I'm Always Amazed When People Say The Crash Was "That Party's Fault!" But...

Really? The house next to mine is 980 square feet plus a small two-car garage. It was sold to an illegal alien family for $480K. By the time they disappeared in the middle of the night there had been 22 people living in there at the same time.

 

I've posted this link somewhere before, not sure where, but it's an excellent rehash of this whole mess. It is however an hour long.

From the intro...

In The Warning, veteran FRONTLINE producer Michael Kirk unearths the hidden history of the nation's worst financial crisis since the Great Depression. At the center of it all he finds Brooksley Born, who speaks for the first time on television about her failed campaign to regulate the secretive, multitrillion-dollar derivatives market whose crash helped trigger the financial collapse in the fall of 2008.

"I didn't know Brooksley Born," says former SEC Chairman Arthur Levitt, a member of President Clinton's powerful Working Group on Financial Markets. "I was told that she was irascible, difficult, stubborn, unreasonable." Levitt explains how the other principals of the Working Group -- former Fed Chairman Alan Greenspan and former Treasury Secretary Robert Rubin -- convinced him that Born's attempt to regulate the risky derivatives market could lead to financial turmoil, a conclusion he now believes was "clearly a mistake."

Born's battle behind closed doors was epic, Kirk finds. The members of the President's Working Group vehemently opposed regulation -- especially when proposed by a Washington outsider like Born.

"I walk into Brooksley's office one day; the blood has drained from her face," says Michael Greenberger, a former top official at the CFTC who worked closely with Born. "She's hanging up the telephone; she says to me: 'That was [former Assistant Treasury Secretary] Larry Summers. He says, "You're going to cause the worst financial crisis since the end of World War II."... [He says he has] 13 bankers in his office who informed him of this. Stop, right away. No more.'"

Greenspan, Rubin and Summers ultimately prevailed on Congress to stop Born and limit future regulation of derivatives. "Born faced a formidable struggle pushing for regulation at a time when the stock market was booming," Kirk says. "Alan Greenspan was the maestro, and both parties in Washington were united in a belief that the markets would take care of themselves."

Now, with many of the same men who shut down Born in key positions in the Obama administration, The Warning reveals the complicated politics that led to this crisis and what it may say about current attempts to prevent the next one.

"It'll happen again if we don't take the appropriate steps," Born warns. "There will be significant financial downturns and disasters attributed to this regulatory gap over and over until we learn from experience."

http://www.pbs.org/wgbh/pages/frontline/warning/

 

You seem to be saying that banks are obligated to make every loan that is applied for. Have you noticed that there are actually two parties to every loan? Lenders are not supposed to be an ATM. They have an absolute duty to determine the applicant's creditworthiness, and to say No if the borrower isn't going to be able to pay back the loan.

But in their eagerness to make ever more money, the mortage industry discovered securitization, which breaks the critical link between lender and borrower. Instead of making money on interest over years as they always did, they now made money fast on commissions and then by securitizing and selling the paper. When a bank is going to carry the paper, they care very much about the borrower's ability to repay. When the loan is going to be sold before the ink is dry, they couldn't care less, and the only thing that matters is volume. So they gave loans to anyone who asked, including many people they knew very well couldn't pay it back. That IS the banks' fault.

 

Not at all. They should've denied loads of people, since many aren't worthy of loans. Banks were nearly forced through Liberal policies to be fair back in the 90s. AA at its finest. Then again, why not give loans to people who can't pay, so you can then own the home and resell it? Its a fine strategy, until EVERYONE can't pay at the same time=) Thats where it all went south. If someone defaults, its great for the bank. When everyone defaults, its bad for everyone.

 

But here's the difference between those whose every opinion is formed by party and those who think for themselves:

While it's obvious the banks made loans they shouldn't have under the AHA of the Dems, it is equally the banks could never have become "Too Big to Fail" and invested a single penny of investor money in CMBS' without the Republican sponsored GLB.

However, in both cases no bank was required to approve a single loan. Not one. The only requirement was that if they adopted the more lenient loan guidelines, they had to do it for every loan application they recieved. Additionally, not one bank was required to bundle mortgage backed securities and use credit swaps to avoid federal insurance requirements. They chose to. Period.

Then we paid them for having screwed us.

 

If anyone is really interested in more than playing silly blame games, see Financial Inquiry Report - (PDF pages 16-29) - "Summary Conclusions" (topics listed below).

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The Right primarily blames Democrats for, among other things, CRA, HUD’s affordable housing goals for the GSEs, etc. - while the Left blames Republicans mostly for, among other things, dismissing obvious and crucial warning signs of systemic vulnerabilities that were developing as far back back as the late 1990's, as well as efforts to dismantle banking regulations - esp. the enactment of legislation in 2000 to ban the regulation by both the federal and state governments of over-the-counter (OTC) derivatives.

The truth is, BOTH political sides were guilty of both sets of concerns (and more) to varying degrees, but the entire picture has so many important culprits that the government's role is one of many players. As a result, it's nearly impossible to weed through the labyrinth of causal interdependencies to establish a proper ordering of blame.

If people would browse the few pages of those Summary Conclusions ( esp. pg 28 ), maybe they wouldn't be quite so eager in these VERY LAME AND ILL-FOUNDED EFFORTS TO ASSIGN UNILATERAL POLITICAL BLAME, like a bunch of "nanadabooboo" screaming kindergarteners. But I guess that's one reason why nobody bothers to read those few pages of rational analysis.

**********************​

Here are just the topic headings for the Summary Conclusions in those pages mentioned above. In the book, under each subsection, there is a more detailed overview (still a summary, though) of the particular topic. The rest of the 663 pg book is a VERY detailed analysis of each of these topics - and more:

• We conclude this financial crisis was avoidable

• We conclude widespread failures in financial regulation and supervision
proved devastating to the stability of the nation’s financial markets.

• We conclude dramatic failures of corporate governance and risk management
at many systemically important financial institutions were a key cause of this crisis.

• We conclude a combination of excessive borrowing, risky investments, and lack
of transparency put the financial system on a collision course with crisis.

• We conclude the government was ill prepared for the crisis, and its inconsistent
response added to the uncertainty and panic in the financial markets.

• We conclude there was a systemic breakdown in accountability and ethics.

• We conclude collapsing mortgage-lending standards and the mortgage securitization
pipeline lit and spread the flame of contagion and crisis.

• We conclude over-the-counter derivatives contributed significantly to this
crisis.

• We conclude the failures of credit rating agencies were essential cogs in the
wheel of financial destruction.​

**********************​

Now - back to the blame game...

 

Sorry - didn't mean to kill this thread with that previous long-winded post.

 

Eric Holder's DoJ "exhausted" itself investigating Goldman Sachs and could find no criminal acts. Oddly enough, the Goldman Sachs bankers were exhausting themselves with visits to the Obama White House.


Oh, and there is this classic:


[video=youtube;LPSDnGMzIdo]http://www.youtube.com/watch?v=LPSDnGMzIdo[/video]

 

They just believe if the gov't can do it...so can they.

 

I'm sure it's a wasted effort but <sigh> let's try to educate those whose every opinion is formed by FOX.

As stated in darckdriver's (excellent) post,

We conclude widespread failures in financial regulation and supervision
proved devastating to the stability of the nation&#8217;s financial markets.

Now what that means in terms you MIGHT understand, is that there needed to be MORE laws and regulations. I know, I know, you think all regulations are evil because your masters have told you so. But here is an irrefutable (that means there is no way to prove it wrong because well, it's right) fact:

If not for Gramm-Leach-Bliley's deregulation of the banking industry, there would have been no bank bailouts. None. (That means zero).

You may now continue parroting the opinions fed to you without backing them up with actual facts or logic.

 

You cherry picked one of nine of the Financial Inquiry Report's conclusions, but since you guys are still battling that fruitless and silly blame game it makes sense. I guess I'll forgive you, though. This is 2013 - a kinder and gentler year - at least for me.

 

While I may agree with the lack of regulation being the biggest problem in this blow up, I think it's interesting to note the regulatory response to this mess. From all I've read Dodd-Frank does nothing to address the very lack of regulation in question, and yet has already added new regulations across the entire banking sector along with other sectors. While some may hate any regulations regardless of the need for them, others love all regulation regardless of their efficacy. I rail against regulations all the time, not because I hate all regulation but because the majority of regs I deal with are useless bureaucratic monstrosities. There's a difference between having regulation for the sake of getting to say you did something and intelligent regulations which actually address the problems at hand.

It amazes me that this govt can overlook many trillions of dollars in crazy stock swaps and otc derivatives and seem more concerned about the color of lines I paint on my shop floor.

 

I agree with you that Dodd-Frank is a very weak POS legislation. Unfortunately, the GOP made clear the original proposal would never even GET a vote, let alone pass one, if the Dems didn't take the teeth out of it. But it does contain a few remnants of the original which are at least somewhat effective.
But my original point was that although Gramm-Leach-Bliley opened the door and without it, there would have been no bailouts, the onus lies squarely on the banks.
Unfortunately, the majority of the American public has been duped by Congress and the Sith, who have them brain-washed into believing everything is the fault of Conservatives, Liberals, Democrats or Republicans. Rather than were the origin of our problems really lay: Congress when it comes to the dysfunction of our government and the Bankers when it comes to the crash.

 

I agree about Dodd-Frank, although I doubt the original legislation would have been much better. I remember watching cspan one evening, a talking head was going on about how wonderful DF was and how it had cleaned up the financial mess. 20 minutes later they're interviewing an ex-SEC official and asked him if DF had truly cleaned up the mess. He laughed and said that there is no one in govt that could honestly tell you what happened let alone fix it. His line was "if this was a plane crash we'd still be looking for the plane".

If I'm not mistaken Dodd-Frank is like 30% written. Always makes me wonder what they voted on 2 years ago, a blank sheet of paper with Dodd-Frank across the top?

 

Banks following the relaxed rules of conservative policies are the problem.