Good Way to Understand the Banking Crisis in 5 Minutes

[wwswimming]

There's a 1 or 2 minute section about Brooksley Born, who tried to regulate credit derivatives during the Clinton administration.

In the 4th hour of the 4 hour weekly show at Financial Sense, at about the 57:00 point
http://www.netcastdaily.com/broadcast/fsn2010-0116-4.mp3

All of the things that happened in the economy the last 2 years - she was very concerned about. She was Chair of Commodity Futures Trading Commission.

Everybody slammed the door in her face. The House and Senate banking committees. Greenspan, Rubin, and Summers. Greenspan told her not to investigate or try to stop fraud, that "the markets will take care of fraud."

That part (about Greenspan) is from an earlier interview about 6 months ago.

So all of the hand-wringing by the Obama administration, is bullshit. They're talking about putting back in financial rules that existed to prevent economic collapse from over-leveraged real estate bubbles, laws that had previously been found useful.

But those laws were inconvenient for people that wanted to make some money from credit derivatives during the 1990's, and they ran things. Clinton didn't even try to stop it. Obviously Bush didn't try to stop it. Gramm rammed one of the laws erasing old laws through in 1999, calling it the "Commodities Futures Modernization Act" ... something like that.

And in 2007, the top 30 earning hedge fund managers made an average of $500,000,000 each (that part is from Bloomberg.)

 

[cubeless]

hope 4 change... since that's about all that the little folk can do... just make sure you have your pitchfork ready when the call for revolution comes...

 

[Hacp]

The banking crisis is pretty simple. Fannie and Freedie heated up the housing market. Goldman sachs and other banks took big risks. Obama bailed them out with 350+ billion dollarsand we're at 10% unemployment.

 

[Craig234]

I'd like to add one thing to the discussion on the financial crisis.

This is not to excuse anyone. It's to discuss the issue.

President Clinton seemed to have run into a sort of financial blackmail from Wall Street. It's easy to have forgotten this histpry, but there was a time when his advosors explained to him he could not do what he wanted, his options were far more limited than e had realized, because of repercussions on Wall Street. Finance had become the leading industry in the nation by this point and the effect on the economy if he didn't do as wanted was politically unacceptable.

I recall the story of President Bush, at the height of the economic crisis, having so handed over the nation's finances that he yelled at former Goldman Sachs CEO, his treasury secretary Hank Paulson, that Paulson 'had to let him (Bush) know what he was doing', as Paulson was out making all the plans and deals on his own (Wall Street's) agenda.

Obama is clearly more aligned with Wall Street than his supporters generally expected. I wonder how much he faces unacceptable Wall Street consequences if he does not cooperate.

While I've seen some evidence of this, last night I had the chance to ask the Bloomberg London Bureau Chief, who just wrote a book on the crisis, his opinion. He thought I had 'hit the issue on the head'.

It's not always easy for us to gauge from the outside what those pressures, those threats, are, and what concessions are made to them, but it's one thing to keep in mind.

Presidents will always want the American people to think they're in charge and not the private interests, but that doesn't mean it's always so.

Note, I haven't seen any evidence Obama is resisting any of this - his status as the #1 candidate for receiving Wall Street donations suggest he's on board.

 

[Vic]

The banking crisis is pretty simple. Fannie and Freedie heated up the housing market. Goldman sachs and other banks took big risks. Obama bailed them out with 350+ billion dollarsand we're at 10% unemployment.

"There is always a well-known solution to every human problem — neat, plausible, and wrong." - H. L. Mencken

 

[shira]

The banking crisis is pretty simple. Fannie and Freedie heated up the housing market. Goldman sachs and other banks took big risks. Obama bailed them out with 350+ billion dollarsand we're at 10% unemployment.

Obama bailed them out?

AIG was bailed out in September of 2008. That's Bush country.
The Emergency Economic Stabilization Act and TARP1 were passed by the Bush Administration.
Citiggroup received billions in bailout money in November of 2008. That's Bush country.
Goldman Sachs recieved billions in bailout money in December of 2008. That's Bush country.

Edit: The emergency bailout of $17.4 billion of GM and Chrysler was agreed to in December, 2008 by Bush.

Now, tell us again why you're focusing on Obama?

 

[dmcowen674]

Obama bailed them out?

AIG was bailed out in September of 2008. That's Bush country.
The Emergency Economic Stabilization Act and TARP1 were passed by the Bush Administration.
Citiggroup received billions in bailout money in November of 2008. That's Bush country.
Goldman Sachs recieved billions in bailout money in December of 2008. That's Bush country.

Edit: The emergency bailout of $17.4 of GM and Chrysler was agreed to in December, 2008 by Bush.

Now, tell us again why you're focusing on Obama?

Revisionists trying their darndest to prop up their hero Bush.

 

[Zebo]

There's a 1 or 2 minute section about Brooksley Born, who tried to regulate credit derivatives during the Clinton administration.

Here is a good hour on Brooksley.
http://www.pbs.org/wgbh/pages/front...aign=viewpage&utm_medium=grid&utm_source=grid

I don't mind hedge fund managers making 300 Million it's their paying less tax (15% through a hedge fund compensation loophole and no employment taxes) on it than middle class family making 120K I take issue with. Back when me and wife worked we paid well over 15% when all taxes were figured in - more like 35%.

http://www.hedgefundlawblog.com/hedge-fund-carried-interest-tax-increase.html

Good thing is Obama said he may kill it. (I doubt it of course - been that way since forever and old habits die hard)

http://www.huffingtonpost.com/2009/02/26/will-the-taxman-cometh_n_170082.html

 

[drebo]

Not enough emphasis in any of this is being put on the government regulations that made it OK (and in some cases necessary) for banks to engage in the lending practices that caused this issue at the root.

Yes, MBSes were stupid. Yes, banks and investors were relying on unrealistic growth expectations. Yes, banks pushed people into stupid loans. Yes, people bought houses they could have in no way afforded except by stupid loans.

But, banks never would have done this had their loans not been guaranteed. Banks never would have loaned to sub-prime candidates had they not been required to lower their lending standards (CRA, anyone?) Banks are not the only ones at fault here.

The snowball effect that lead to the bubble burst was started by CRA. Forcing banks to loan to more people caused demand in the housing market to skyrocket. Houses in Central California in 2007 were going for ~$500,000 in neighborhoods where they would have been $150,000 in the mid-1990's. These unsustainable growth rates made things like MBSes viable.

Let's not forget for a moment that artificially high demand, artificially low interest rates, and artificially low risk played a major role, long before MBSes were en vogue. MBSes caused the bubble to affect many other facets of investing, touching nearly everyone, but they (and other related investing) were not themselves the cause of the bubble.

 

[MotF Bane]

And in 2007, the top 30 earning hedge fund managers made an average of $500,000,000 each (that part is from Bloomberg.)

Do want.

 

[Zebo]

Do want.

About a hand full made 2 billion. This, among other Wall Streeters, is why I will steer my boys into an accounting degree then MBA from top 10 if I have anything to say about it. Granted it's a free country but they will have to get pell grants for basket weaving.


Momma's don't let your babies grow up to be Doctors or engineers.... - New Willie Nelson tune.

 

[grebe925]

Not enough emphasis in any of this is being put on the government regulations that made it OK (and in some cases necessary) for banks to engage in the lending practices that caused this issue at the root.

Yes, MBSes were stupid. Yes, banks and investors were relying on unrealistic growth expectations. Yes, banks pushed people into stupid loans. Yes, people bought houses they could have in no way afforded except by stupid loans.

But, banks never would have done this had their loans not been guaranteed. Banks never would have loaned to sub-prime candidates had they not been required to lower their lending standards (CRA, anyone?) Banks are not the only ones at fault here.

The snowball effect that lead to the bubble burst was started by CRA. Forcing banks to loan to more people caused demand in the housing market to skyrocket. Houses in Central California in 2007 were going for ~$500,000 in neighborhoods where they would have been $150,000 in the mid-1990's. These unsustainable growth rates made things like MBSes viable.

Let's not forget for a moment that artificially high demand, artificially low interest rates, and artificially low risk played a major role, long before MBSes were en vogue. MBSes caused the bubble to affect many other facets of investing, touching nearly everyone, but they (and other related investing) were not themselves the cause of the bubble.

Let's not also forget that the poster-boy for ethics violations in the house viz. Charles Rangel and other minority spokespeople were criticizing then lending standards and claiming that they were deliberately written to keep minorities from owning homes. Of course, the lenders obliged by lending money to anyone who could sign on a piece of paper and the rest was history.

 

[bobsmith1492]

Momma's don't let your babies grow up to be Doctors or engineers.... - New Willie Nelson tune.

Yes, because making money is all that is important. We need to make all the money we can regardless of how we do it. Healing people and building things to make life easier for all is clearly a waste of time, not to mention underpaid. If we were all finance gurus the world would be such a better place; there should be a government mandate that everyone receives MBAs.

 

[LegendKiller]

The banking crisis is pretty simple. Fannie and Freedie heated up the housing market. Goldman sachs and other banks took big risks. Obama bailed them out with 350+ billion dollarsand we're at 10% unemployment.

As a % of originations, GSE funded mortgages were a smaller % of total mortgages during the housing insanity.

GSEs couldn't buy Option-ARM or no/low doc mortgages, which were really the heart of the problem.

Prices aren't set in the middle, they are set at the margins. The margins were created by people who couldn't really afford the houses, but were "fit" into them by Option-ARM and no/low doc mortgages.

Putting this all on derivatives is silly. The basic fact of the problem was that people used too much leverage. Home buyers bought houses they couldn't afford with other people's money at 100% leverage, they didn't give two flying fucks about it because they didn't have $1 of equity. The banks levered those mortgages up 95% by using RMBS+CDOs, that 5% they had to keep was levered up because, under Bush (while Paulson was CEO of Goldman), they were able to lever up 30:1, again, using other peoples money.

 

[LegendKiller]

Not enough emphasis in any of this is being put on the government regulations that made it OK (and in some cases necessary) for banks to engage in the lending practices that caused this issue at the root.

Yes, MBSes were stupid. Yes, banks and investors were relying on unrealistic growth expectations. Yes, banks pushed people into stupid loans. Yes, people bought houses they could have in no way afforded except by stupid loans.

But, banks never would have done this had their loans not been guaranteed. Banks never would have loaned to sub-prime candidates had they not been required to lower their lending standards (CRA, anyone?) Banks are not the only ones at fault here.

The snowball effect that lead to the bubble burst was started by CRA. Forcing banks to loan to more people caused demand in the housing market to skyrocket. Houses in Central California in 2007 were going for ~$500,000 in neighborhoods where they would have been $150,000 in the mid-1990's. These unsustainable growth rates made things like MBSes viable.

Let's not forget for a moment that artificially high demand, artificially low interest rates, and artificially low risk played a major role, long before MBSes were en vogue. MBSes caused the bubble to affect many other facets of investing, touching nearly everyone, but they (and other related investing) were not themselves the cause of the bubble.

For fucks sake, CRA lending was such a small % of total lending it really doesn't matter. The bulk of the shit mortgages were ORIGINATED by mortgage brokers, you know, non-CRA regulated entities. They are the ones, NON CRA MORTGAGES, that fucked prices on the margins.

Furthermore, you know fuck-all about RMBS. They were first made THIRTY YEARS AGO. Securitization, as a whole, is a great way for businesses to fund originations. However, as I outlined above, the silliness of the last 8 years wasn't caused by securitization, it was caused by nobody having skin in the game. Normal securitizations have skin in the game.

 

[Ozoned]

Yes, because making money is all that is important. We need to make all the money we can regardless of how we do it. Healing people and building things to make life easier for all is clearly a waste of time, not to mention underpaid. If we were all finance gurus the world would be such a better place; there should be a government mandate that everyone receives MBAs.

If you make taking care of number #1, number #1


then number #2, #3, & #4 will occur by default. (unless government steps in and fucks it up.)

 

[heyheybooboo]

Obama bailed them out?

AIG was bailed out in September of 2008. That's Bush country.
The Emergency Economic Stabilization Act and TARP1 were passed by the Bush Administration.
Citiggroup received billions in bailout money in November of 2008. That's Bush country.
Goldman Sachs recieved billions in bailout money in December of 2008. That's Bush country.

Edit: The emergency bailout of $17.4 billion of GM and Chrysler was agreed to in December, 2008 by Bush.

Now, tell us again why you're focusing on Obama?

As the economy hopefully improves I'll give Bush partial credit for taking the (however late,) actions necessary to prevent a total collapse.

And Bush gets near full credit for the environment which allowed GS and their buddies to leverage a single dollar 40-95 times.




--

 

[wwswimming]

As the economy hopefully improves I'll give Bush partial credit for taking the (however late,) actions necessary to prevent a total collapse.

And Bush gets near full credit for the environment which allowed GS and their buddies to leverage a single dollar 40-95 times.--

actually, all the laws were in place before Bush took office. Clinton was much more active in loosening Depression era banking regulations - put in place to prevent the highly leveraged situation which was a central part of both bubbles (the 1920's & the 1990's/ '00's).

the main thing Bush did was give his Wall Street buddies a tax cut so they could keep more of their 7, 8, and 9 figure salaries.

then let Goldman Sachs vet Paulson go along with the implied threat delivered in the week 09.11.08 to 09.18.08 - Thursday the 18th was when the Dow fell about 800 points and the bail-out was pre-announced.

Rep. Jankorsky talked a little about those meetings. basically the message delivered was, "give us $700 billion to repair the banks or the economy will collapse".

a huge amount of money was withdrawn from money-market (or similar) funds in the week 09.11.08 to 09.18.08, $550 billion in one hour. they thought they were seeing a run on the banks, which maybe they were.

during the ensuing chaos, Paulson came up with the $700 billion proposal. that it benefited his previous employer and many of his friends hugely is probably worth pointing out. this was not populist politics.

in the late '90's, Greenspan told Brooksley Born that "the markets will take care of fraud". apparently, that was what he said but that was not the plan. the markets didn't take care of the fraud.

had the US investigated, they could have recovered quite enough assets to pay for all necessary Main Street bank repairs. it would have meant investigating and indicting 20,000 to 100,000 bankers - and confiscating their assets.

but that's who both Bush and Obama work for, much more than they work for the American people.

so neither of them has the guts to make the criminals pay for the bail-out. Obama has whimpered a little in that direction, talking about making the banks re-pay all the bail-out money because Obama was pretending to be pissed off about their bonuses. In one of the speeches he gave last week.

if that's the extent of his Populist Rage, all i can say is, Big Whoop.