Why is everyone blaming the banks for our current financial crisis?

[Dari]

I really don't see it as being their fault. Yes they were greedy, but being greedy isn't illegal. And the vast, vast majority of the banks did absolutely nothing illegal. They simply played in the environment that was allowed by the government. This crisis is essentially a failure of government to properly regulate financial instruments and firms properly. If the government had done its job we really wouldn't be in this crisis. This is important considering how important the financial industry is to the whole economy.

And for those upset at the banks for making the recession, I don't remember people complaining when their house values were skyrocketing. I don't remember them screaming when their stock portfolios were increasing 20%+ year on year.

Government is really to blame for letting the financial industry go out of control. What we need to do is acknowledge the problem, fix it wholesale, learn from it and move on. Judging by how long it took to forget how important the financial industry is to the whole economy, I predict another massive recession in 75 years.

 

[zephyrprime]

Yeah but who got the government to ease up on regulations and turn a blind eye? The banks. We've got to end our legal bribery system via campaign contributions.

 

[RightIsWrong]

Do you think that the banks would have been able to raise capital from would be shareholders and other lending institutions had they been upfront and honest about their exposure to the subprime market?

Government is partly to blame for the current crisis. But it isn't for "letting the financial industry go out of control", it is for allowing lobbyists to right the "regulations" that enabled the financial institutions the leverage to do what they did.

It sounds like you are about to go into a "free markets are our savior" type thread when the simple fact is, the freer the market, the more easily it is for crashes like this to happen because of manipulation by those with the most power in it. Regulations are not a bad thing when moderately applied by those that have some clue about what the probable effects will be.

 

[alchemize]

Regional and local banks are very well positioned. Most didn't play the sub-prime game and did what they always did, lent to locals.

Thread marked for 2084.

 

[Dari]

Originally posted by: zephyrprime
Yeah but who got the government to ease up on regulations and turn a blind eye? The banks. We've got to end our legal bribery system via campaign contributions.

That's akin to a mother or father blaming their child for buying a toy for them. Pathetic. If our government is corrupt then we deserve it. Remember, we live in a republic.

 

[Dari]

Originally posted by: RightIsWrong
Do you think that the banks would have been able to raise capital from would be shareholders and other lending institutions had they been upfront and honest about their exposure to the subprime market?

Government is partly to blame for the current crisis. But it isn't for "letting the financial industry go out of control", it is for allowing lobbyists to right the "regulations" that enabled the financial institutions the leverage to do what they did.

It sounds like you are about to go into a "free markets are our savior" type thread when the simple fact is, the freer the market, the more easily it is for crashes like this to happen because of manipulation by those with the most power in it. Regulations are not a bad thing when moderately applied by those that have some clue about what the probable effects will be.

I think you misunderstood the entire point of this thread. My point is that governments have an obligation to regulate the market properly. Markets cannot and should not regulate themselves. It's like letting the kids run your house.

 

[Slew Foot]

Problem with that is, when things are going well, the guy who puts the fire out is likely to be unpopular. Being unpopular doesnt win you elections, so the politicians just fan the flames and hope to take the credit before the whole thing goes up in smoke.

 

[Dari]

Originally posted by: Slew Foot
Problem with that is, when things are going well, the guy who puts the fire out is likely to be unpopular. Being unpopular doesnt win you elections, so the politicians just fan the flames and hope to take the credit before the whole thing goes up in smoke.

Then he has an obligation to explain himself thoroughly. Furthermore, considering he's a leader, he really has an obligation to do what's right, independent of it being popular. People elect leaders, not sycophants.

 

[babylon5]

Wall street demanded, our government gave them what they want:

"In February 2000, one of the street's most powerful executives petitioned the Securities and Exchange Commission (SEC) to allow his firm and other investment banks to raise their levels of leverage. He wanted the commission to alter something called the net-capital rule, which he said was "the single most important factor in driving significant parts of our business offshore."

That exec was Henry Paulson, then the CEO of Goldman Sachs, now U.S. Treasury Secretary. Four years later, the SEC complied, amending the rule; the effect was to allow Wall Street to borrow even more money to finance its businesses. At the most aggressive investment banks, leverage ratios reached 30 to 1. That is, for every dollar in equity capital the firm had, it borrowed $30."


Time Magazine

 

[vi edit]

Originally posted by: babylon5
Wall street demanded, our government gave them what they want:

"In February 2000, one of the street's most powerful executives petitioned the Securities and Exchange Commission (SEC) to allow his firm and other investment banks to raise their levels of leverage. He wanted the commission to alter something called the net-capital rule, which he said was "the single most important factor in driving significant parts of our business offshore."

That exec was Henry Paulson, then the CEO of Goldman Sachs, now U.S. Treasury Secretary. Four years later, the SEC complied, amending the rule; the effect was to allow Wall Street to borrow even more money to finance its businesses. At the most aggressive investment banks, leverage ratios reached 30 to 1. That is, for every dollar in equity capital the firm had, it borrowed $30."


Time Magazine

The house of cards constructed on leveraged dollars is right at the heart of problem. The banks weren't the only ones to blame, but they were the ones brokering the deals that the rest of us bought and traded on. One or two bumps (forclosures) for a bank under lower leverage was recoverable. 1 out of 20 homes forclosing under the 30:1 terms was catastrophic.

 

[dahunan]

Should Alcoholics blame the government for their rotted liver?

Banks knew they were poisoning themselves AND KEPT DOING IT

Banks were acting like drug dealers looking for more "Marks" to sucker into borrowing way way more than they could afford

^^ yet now me and you have to pay for the banks operating in an unhealthy way that caused their liver to rot ??

 

[Dari]

Originally posted by: babylon5
Wall street demanded, our government gave them what they want:

"In February 2000, one of the street's most powerful executives petitioned the Securities and Exchange Commission (SEC) to allow his firm and other investment banks to raise their levels of leverage. He wanted the commission to alter something called the net-capital rule, which he said was "the single most important factor in driving significant parts of our business offshore."

That exec was Henry Paulson, then the CEO of Goldman Sachs, now U.S. Treasury Secretary. Four years later, the SEC complied, amending the rule; the effect was to allow Wall Street to borrow even more money to finance its businesses. At the most aggressive investment banks, leverage ratios reached 30 to 1. That is, for every dollar in equity capital the firm had, it borrowed $30."


Time Magazine

lol. When you think about it, it looks like Wall Street learned from Washington D.C. Debt spending. The apple didn't fall far from the tree. Like father like son.

 

[dahunan]

Originally posted by: Dari

Originally posted by: babylon5
Wall street demanded, our government gave them what they want:

"In February 2000, one of the street's most powerful executives petitioned the Securities and Exchange Commission (SEC) to allow his firm and other investment banks to raise their levels of leverage. He wanted the commission to alter something called the net-capital rule, which he said was "the single most important factor in driving significant parts of our business offshore."

That exec was Henry Paulson, then the CEO of Goldman Sachs, now U.S. Treasury Secretary. Four years later, the SEC complied, amending the rule; the effect was to allow Wall Street to borrow even more money to finance its businesses. At the most aggressive investment banks, leverage ratios reached 30 to 1. That is, for every dollar in equity capital the firm had, it borrowed $30."


Time Magazine

lol. When you think about it, it looks like Wall Street learned from Washington D.C. Debt spending. The apple didn't fall far from the tree. Like father like son.

They are all from the same evil tree... take advantage of everything no matter the cost to society or to their souls

 

[Dari]

Originally posted by: dahunan

Originally posted by: Dari

Originally posted by: babylon5
Wall street demanded, our government gave them what they want:

"In February 2000, one of the street's most powerful executives petitioned the Securities and Exchange Commission (SEC) to allow his firm and other investment banks to raise their levels of leverage. He wanted the commission to alter something called the net-capital rule, which he said was "the single most important factor in driving significant parts of our business offshore."

That exec was Henry Paulson, then the CEO of Goldman Sachs, now U.S. Treasury Secretary. Four years later, the SEC complied, amending the rule; the effect was to allow Wall Street to borrow even more money to finance its businesses. At the most aggressive investment banks, leverage ratios reached 30 to 1. That is, for every dollar in equity capital the firm had, it borrowed $30."


Time Magazine

lol. When you think about it, it looks like Wall Street learned from Washington D.C. Debt spending. The apple didn't fall far from the tree. Like father like son.

They are all from the same evil tree... take advantage of everything no matter the cost to society or to their souls

Then it'll be like the deaf leading the blind. That's why, even though I am conservative, I supported Obama for the Presidency because, as I said countless times last year, we need to re-balance the economy. But now that I see his economic team, I simply don't trust them. He has the same fools that started many of the problems from the 1990s. I predict, as Joseph Stiglitz points out here, the Obama will keep banks that need to go under alive until we can't afford to keep them alive anymore. I think Obama is going to have his own zombie banks.

 

[Udgnim]

Originally posted by: Dari
I really don't see it as being their fault. Yes they were greedy, but being greedy isn't illegal. And the vast, vast majority of the banks did absolutely nothing illegal. They simply played in the environment that was allowed by the government. This crisis is essentially a failure of government to properly regulate financial instruments and firms properly. If the government had done its job we really wouldn't be in this crisis. This is important considering how important the financial industry is to the whole economy.

And for those upset at the banks for making the recession, I don't remember people complaining when their house values were skyrocketing. I don't remember them screaming when their stock portfolios were increasing 20%+ year on year.

Government is really to blame for letting the financial industry go out of control. What we need to do is acknowledge the problem, fix it wholesale, learn from it and move on. Judging by how long it took to forget how important the financial industry is to the whole economy, I predict another massive recession in 75 years.

it's the government's, financial institution's, and public's fault

the government for being too stupid to believe that financial institutions would correctly regulate themselves

the financial institution's fault for being too greedy and providing mortgages to career minimum wage workers

and the public's fault because the American culture is too dominated by self entitled idiots and not enough by responsible individuals

 

[Deleted member 4644]

Originally posted by: Dari
I really don't see it as being their fault. Yes they were greedy, but being greedy isn't illegal. And the vast, vast majority of the banks did absolutely nothing illegal. They simply played in the environment that was allowed by the government. This crisis is essentially a failure of government to properly regulate financial instruments and firms properly. If the government had done its job we really wouldn't be in this crisis. This is important considering how important the financial industry is to the whole economy.

And for those upset at the banks for making the recession, I don't remember people complaining when their house values were skyrocketing. I don't remember them screaming when their stock portfolios were increasing 20%+ year on year.

Government is really to blame for letting the financial industry go out of control. What we need to do is acknowledge the problem, fix it wholesale, learn from it and move on. Judging by how long it took to forget how important the financial industry is to the whole economy, I predict another massive recession in 75 years.

Actually, you are correct. I don't blame the banks. Maybe just a *tiny* bit, for being soulless greed whores.

I blame the Republicans (and to some extent Bill Clinton) for deregulating and not-regulating for the last 15 years or so.

Members of Congress knew FULL WELL that banks were hyper-leveraging, but they did nothing because they are well paid WHORES who get on their knees when money flashes.

 

[soccerballtux]

Nobody likes taking personal responsibility, so we blame the other side.

In truth, it was both's fault. The people for taking big loans when there's no way they can pay them back, the banks for allowing those loans to be made.

I ere on the side of personal responsibility; IE would we let the government "bail out" someone who spent all their money on an infomercial because "the infomercial told me I could afford it"? No of course not.

 

[JEDIYoda]

Originally posted by: Dari

Originally posted by: zephyrprime
Yeah but who got the government to ease up on regulations and turn a blind eye? The banks. We've got to end our legal bribery system via campaign contributions.

That's akin to a mother or father blaming their child for buying a toy for them. Pathetic. If our government is corrupt then we deserve it. Remember, we live in a republic.

ya think?
So those of us who didn`t vote for GWB deserves him??lol

 

[blahblah99]

They were greedy and skirted the "Ponzi" scheme with CDS, and consumers were idiots to buy a home worth 20 times their income or buy a home to flip it.

 

[Thump553]

Originally posted by: Dari

Originally posted by: Slew Foot
Problem with that is, when things are going well, the guy who puts the fire out is likely to be unpopular. Being unpopular doesnt win you elections, so the politicians just fan the flames and hope to take the credit before the whole thing goes up in smoke.

Then he has an obligation to explain himself thoroughly. Furthermore, considering he's a leader, he really has an obligation to do what's right, independent of it being popular. People elect leaders, not sycophants.

The underlying guiding principle for banks and other entities that hold other's money in trust for literally centuries has been the reasonable person rule-ie, don't do anything with the deposited funds that a reasonable person wouldn't do with their own money. Somewhere in the last decade or so this basic principle was abandoned with a vengence.

It now has been proven that good regulation is absolutely necessary as these institutions lack the good faith and strength of character to do what they should be doing anyway.

Blaming the politicians is like blaming the cops and DAs for a crime wave-they aren't the crooks.

 

[sunzt]

The banks were in full control of the situation and could have easily stopped the source of lending if they just said no to the obvious risky loans. In fact, banks should be held most responsible because they were the only entities that knew ENTIRELY the high risk of subprime loans defaulting which was why they always tried to package them into something 'investment grade'. Borrowers trusted their agents, lenders, and history that their homes would increase in value in the future; but the banks took advantage of their trust and exploited it to the nth degree.

Banks understood the complete scam of repackaging crappy loans that were destined to fail into products that no one else would understand. The banks tried their hardest to hide the fact that the source of their mortgage backed securities were loans no one in their right minds would make. They pushed the rating agencies for improving ratings, they demanded more and more loans from lenders (encouraging them to be more 'creative' in selling), and they knew that the borrowers (whom were sold into the facade that home values would increase forever, which was also heavily pushed by everyone in the realty/lending business) didn't fully understand the risks of a subprime/no-money down loans.

There were very few banks that realized this risk and didn't dabble or get exposed very much to these risky investments and they should be praised. However, the biggest players on wall street all knew exactly what they were doing and know that this explosion was coming. They were all hoping to get out before it blew up... oops!

 

[StageLeft]

I agree. The financiers of this were doing what they do best, which is use the law to maximize money. The more loopholes, the more they will make and screw things up. Greed is responsible for this, from the individual home "owner" who bought something they couldn't afford but never cared, to the banks who were not looking out into any kind of future.

In society there is a teacher we complain to when we're getting bullied and we expect him to make rules and enforce them. That teacher is the government. Yes, it's very imperfect (case in point), but the government watched as this went out of control and was unable to unwilling or too stupid to stop it.

 

[chess9]

Originally posted by: dahunan
Should Alcoholics blame the government for their rotted liver?

Banks knew they were poisoning themselves AND KEPT DOING IT

Banks were acting like drug dealers looking for more "Marks" to sucker into borrowing way way more than they could afford

^^ yet now me and you have to pay for the banks operating in an unhealthy way that caused their liver to rot ??

This! Great post!

-Robert

 

[Craig234]

Originally posted by: blahblah99
They were greedy and skirted the "Ponzi" scheme with CDS, and consumers were idiots to buy a home worth 20 times their income or buy a home to flip it.

The sales pitch to relativly ignorant homebuyers:

It's as cheap as rent; home values have gone up for years and almost continuously go up; with a low-interest ARM you can afford the payments; you can refinance later.

So, people were facing the chance to get the best investment they make, to move from throwing money away on rent to owning, and the chance to get the appreciation.

It's not all that crazy. A lot of people did the same thing earlier and came out well ahead.

Of course, some were irresponsible, but the culpability of the homebuyers is exaggerated as a convenient scapegoat by those who don't want to blame the real reasons.

 

[StageLeft]

Originally posted by: Craig234

Originally posted by: blahblah99
They were greedy and skirted the "Ponzi" scheme with CDS, and consumers were idiots to buy a home worth 20 times their income or buy a home to flip it.

The sales pitch to relativly ignorant homebuyers:

It's as cheap as rent; home values have gone up for years and almost continuously go up; with a low-interest ARM you can afford the payments; you can refinance later.

So, people were facing the chance to get the best investment they make, to move from throwing money away on rent to owning, and the chance to get the appreciation.

It's not all that crazy. A lot of people did the same thing earlier and came out well ahead.

Of course, some were irresponsible, but the culpability of the homebuyers is exaggerated as a convenient scapegoat by those who don't want to blame the real reasons.

Many of these ARM-takers were greedy, though. Even back in 2003 when I had no idea about any of this stuff it seemed to me that buying a house based on an ARM, reliant upon an interest rate that only a few decades earlier had seen mortgage rates in the teens, was playing with fire. These people lacked a horizon of any substance and seemed unimpressed by very real possibilities in the future about what would happen with their mortgages. People were suckered and should expect more from experts telling them something, but many were willfully ignorant. They did not care and let their greed overcome the hesitation that common sense was, or should have been, hinting at them.