I have no love for the bankers. But it wasn’t them. They just played along with the game because that is where the big profits were.
The game went something like this –
SJW “there are under served minorities”
Bankers – “their record of repayment is not good”
SJW – “we will rate their paper at AAA and the government will buy it”
Bankers – “we will serve even liars and foist the bad paper produced on the government” (to themselves: “the payday will be HUGE – suckers”)
In 2008 reality and fantasy collided. Reality won.
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16 responses to “The Origins Of The 2008 Crisis”
“In 2008 reality and fantasy collided. Reality won.”
It usually does. Eventually.
Any time you subsidize risk, you get more risk. Why is this hard to grasp?
Given the depth of your knowledge of the financial services industry, can you explain how SJWs were rating paper? I was under the impression it was Moody’s and S&P – rating agencies.
Clearly this is your area of expertise.
Ever here of the repeal of glass-steagal?
TheAJ,
Pressure on the rating services which depend on government business.
Cap,
Glass-Steagal would never have prevented the bundling of loans.
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http://www.forbes.com/sites/objectivist/2012/11/12/why-the-glass-steagall-myth-persists/
As for the FDIC-insured commercial banks that ran into trouble, the record is also clear: what got them into trouble were not activities restricted by Glass-Steagall. Their problems arose from investments in residential mortgages and residential mortgage-backed securities—investments they had always been free to engage in.
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http://www.usatoday.com/story/money/business/2013/09/13/credit-rating-agencies-2008-financial-crisis-lehman/2759025/
The big three credit-rating agencies — Standard & Poor’s, Moody’s Investors Service and Fitch Ratings — are still trying to repair their reputations as being a level-headed, sharp-penciled bunch following the collapse of Lehman. These agencies are roundly criticized for not only failing to warn investors of the dangers of investing in many of the mortgage-backed securities at the epicenter of the financial crisis, but benefiting by not pointing out deficiencies
2008 was the climax of this cycle, not the beginning.
Add in a Regulator saying: “Why did you make all these risky loans, write them off.”
Bankers get this one in between being scolded for not loaning to minorities about twice a decade. The hypocrisy and stupidity of the system isn’t even a surprise any more.
Sounds like a pretty good summation of what happened. I recommend Reckless Engangerment, which I bought for $1 at a used book store.
Simon,
Your level of understanding is comical. My guess is that you have absolutely no background in either a) finance, b) banking or c) business.
S&P, Moody’s rate debt securities. They receive their money from security issuing companies and investors. Yes, the governments as well, which pays for the service of getting their bonds rated as well. There are no social justice warriors involved. You sound like a moron who is copying/paste talking points for whatever blog he can get his hands on? Why not just stay silent on issues you are completely clueless about rather than speak and sound like a fool?
As for “it wasn’t the bankers” – they paid record levels in fines last year. I mean, you bring up Lehman. Lehman was understating its leverage through accounting tricks. This was well-known. It is literally something a student in introductory accounting learns about. Hell, Lehman employees were caught off-guard about this (and still hold a grudge against Fuld).
Unless of course, you can show me how Social justice warriors were getting their hands on Lehman’s balance sheet.
TheAJ,
And you assume that governments loaded with SJWs have no influence on the ratings agencies?
“We buy your services. Perhaps we will find a ratings agency that is willing to be more helpful.”
You believe the game is honest. I believe it is rigged. What does the evidence show?
You assume direct control. I assume influence.
The same for the banks. What if it is whispered “if you don’t start better serving minorities when you next come before the commission it may be difficult for you”.
The government regulates. You think regulators have no influence? You think regulators don’t take orders from their superiors?
And especially when the government produces an out. “You don’t need to hold the paper. The government will take it up the Fannie. Your responsibility is just to originate.”
Well OK. Keep swallowing the Blue Pill. It is good for you. It will keep you happy.
And the big clue? The bankers don’t have their own wing in a Federal Prison.
It is no one’s interest (except the public) to find out how it was done.
On the rating agencies? No. They make their money from the companies that issue the securities they are rating. Hence the moral hazard issue. A lot of insinuations for things you would like to believe when you should just be applying Occam’s razor. Banks were syndicating crappy structured products. Moodys and S&P were slapping AAA ratings and earning revenue from the banks. This is not difficult to understand. You are stretching here, and it reflects your basic misunderstanding of how the financial system works. You’re out of your league.
Do you have any private sector or business experience?
I never said the game is honest. Its clearly not. The regulators are Peter Orszag and Tim Geithner types – not SJWs – but people with one foot in the financial industry and one foot in the government.
Because your dislike for the poor, minorities, people on welfare, you have gotten the impression that somehow the SJWs were the puppetmasters controlling all the strings, and the bankers just beholden to their poweress. In what fantasy land has that ever happened? The game is rigged by the rich for the rich.
Is Tim Geithner in the SJW camp? Well he is a member of the SJW Party.
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Well I don’t hate any of the groups you mention. I oppose Prohibition particularly because it targets those groups.
But that does not deny reality. Those groups were under served in the mortgage market because of their history of poor repayment of loans. Not because of discrimination.
And the SJWs made a big noise about the “under served and discriminated against” and the SJW Party applied pressure. And passed laws. CRA ring a bell?
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This of course would all have come out had the bankers been prosecuted. Ever notice that they got off without any prosecutions?
The dog that didn’t bark.
The gummint certainly had its ha nd in the 2008 disaster. The large magnitude of the bailout was the consequence of a provision which Senator Chris Dodd (D-CT) added to the a 1991 law known as the FDICIA. From Reckless Endangerment: How Outsized Ambition, Greed, and Corruption Led to Economic Armageddon. From pages 40-41, hardcover edition:
Walter Todd, a counsel at the Federal Reserve Bank in Cleveland, examined the provisions of a 1991 law known as the Federal Deposit Insurance Corporation Improvement Act.
Did the investment banks and insurance companies make reckless moves in the subprime mortgage sector, knowing that the federal government would now bail them out? You betcha. This added bailout was the work of Senator Dodd.
The “corruption in the private sector” was the result of crony capitalism, by such people as Chris Dodd. Put the blame on Chris Dodd for this crony capitalism amendment. Also bear in mind that Chris Dodd is NOT one of those free-market types, but one of those “bigger government is best” Democrats. Ever heard of Dodd-Frank? More Chris Dodd to the rescue- which unsurprisingly will only make things worse. Chris Dodd also supported the Sandinistas- more big government- back in the day.
Deliberately lax CRA lending standards were pushed onto industry by regulators. This was stated policy. All the claims to the contrary are answered here. This was all known in 2009.
http://www.businessinsider.com/the-cra-debate-a-users-guide-2009-6
http://www.businessinsider.com/sorry-folks-the-cra-really-did-require-crap-lending-standards-2009-6