpopular opinion - but I believe index funds will be the next major bubble that cripples the financial system. It's one massive way to persist the same inequality status quo. You know what made Bezos so rich in spite of a company that doesn't make much accounting sen…

Looks like investor Bill Ackman, famous for shorting the housing market before the bubble burst, had the same theory back in 2016. It's an interesting perspective. https://www.marketwatch.com/story/bill-ackman-actually-had-a...

> famous for shorting the housing market before the bubble burst

Also famous for losing more than $3 billion (or $7.7 million per day) on Valeant

http://fortune.com/2017/03/15/valeant-stock-bill-ackman/

Re: Can We Survive the Next Financial Crisis?

#73

Post by twiceaday »

acconrad wrote: post #2

One of the few times Bettridge's Law of Headlines doesn't apply. "Survive" is an extreme word here, but I do see a big issue w/ index funds. Perhaps an unpopular opinion - but I believe index funds will be the next major bubble that cripples the financial system. It's one massive way to persist the same inequality status quo. You know what made Bezos so rich in spite of a company that doesn't make much accounting sen…

I see a lot of issues here

You are conflating the general notion of index funds with the common investing advice of buying and holding index funds. I would argue that holding here is the vast majority of the advice. Plenty of people day trade index funds. You should be explicit that your objection is to the un-informed buying and holding of index funds. Also, you should be explicit in how you think a crash would come about, instead of simply mentioning a popular investment category.

Index funds do not discriminate. I don't understand how you drew the connection between them and an individual company like Amazon.

You make the assumption that people who now buy index funds would otherwise be intelligent investors that would correctly set stock prices. I doubt it. The trading patterns of most people have to be near random, more noise than signal, and likely very emotional. In fact, in this way index funds reduce the chances of a crash by removing this kind of nervous money from the stock market.

You make the assumption that index funds would swallow up all investments when in reality the edge that active investors have increases as the number of active vs passive investors decreases. There is a self-balancing force at play.

You simply have a wrong outlook on index funds. Buying a total index fund is investing in the entire stock market; betting that it is healthy and will grow with time. That's all. It is as much "too good to be true" as a healthy economy. Yes, buying an index fund means not participating in the process of correctly allocating resources to the best companies. But the important thing is that you are not in any way harming the actual participants because you obey their prices. This means you are essentially investing as the average active investor.

And lastly, it is naive to think that "fat cats" take more money from passive investors than they do from active ones.

Re: Can We Survive the Next Financial Crisis?

#74

Post by airstrike »

sschueller wrote: post #62
bogomipz wrote: post #32

The article states: >"Leverage has shifted to companies from consumers, and some risk has migrated to shadow banks from traditional lenders." Can someone explain this statement to me. The banks were the one's that were too heavily leveraged before. This is why the required the bailout. What am I missing?

What are shadow banks? Sounds to me the risk was just moved off the books using some financial trickery into "shadow banks" and when those blow they take the regular banks with them.

Shadow banks were already a thing in 2007-2008

https://www.philadelphiafed.org/-/media/research-and-data/pu...

Re: Can We Survive the Next Financial Crisis?

#75

Post by nostrademons »

waterphone wrote: post #28
busterarm wrote: post #14

Earlier quoted context omitted.

I'm bullish on the sentiment expressed by the parent poster, actually. Like another commentator, I believe index funds are going to be ripped hard and this is what the average saver has been told to dump their money into by the banking industry since the last crisis.

Investing in total market index funds is literally investing in the economy as a whole. (Or as much of a whole as the index represents.) So while yes, they will crash with future market crashes, of which there will be many in each of our lifetimes, historically in the U.S. so far the market has always recovered.

"historically in the U.S. so far the market has always recovered."

This is sorta enshrining survivorship bias in your premises - take the largest economy around today and point out that every time it's crashed, it's recovered. Well, if it hadn't, there wouldn't be anything to point at.

There are actually plenty of examples - even among European settlers of the Americas - where the economy did not recover. The Continental Congress and the monetary system setup under it failed through hyperinflation, leading to the expression "not worth a Continental", and then the country had to be rebooted under the U.S. Constitution. Similarly, plantation owners in the Confederate States of America were totally wiped out - not only was the currency debased, the infrastructure destroyed, and the plantations burned, but the whole legal framework under which the plantation system operated was rewritten.

Re: Can We Survive the Next Financial Crisis?

#76

Post by oihoaihsfoiahsf »

wiz21c wrote: post #70
oihoaihsfoiahsf wrote: post #51

Earlier quoted context omitted.

Yes, the banks were part of the cause. That is not in dispute, as you can see by reading my previous comments. But they would not have been able to commit their fraud without the aid of credulous buyers willing to purchase far more house than they could afford. That's all I'm saying.

>>> without the aid of credulous buyers or with the aid of people with that necessary skill needed to convince regular people to do something only credulous people would do. What was the name of that skill,... hmm... isn't it "manipulation" or "marketing" ? You see, if someone's is going to make a mistake, I tend to help him by preventing him to do so. I don't give him the pen to sign its destiny.

Y'all keep trying to explain the morality of what the banks and lenders did to me like I don't already know. I know. It's not good. That's irrelevant to the question of whether they were solely responsible.

Re: Can We Survive the Next Financial Crisis?

#77

Post by rocketpastsix »

HashThis wrote: post #5

The surprise that is coming is that the working class won't tolerate being robbed in the next financial crisis. Working American's had to financially absorb the 2008 Mortgage crisis. 2008 was a direct robbery because Mortgage Orginators KNEW the mortgages would blow up, because their own Underwriting equations said they would. That is why they did fraud on the customer's income levels or worked with politicians to al…

"The surprise that is coming is that the working class won't tolerate being robbed in the next financial crisis. "

I highly doubt this sadly. As long as Americans have their internet, their cable and other comforts, they wont revolt. Its not dire enough.

Re: Can We Survive the Next Financial Crisis?

#78

Post by airstrike »

HashThis wrote: post #5

The surprise that is coming is that the working class won't tolerate being robbed in the next financial crisis. Working American's had to financially absorb the 2008 Mortgage crisis. 2008 was a direct robbery because Mortgage Orginators KNEW the mortgages would blow up, because their own Underwriting equations said they would. That is why they did fraud on the customer's income levels or worked with politicians to al…

> the working class won't tolerate being robbed in the next financial crisis

The working class wasn't robbed at all. Maybe they lost the value they thought their homes had, but the reality is that all of that was just inflated.

2008 was an issue of moral hazard and unfortunately Joe Schmuck isn't aware of that going into a mortgage agreement. This will continue to happen forever until people finally learn that when something seems too good to be true, it probably is.

If you want to blame 2008 on anyone, you need to spread the blame like peanut butter among lending banks (but not every bank!!!), people who took on mortgages they couldn't pay (if nobody defaulted, the crisis would never have happened) and above all the credit rating agencies who exist for the sole purpose of assessing risk and maliciously failed to do so in order to not piss off their biggest customers (the banks).

Re: Can We Survive the Next Financial Crisis?

#79

Post by wallacoloo »

nabla9 wrote: post #63
acconrad wrote: post #2

One of the few times Bettridge's Law of Headlines doesn't apply. "Survive" is an extreme word here, but I do see a big issue w/ index funds. Perhaps an unpopular opinion - but I believe index funds will be the next major bubble that cripples the financial system. It's one massive way to persist the same inequality status quo. You know what made Bezos so rich in spite of a company that doesn't make much accounting sen…

For the discussion in relatively high quality formus like HN to survive there needs to be new rule adopted: Nobody is allowed to criticize or discuss the title of the article. Only the content in the body of the article. These titles are usually written by editors who think in clicks and they are not the original titles from the writers. This was good and interesting article but unless we discuss the content (and rea…

Many readers at HN find posts with interesting titles, skim the comments, and then read the article. Discussion of the title is useful for them, because if a commenter reveals that the title is misleading, the reader might choose to read something else, or approach the article with a different frame of mind.

Point being: there is some value in discussing the title. Certainly different readers value that discussion more/less than discussion of the content.

Re: Can We Survive the Next Financial Crisis?

#80

Post by HashThis »

oihoaihsfoiahsf wrote: post #26
HashThis wrote: post #5

The surprise that is coming is that the working class won't tolerate being robbed in the next financial crisis. Working American's had to financially absorb the 2008 Mortgage crisis. 2008 was a direct robbery because Mortgage Orginators KNEW the mortgages would blow up, because their own Underwriting equations said they would. That is why they did fraud on the customer's income levels or worked with politicians to al…

> It caused a $5 trillion in transfer from wealthy away from the working classes to the investor class in that 2008 Mortgage crisis. This sounds like a made up number. What is your source? > The 2008 Mortgage crisis robbed the working classes How? I.e. what did working class people own that was subsequently taken away by some other entity? > Wall Street over leveragged had huge wealth handed to them in money printing…

>> $5 trillion > This sounds like a made up number. What is your source?

$1.3 trillion from two levels of TARP, plus AIG, plus Fannie/Fredy.

The rest has been documented from lost of people who had sustainable mortgages but lost their home due to 9% unemployment that lasted years. There are many sources that cover this. I've read several books on the mortgage crisis and they are all in this category. That is a subset of the $13 trillion referenced in wikipedia sub-prime article.

>> Wall Street over leveragged had huge wealth handed to them in money printing that was giving directly to their balance sheets. > But there were certainly not any "no strings attached" givings of cash to the big financial entities.

You are missing the big robbery. Investment banking firms that purchased the CDOs/MBSs only had 3% of assets backing massive leverage. The reason the financial industry was going to CEASE UP was because they all didn't have the assets to backup the extreme leverage.

The robbery came because extreme money printing (QE) was used to "give assets" to banks so they would have far more than 3% assets to backup their massive leverage. The US tax payer was robbed with the money handed to them to sit on their balance sheets. That is the way their assets backing leverage raised above 3%. Banks getting more than 3% assets didn't happen any other way. Massive inflation will happen when this massive assets flood the market once a bank gets in trouble and transfers these QE "assets" into the market. That is when citizens will get robbed by the huge inflation impact of that QE.

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