Financial meltdown in 2008 was avoidable and plenty of blames to go around

[Svnla]

From New York Times = http://finance.yahoo.com/news/Financial-Meltdown-Was-nytimes-923562801.html?x=0

The 2008 financial crisis was an “avoidable” disaster caused by widespread failures in government regulation, corporate mismanagement and heedless risk-taking by Wall Street, according to the conclusions of a Congressional inquiry.
The government commission that investigated the financial crisis casts a wide net of blame, faulting two administrations, the Federal Reserve and other regulators for permitting a calamitous concoction: shoddy mortgage lending, the excessive packaging and sale of loans to investors, and risky bets on securities backed by the loans.
“The greatest tragedy would be to accept the refrain that no one could have seen this coming and thus nothing could have been done,” the panel wrote in the report’s conclusions. “If we accept this notion, it will happen again.”
While the panel, the Financial Crisis Inquiry Commission, accuses several financial institutions of greed, ineptitude, or both, some of its most grave conclusions concern government failings, with embarrassing implications for both political parties.

There you go. Plenty of blames on everyone (D and R parties, banks, Wall Street firms, regulators, low interest rate, Fannie and Freddie, credit rating agencies, bumbling incompetence, greed, stupidity, etc......and so on ..).

 

[EagleKeeper]

How to impliment the lessons learned will be the harder problem.

 

[Svnla]

How to impliment the lessons learned will be the harder problem.

Amen. Do we have the will to make the necessity changes? Time will tell.

"Those that ignore history will doom to repeat it"....<to paraphrase>.

 

[drebo]

How to impliment the lessons learned will be the harder problem.

They wouldn't have been had we allowed those who fucked up to be punished for it (regulators fired, auditors fired, banks failing, CEOs arrested, etc).

Chronie capitalism dictated that we save them and prop them up so their unsustainable business practices could continue.

 

[Phokus]

How to impliment the lessons learned will be the harder problem.

We can learn from up north. The Canadian government puts limits on how much leverage their banks can use and has much more stringent lending standards and they largely avoided the subprime mess. Of course that means regulation and regulation means soviet style communism for conservatives.

We used to not have bankers take so many risks when these banks were partnerships and not public companies. Bankers know they can make risk free bets when it's not THEIR equity/investment that's at stake.

 

[GuitarDaddy]

How to impliment the lessons learned will be the harder problem.

I'm afraid the only lesson learned was that greed, corruption and excessive risk taking pays off big, and there is no risk too great to take with other peoples money.

The very hucksters that created the financial collapse gained the most, and paid no price for their misdeeds. And while the majority of citizens continue to pay a severe price 2 1/2 yrs later, the banksters and wall street moguls were raking in record bonuses and compensation in 2009 and 2010.

I agree with Drebo, if the perpetrators of this disaster had been rightfully punished and allowed to bring financial collapse on the institutions they represented, then the lessons would have been there for all to learn from, but that didn't happen.

I fully understand that it had gotten to the point that the crooks controlled so much of the economic engine of this country that if we had let them all fail they would have dragged the economy down with them.
But that certainly shouldn't have prevented us from making examples of some of the worst cases, and substantially change the rules to prevent this from ever happening again, but we didn't 🙁

 

[Modelworks]

Watch the PBS documentary from Frontline called The Warning.
It tells how they knew about it and even penalized the person trying to warn them.
http://www.pbs.org/wgbh/pages/front...e&utm_medium=viewsearch&utm_source=viewsearch

 

[Acanthus]

It's not a hugely complicated fix.

1. Ban taking out insurance of any form on bonds, securities, or assets you do not own.

2. Ban trading the same stock, or bond in a 24 hour period.

3. Ban trading "commodities or other assets in excess of $25,000,000" more than once in a 24 hour period.

4. Ban creating subsidiaries to create a loophole. Create serious fines for violations.

5. Ban creating shares of things you do not physically own.

This removes the vast majority of the largest problems. It is all common sense and should have been implemented decades ago.

 

[GuitarDaddy]

It's not a hugely complicated fix.

1. Ban taking out insurance of any form on bonds, securities, or assets you do not own.

2. Ban trading the same stock, or bond in a 24 hour period.

3. Ban trading "commodities or other assets in excess of $25,000,000" more than once in a 24 hour period.

4. Ban creating subsidiaries to create a loophole. Create serious fines for violations.

5. Ban creating shares of things you do not physically own.

This removes the vast majority of the largest problems. It is all common sense and should have been implemented decades ago.

:thumbsup:

Yet in the wake of a catostrophic financial collapse, these simple steps will not be taken because the folks that created and profited from this boom and bust have way too much power and sway over weak regulators and have thier hooks planted deep in the government institutions that could enact these changes and will prevent them.

 

[HomerJS]

It says the low interest rates brought about by the Fed after the 2001 recession “created increased risks” but were not chiefly to blame. It says that Fannie Mae and Freddie Mac, the mortgage finance giants, “contributed to the crisis but were not a primary cause.” And in a finding likely to anger conservatives, it says that “aggressive homeownership goals” set by the government as part of a “philosophy of opportunity” were not major culprits.

Interesting for those trying to blame poor people and their mortages

 

[Genx87]

Democrats, Republicans, Greenspan, Bernake, Bush, Clinton.

Yet I dont see any blame being levied at the people who were purchasing homes they couldnt afford. In other words the consumers of these bad investment practices.

 

[crownjules]

Democrats, Republicans, Greenspan, Bernake, Bush, Clinton.

Yet I dont see any blame being levied at the people who were purchasing homes they couldnt afford. In other words the consumers of these bad investment practices.

They are to blame I agree, but not nearly as much as the institutions that should have known better then to lend to people with poor income/credit ratings. And especially those who didn't care because they just packaged up the crap mortgages and bundled them off to Wall St, eliminating the problem from their own balance sheets.

 

[Modelworks]

Derivatives are a huge part of the problem. Something around $400 trillion in derivatives existed and under $15 trillion to back to up. Borrowing money on things that don't have any value is only something a banker could come up with.

 

[her209]

They are to blame I agree, but not nearly as much as the institutions that should have known better then to lend to people with poor income/credit ratings. And especially those who didn't care because they just packaged up the crap mortgages and bundled them off to Wall St, eliminating the problem from their own balance sheets.

Recipe for Disaster: The Formula That Killed Wall Street
http://www.wired.com/techbiz/it/magazine/17-03/wp_quant?currentPage=all

It was accepted that even if some borrowers defaulted, it wouldn't affect the good loans which would continued to be paid which meant the holders of AAA rated traunched security would get paid. The problem came when they took the junk securities and repackaged them into AAA rated ones.

 

[Texashiker]

When all of this financial crash started, I remember watching something on CNN, (or some other news channel), they were interviewing a guy who flipped homes for a living. He would buy homes, fix them up a little bit, and flip them for a nice profit. The home flipper was talking about how he was sitting on 3 or 4 homes worth around 1.2 or 1.2 million dollars.

What gets me, what bank would loan a guy that kind of money, when he did not have a "real" job?

On top of that, everyone wanted to get into this "get rich quick by flipping homes" idea.

Sooner or later the price of housing was going to get so expensive that a middle class family could not afford to buy a home.

A home is not a commodity to be traded and sold on the market, its a home where people raise their family. We are not talking about bacon that people do not "have" to buy. We are talking about homes that people need to have to live in.

On top of that, people were getting these flexible interest rate loans - this gave the banks a reason to take your house for you. Paid on your house for 20 years? Good, now the bank can take it and re-sale it for a nice profit.

I think it all boils down to greed. When there is a dollar to be made, there seems to be a lack of humanity from one person to another.

 

[dawp]

Recipe for Disaster: The Formula That Killed Wall Street
http://www.wired.com/techbiz/it/magazine/17-03/wp_quant?currentPage=all

It was accepted that even if some borrowers defaulted, it wouldn't affect the good loans which would continued to be paid which meant the holders of AAA rated traunched security would get paid. The problem came when they took the junk securities and repackaged them into AAA rated ones.

not only that, there was fraud going on with those loans. there was a show on the local NPR station about the mortgage meltdown.

http://kcurstream.umkc.edu/central/Central_1-25-2011.mp3

that is a podcast of the broadcast.

 

[manimal]

Good points Acanthus!


I did read that wired article as well and find the entire concept of the shadow markets a house of cards. Clearly the amount of profiteering that happened right before the crash outlines how many people actually knew it was going to happen as well.


What is amazing to me is that we ALREADY had laws in place for 50 years that prevented this sort of thing and we still have not re instituted them. Derivatives are like a cancer and should have been addressed head on not sideways like they ended up doing..

 

[crownjules]

If you haven't read it yet, I highly recommend The Big Short as a great look at what was going on during the leadup to the meltdown.

 

[Phokus]

Read anything by Matt Taibbi on the subject, he has a ton of great articles on Wall Street (and especially goldman sachs)

 

[HumblePie]

When all of this financial crash started, I remember watching something on CNN, (or some other news channel), they were interviewing a guy who flipped homes for a living. He would buy homes, fix them up a little bit, and flip them for a nice profit. The home flipper was talking about how he was sitting on 3 or 4 homes worth around 1.2 or 1.2 million dollars.

What gets me, what bank would loan a guy that kind of money, when he did not have a "real" job?

On top of that, everyone wanted to get into this "get rich quick by flipping homes" idea.

Sooner or later the price of housing was going to get so expensive that a middle class family could not afford to buy a home.

A home is not a commodity to be traded and sold on the market, its a home where people raise their family. We are not talking about bacon that people do not "have" to buy. We are talking about homes that people need to have to live in.

On top of that, people were getting these flexible interest rate loans - this gave the banks a reason to take your house for you. Paid on your house for 20 years? Good, now the bank can take it and re-sale it for a nice profit.

I think it all boils down to greed. When there is a dollar to be made, there seems to be a lack of humanity from one person to another.

Did you never stay up late and watch those infomercials from time to time from 1994-2006 ish? One of the major ones was about people trying to sell "kits" of information to people on how to do exactly this. Make money by flipping properties. Many, many, MANY people were doing this. Even in a time when many were making quite a bit of money off this, not everyone was either. My ex-GF, her ex hubbie tried this. He did well at first and then screwed up and put them both in credit problems. Part of the reason she left him. This was well before the housing market crashed.

This sort of stuff should never have been allowed in the first place. Houses, cars, and other big purchase items where there is so much "speculation" into the value of the item is what does this crap. That and everyone trying to screw over everyone else to make a buck with these speculation driven profits is what caused all this mess. Not to mention the great depression back in the day as well. When will we ever learn.

 

[Phokus]

Did you never stay up late and watch those infomercials from time to time from 1994-2006 ish? One of the major ones was about people trying to sell "kits" of information to people on how to do exactly this. Make money by flipping properties. Many, many, MANY people were doing this. Even in a time when many were making quite a bit of money off this, not everyone was either. My ex-GF, her ex hubbie tried this. He did well at first and then screwed up and put them both in credit problems. Part of the reason she left him. This was well before the housing market crashed.

This sort of stuff should never have been allowed in the first place. Houses, cars, and other big purchase items where there is so much "speculation" into the value of the item is what does this crap. That and everyone trying to screw over everyone else to make a buck with these speculation driven profits is what caused all this mess. Not to mention the great depression back in the day as well. When will we ever learn.

Yeah, i was reading another forum about this stuff and they said Singapore has like 80+ percent home ownership, but they instituted some sort of stamp duty on speculative properties to cool that behavior down.

 

[Lanyap]

When all of this financial crash started, I remember watching something on CNN, (or some other news channel), they were interviewing a guy who flipped homes for a living. He would buy homes, fix them up a little bit, and flip them for a nice profit. The home flipper was talking about how he was sitting on 3 or 4 homes worth around 1.2 or 1.2 million dollars.

What gets me, what bank would loan a guy that kind of money, when he did not have a "real" job?

On top of that, everyone wanted to get into this "get rich quick by flipping homes" idea.

Sooner or later the price of housing was going to get so expensive that a middle class family could not afford to buy a home.

A home is not a commodity to be traded and sold on the market, its a home where people raise their family. We are not talking about bacon that people do not "have" to buy. We are talking about homes that people need to have to live in.

On top of that, people were getting these flexible interest rate loans - this gave the banks a reason to take your house for you. Paid on your house for 20 years? Good, now the bank can take it and re-sale it for a nice profit.

I think it all boils down to greed. When there is a dollar to be made, there seems to be a lack of humanity from one person to another.

I remember watching some of the house flipping shows on TV at the time. Some guy would buy a trashy 2 room cottage home in CA for $500k, add another $100k fixing it up and then sell it for $750k. I could have bought the same house for $30k in AL.

 

[her209]

Did you never stay up late and watch those infomercials from time to time from 1994-2006 ish? One of the major ones was about people trying to sell "kits" of information to people on how to do exactly this. Make money by flipping properties. Many, many, MANY people were doing this. Even in a time when many were making quite a bit of money off this, not everyone was either. My ex-GF, her ex hubbie tried this. He did well at first and then screwed up and put them both in credit problems. Part of the reason she left him. This was well before the housing market crashed.

This sort of stuff should never have been allowed in the first place. Houses, cars, and other big purchase items where there is so much "speculation" into the value of the item is what does this crap. That and everyone trying to screw over everyone else to make a buck with these speculation driven profits is what caused all this mess. Not to mention the great depression back in the day as well. When will we ever learn.

Back in 2003-2005, people at work were telling me how stupid it was to rent. They kept going on and on about how housing prices would never go down, only up. And with Interest-only loans, it was a no-brainer for them to get into a condo or house especially since they could flip it in two years time for a tax-free capital gain for their next home. Some people even took out loans on their equity to put as down payment on property that they could flip and/or rent out.

*shakes head*

 

[Phokus]

Back in 2003-2005, people at work were telling me how stupid it was to rent. They kept going on and on about how housing prices would never go down, only up. And with Interest-only loans, it was a no-brainer for them to get into a condo or house especially since they could flip it in two years time for a tax-free capital gain for their next home. Some people even took out loans on their equity to put as down payment on property that they could flip and/or rent out.

*shakes head*

This shit would never happen if the originators of the loans were forced to keep the loans instead of selling them and the executives at the banks who owned those loans had significant stakes in their banks (rather than the banks being public companies). When you're just passing off the loans and making your money on origination fees, there's no incentive to be careful with the loans you hand out.

I bought a house last year and my mortgage has been sold 2 times already.

 

[HumblePie]

hehe, I'm going to do things the renegade way with my home purchase. It's called saving up all my money and paying CASH. No mortgage, no brokerage, no realators. I'm finding a home builder to build what I want and how I want on a plot I purchased outside an HOA. I pay cash and wipe my hands of it all.