So what was the reality of Wall Street? They were angels caught on a storm at no fault of their own? Nothing should be allowed to become too big to fall. If we allowed that, we become enslaved. No amount of regulation can help since they will find a way to wiggle as has happened.
Agree, I’ll now read the book.
I’d call the movie, “Good, not great.” @emilybee curious if your son saw it and got it. I don’t think mine would grasp it, neither understanding finance nor having any savvy about 2008.
Btw, I didn’t even realize that was Steve Carell. Good job.
The bail out was necessary, the practices that led to the necessity of it were known by Wall Street and were in a number of instances criminal yet next to no one was prosecuted. A clear and disgusting example of the imbalance of power and justice in our country, and the manipulation of markets to benefit the ultra wealthy. To big to fail and untouchable, it turns my stomach!
The financial bailouts are complicated. The country would have gone into a depression without some bailouts.
The Big Short is telling a small part of what happened. The story is true. Its an important story because what we learned is our largest financial institutions don’t know what they are doing and they commit fraud.
When you are misrepresenting what you are selling on purpose, what would you call this?
This still goes on. When an analyst writes a bullish research report, is it because the investment firm really likes the company or because the investment firm wants clients to trade the company’s stock through the investment firm? Does the investment firm want to be an underwriter of the company it is following?
What should happen after financial institutions fail is other financial institutions rise and take their place.
There is a cost with a zero rate policy.
What is going to happen to retirement plans? Pensions? What about the future value of assets if rates rise? For example, look at cap rates across the country. They have crashed. What happens if rates rise?
We have companies buying back stock or buying other companies. What happens if rates rise? Companies prospects diminish? Future rates of return are too low if rates rise?
The QEs increased the value of assets which was the intent. This primarily helped a small segment of the population. What if what was done was take future returns and throw those returns into the present? What happens in the future?
Maybe it would have been better to take short term pain and get it over with.
One of the potential costs to a zero to negative rate policy is that it will create a run on the bank, just like market induced panics do. Why leave your cash in there where its not in your control and you get charged for having it there?
This is why Larry Summers is shilling for Fed insiders when he writes editorials about why we should make it harder to hold cash (using the straw man of criminal activity). That piece worries me a lot. Its not about criminals, its about the ineffectiveness of monetary policy in an era of low returns on capital (deflation).
I think there is some truth in that. For instance, I think you can make a case that the Fed ten-plus year war on inflation that ended the second week of August 1982 with a surprise cut in rates actually made the growth that followed much more robust than otherwise would have been the case. There are consequences for getting in the way of natural processes.
Bringing up the 1982 case is bizarre to me. I think that is a pretty weak case.
Otherwise, @dadx, I agree with your sentiments.
You guys should watch Inside Job. Although somewhat biased, it does a good point of highlighting the main parts of the reason behind the collapse in '08.
Loved The Big Short. The focus on Florida really hit home. Looking back at some individual mortgage transactions, I would see deals where it seemed like everyone who had touched the deal - mortgage broker, borrower, title company, banks, attorney- had committed a crime or fraud or malpractice. In the mortgage crisis there was SO much blame to go around.
@Iglooo No, I am not saying the Wall Street was angelic with not fault of their own. But presumably you would agree there is a lot of space between angelic and corrupt/fradulent/deserving to go to jail?
I support prosecuting anyone who broke the law. But simply because the results were bad on a huge scale does not mean laws were broken.
You didn’t answer my question about the domestic 3 automakers. Are they too big to fail? If so, should they be broken up as well? And if not, should we have bailed them out and if so, why?
A big part of Dodd Frank applies to institutions which pose systemic risk which is aimed at too big to fail. Some share your view that we should break up any institutions that are too big to fail. One issue with that is its not always easy to identify what institutions are too big to fail. And market changes can change the dynamics of that very quickly (both towards too big to fail and away from it). Two it allows the government to decide who gets split up (and typically how). I don’t have a lot of trust in that institution to make decisions that make sense for the long term interests of the country.
Another issue with breaking up too big to fail entities or not allow them to exist in the meantime is what happens if two or more non-too big to fail institutions fail? They may may lead to failures of other institutions (because of the interrelation of the various financial institutions) creating a spiral of failures. So you could have systematic failure without a single “too big to fail” institution failing.
And Wall Street is often discussed (here and elsewhere) as if its a monolithic entity with total sharing of info and unity of purpose and understanding. That just isn’t the case.
@dstark When small/mid sized financial institutions fail, the market does fill in the gaps. But that is much more difficult to do when you are talking about the largest financial institutions. If nothing else it takes time (even without a regulatory process but for regulated entities, filling the gap takes even longer). What happens in the interim in terms of credit needs? The government could step in but that would have required significantly more Fed investment that did the bailouts.
And there were some forced marriages during the crisis imposed by the Fed in terms of dealing with some failing institutions. Most likely institutions able to take over any financial institution that is failing are bigger institutions. Combine two non-too big to fail institutions and you may well have a too big to fail institution. Another reason I favor regulation over breaking up too big to fail.
I totally agree with your issues with respect to QE. But I think the Fed made the decision (and I agree with it) that those issues were better than deflation. In terms of taking our short term pain and getting on with it, Japan has had general inflation for about 20 years. Not sure if I view that as “short term” pain. At this point, I think Japan has just learned to live with it but after multiple attempts by the government to combat it.
I disagree that QE helped only a small segment of the population. Even if you look only at equity values, large number of folks own equity securities. But in addition to that, low borrowing costs have helped a lot of companies reduce costs, grow, hire more people, etc. No doubt some of those companies with have problems when rates rise. Not clear though that those issues outweigh the benefits overall of QE.
And if you look at all the money that was poured into the economy in terms the bailouts (financial and otherwise), stimulus packages, FED balance sheet activity, etc., under classic economic principles, we should have had huge inflation. But we didn’t. That was because all of those inflationary pressures counteracted a ton of deflationary pressures.
I agree with you in terms of sacrificing the future for gains today. We often see politicians looking to address issues in the economy that will address themselves in due course. Problem is due course may or may not work well for any given election cycle. So we have stimulus, tax cuts, deficit spending, etc. aimed at helping the economy recover maybe a month or several months earlier than it otherwise would (maybe). But at what cost?
Some say that is true of the financial bailout but because of the importance of credit to the overall economy (well beyond downtown NYC), I don’t think its true at all. Though it does make a good campaign slogan.
@dadx We have had zero interest rates for going on a decade. But there hasn’t been a run on the banks. People still keep their money there. No better safe returns exist. And you could put it under your mattress but you lose security. And with electronic commerce dominating, you lose a lot of control of it as well when you have it at home. I can get money pretty much anywhere around the world very quickly (instantly with a wire transfer) which isn’t true with cash I have at home.
Marketing.
How large were the bailouts?
Originally TARP was $700 billion program. I understand that not all that money was actually used. Some of the funds have been repaid. Searching just now I found different reports in terms of how much has been repaid and what the actual final cost of the program was.
The best parties I have been to were hosted by high tech companies. Last conference I went to, a club was completely rented by a tech company, and on another night part of Disney was closed off for a party for us.
I watched the movie online few weeks ago. It was very entertaining. I liked the scene in Las Vegas.
TARP was a small part of the bailouts.
Would you change your mind if you learned the financial bailouts were much larger?
The auto bailouts were a pimple compared to the financial bailouts.
Do you work in the financial industry?
@oldfort, I think your post is relevant in the zenefits thread.
Someone mentioned $500/glass wine up thread, as if it only happened on WS.
What would the costs have been of letting the financial industry fail? Should we have done that instead?
I work in service industry for financial industry. Do not work for a financial institution/investment bank.
I wouldn’t let the financial industry fail.
The financial industry received trillions in
Loans. Foreign institutions received trillions of dollars of loans.
I think it was the Levy Institute that investigated and found the bailout was about $29 trillion. Yes. Most of the loans were paid back. There was a value to the firms that were so sloppy. Blows the idea of a free market economy out to outer space. 
How do you know there were no crimes committed?
@oldfort, ok. Thanks.