<p>The crash was caused by a surplus…</p>
<p>of greed.</p>
<p>I forgot one comment, something that gives the SEC’s perspective. The head of the SEC at the time said [url=<a href=“http://www.sec.gov/news/press/2008/2008-230.htm]this[/url”>Press Release: Chairman Cox Announces End of Consolidated Supervised Entities Program; 2008-230; Sept. 26, 2008]this[/url</a>]. The SEC chair at the time was Christopher Cox, a 15 year GOP congressman from Orange County, CA, appointed by GWBush. Cox furthered a doctrine known generally as “market self-regulation”, which is the philosophy that markets self-regulate better than regulators can - they do on price and allocation of supply and demand, after all. The SEC was then following a self-regulation model begun under GWBush’s first SEC chair, Donaldson.</p>
<p>Here then is what Cox said after the financial crisis hit: </p>
<p>“The last six months have made it abundantly clear that voluntary regulation does not work. When Congress passed the Gramm-Leach-Bliley Act, it created a significant regulatory gap by failing to give to the SEC or any agency the authority to regulate large investment bank holding companies, like Goldman Sachs, Morgan Stanley, Merrill Lynch, Lehman Brothers, and Bear Stearns.”</p>
<p>Note that he’s blaming Congress - GLB was passed, btw, in 1999 under Clinton.</p>
<p>
Except most of the loans weren’t being resold to Freddy and Fannie. I had a case involving a mortgage company which had profits over $100MM in 2005 - that’s profits, not loan values - and they never sold a single loan to Freddy and Fannie. The facts of this are clear and well documented now, soccerguy - you don’t have to deduce anything. The private sector was issuing so many loans - without government oversight - that Freddy and Fannie’s traditional system’s market share was cratering. F/F lowered their standards to compete - after the fact - but by then the die was cast.</p>
<p>A lot of the loans were refi’s and seconds, too. It had nothing to do with the government, and little to do with poor people.</p>
<p>I know it’s against the ideology and the propaganda that’s been pushed to frame this as a “government is stealing from the makers to give to the takers” spin, but that’s hogwash, plain and simple.</p>
<p>Facts are stubborn things.</p>
<p>dstark, </p>
<p>just to be clear, my position is that the government supported changing policies and encouraged the private sector to make loans that they otherwise would not make b/c they couldn’t lose.</p>
<p>that said, I feel that 100% you are responsible for the money you borrow. People should be smart enough to do the math on what they can’t afford. And if not, too bad, they lose.</p>
<p>And if you are a bank and you loaned money to people that can’t pay, too bad, you lose too.</p>
<p>
</p>
<p>why was the private sector suddenly loaning way more money than it was previously? what caused the change in lending habits?</p>
<p>I am not sure anything changed. I remember the savings and loan crises when bad loans were made.</p>
<p>The private sector does not need the government’s help in blowing up and the private sector works very hard to loosen regulations so they can take more money even if the risks taken are silly.</p>
<p>soccerguy, what changed was that the private sector figured out a way to bundle up portfolios of mortgages and sell interests in them like stocks and bonds - only there was no real oversight of the process. A significant portion of the mortgages were issued and resold in the “shadow banking” system, outside of the oversight given to traditional lenders, government regulated conventional banks. It was touted as being “creative” - which has become my least favorite word of the 21st century. </p>
<p>This allowed private lenders to bypass Fanny and Freddie, which had previously bought the majority of domestic household mortgages under lending standards designed to ensure creditworthiness for most borrowers. But by 2004 private lenders pushing subprime and Alt-A loans had taken a huge chunk of market share - at the peak of the bubble in 2006 60% of all mortgages were issued outside of the FM/FM system. 75% of the subprime and Alt-A loans - the “toxic” loans we’ve all heard about - were issued by lenders who were not working through FM/FM.</p>
<p>FM/FM deserve blame for lowering their standards to try to chase their evaporating market share after it began, but that was a reaction to the aggressive loan pitching being done by the private sector, not the cause of it. Right wing academics have tried to paper over the plain facts by asserting that the issuance of bad loans by private lenders who were not even regulated by the government was somehow a psychological reaction to government policies favoring home ownership, but the private sector didn’t really need encouragement. Everybody was making money off of the process - the brokers, the first-tier lenders, the securitizers, the rating companies, the investment bankers selling interests in the different “tranches” of a securitized bundle of loans - everybody made money hand over fist off of the process, biting off a tiny little chunk of each loan as it moved down the line – and everybody thought that their own risks were covered by somebody else…until it all collapsed. </p>
<p>It was a money game, pure and simple, with profit as the motive. Nobody did it because the government told them to - they did it because they were making money doing it. “The government made them do it” is a fairytale, made up by ideological spin doctors.</p>
<p>Yes, the government has been desperately trying to get the same banks they bailed out to do some sort of loan modification programs for the individual owners, to basically no avail. </p>
<p>And, so, while I agree with Kluge, on that point, the one thing being missed in his post is the fact that the way the FED and Treasury handled the situation did cause a problem and it is a problem which persists, even now.</p>
<p>As to whether those in government are in collusion with the big banks, no doubt can be had on that. As to whether or not this will continue? I don’t know. Elizabeth Warren seems hell bent on exposing this collusion, and since there are others on the other side of the aisle who agree with her, there is no reason to believe that by the time our kids are our age, there won’t be some sort of transparency in this.</p>
<p>I posted a few articles about this stuff on the Investment thread. Matt Tiabbi at the Rolling Stone is doing some good investigative journalism for this issue, imho.</p>
<p>But, the things that caused the meltdown are still possible, even today, though the tolerance for tax payer bailouts is probably not there anymore.</p>
<p>I think congress should have provided funds to create jobs by building and rebuilding infrastucture. That would have helped the middle class and it would it have helped the owners of businesses too.</p>
<p>Politically, I guess that was a non starter so instead the fed is doing the heavy lifting. We are in unchartered territory.</p>
<p>Austerity makes no sense mathematically, so it is understandable that many people believe in austerity. :)</p>
<p>I think Matt Tiabbi is great. I don’t know what it says about society that
Matt is one of the best writers going and he writes for Rolling Stone Magazine instead of the WSJ or the NY Times.</p>
<p>I like kluge’s post a lot. Well written and gets to the point.</p>
<p>I like what George Bush said about the financial crisis when he thought the cameras were
turned off. </p>
<p>What people say behind closed doors is much more interesting than what they say for public consumption.</p>
<p>[Wall</a> Street got drunk, Bush says at private
event | Reuters](<a href=“Reuters | Breaking International News & Views”>Reuters | Breaking International News & Views)</p>
<p>And the video…</p>
<p><a href=“Bush Calls Wall Street "A Drunk w/ Hangover" - YouTube”>Bush Calls Wall Street "A Drunk w/ Hangover" - YouTube;
<p>Thanks, dstark. I oversimplified the process a bit, but going over thousands of pages of documentation of just the one company I looked into I could see how the process evolved over a few years in the “nuts and bolts” way it was done - and it was all profit driven. </p>
<p>Incidentally, the first chapter of Nate Silver’s book “The Signal and the Noise” (which I tout at every opportunity) has an excellent analysis of the errors in the statistical analysis of the lenders and bond raters which allowed them to convince themselves that there was no risk of what happened happening. This was the key: bond rating agencies gave AAA ratings to securitized mortgage portfolios based on a statistical analysis which was simply dead wrong. </p>
<p>
The fascinating thing is seeing how everyone involved thought they were safe from any possible downturn - the borrowers, the loan-initiating brokers, the bundlers, the securitizers, the rating agencies, the buyers of the securities - everyone thought that in the [unthinkable] event that it all fell apart someone else would pay for it. It was like a huge game of musical chairs, in which everyone thought they had a chair for sure - and when the music stopped, there were no chairs for anyone.</p>
<p>Well kluge…</p>
<p>I love your posts and you did a great job on the post I just commented on along with the rest of your posts in this thread. That includes the one where you were in court dealing with a mortgage company. Post 43.</p>
<p>It is funny that what we experience in real life is so different than what we read.</p>
<p>In the spirit of Nate Silver, I love 99 percent of your posts…and dislike .1 percent of your
posts. The rest of your posts…I am neutral. :)</p>
<p>That is a better rating than I give my own posts. :)</p>
<p>
</p>
<p>There were chairs for the TBTF’s, courtesy of the US taxpayer. Of course, there were no taxpayer funded chairs for the mainstreet merchants or small town bankers. </p>
<p>Other than that, your post is true. But it’s a BIG other than that.</p>
<p>Poetgrl, what would you like to see happen going forward?</p>
<p>I would like to see the depositor banks separated from the investment banking banks. I like the new law that wants to impose 15% capital requirements on the TBTFs. I don’t think that’s excessive, but they do.</p>
<p>I wish the TARP had been used in the same way the money was used in the S&L bailout, which is what Paulson originally acted like he was going to do. </p>
<p>But, I would definitely like to see mandatory mortgage relief for those who are underwater on their mortgages… split the difference type thing. It bugs me that the TBTFs took the money and grew their banks and used it to become profitable. They should take half the losses from the bubble, since they got all the relief.</p>
<p>I’d also like to see some meaningful forclosure forgiveness, in that the government would get involved and people who got in over their head with those balloon mortgages on houses which were artificially inflated would be allowed to strategically walk away without it effecting their credit rating. </p>
<p>Clean up the WHOLE mess for the middle class and not just for the Goldmans and the Morgans. It would put money in the hands of the middle class and it would restart the economy, whereas favoring these groups puts no money into the economy and creates no jobs.</p>
<p>Nobody will ever agree to that. But, it would be a better kind of “do over” than the one we chose, imho.</p>
<p>Your ideas sounds good to me. The economy would be so much better if the middle class was helped. Now the middle class is buried. How are they going to buy anything? This economy could be subpar for a long time. I hope not.</p>
<p>Exactly, if the middle class had been made whole, or at least moreso, or at least “as much as” those banks and bankers, we would all be better off, our kids would be better off.</p>
<p>Look, I would have taken a hit if it went that way, personally, but sometimes you have to do the right thing.</p>
<p>I think there’s been an incredible hypocricy of holding the middle class responsible for their borrowing and allowing the lenders to get off scott free. well, the big lenders. The main street community banks were allowed to go under as if they were negligible.</p>
<p>Now they are held to an almost punitive capital requirement, whereas the ones taking the real risk continue on.</p>
<p>We need our middle class. If I or any other 1% er became middle class, nobody would be hurt by this, not even me. Not really. So, why protect us and not them? America was built on the middle class. It is far more important to us than any other class will ever be.</p>
<p>Poetgrl, I think that is a fantastic post. Malcolm Gladwell wrote a book about Outliers. Maybe you read some if it. He talked about how the classes handle problems. The upper and upper middle class are agressive in pushing for what they want. The middle class and the lower class are passive. I think that explains things a little. I had a friend that grew up upper class. I did not understand him. He was soooo pushy. I understand him better today. </p>
<p>Then there is the issue of who represents the middle and lower class interests. I don’t see a fdr out there. Maybe Elizabeth Warren, but she doesn’t have enough power.</p>
<p>
</p>
<p>The private sector is correct to take these risks (for them) if the government will bail them out if they go bad. They are making a bet that they can’t lose on.</p>
<p>kluge</p>
<p>thank you for your post #48, I understand what you are saying better now.</p>
<p>I think general political policies (from both parties) also deserve blame. They are the ones that wanted more and more americans to own homes. Eventually, you run out of responsible people to lend money to.</p>