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Thread: The American Politics thread

  1. #18691
    International Coach StephenZA's Avatar
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    "The presence of those seeking the truth is infinitely to be preferred to the presence of those who think they’ve found it."

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    Global Moderator Spark's Avatar
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    Quote Originally Posted by Redbacks View Post
    So we are supposed to believe all the big banks got together and thought the ultimate business plan: 'let's loan money to people who can't afford to pay it back'
    That is literally what they did, through the magic of ratings agencies, financialisation and insanely complicated financial instruments that told them that doing this was a-ok
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    Hall of Fame Member Ikki's Avatar
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    If government wasn't involved so many banks wouldn't have engaged in sub-prime loans - they were called sub-prime for a reason. Crooks exist, but these guys by and large are businessmen and it's not a coincidence banks like Lehmann brothers were over 150 years old when the bubble popped.

    The government backed them and created a moral hazard. They loaned out money to people who couldn't afford them at ridiculously low interest rates - Greenspan wanted to inflate a new market after the dot com crash. The rest was inevitable after that. They screwed the American people, they should have simply let them fail to teach them a lesson. This was a swindle from the jump.
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  4. #18694
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    As far as I`m aware a big problem was the deregulation of the seperation between investment and commercial banking in 1999, that then allowed greater risk taken by commercial bank; and is a primary reason that caused the 2007 crash.

    https://papers.ssrn.com/sol3/papers....act_id=2690921


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    Quote Originally Posted by Spark View Post
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  6. #18696
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    Quote Originally Posted by Ikki View Post
    If government wasn't involved so many banks wouldn't have engaged in sub-prime loans - they were called sub-prime for a reason. Crooks exist, but these guys by and large are businessmen and it's not a coincidence banks like Lehmann brothers were over 150 years old when the bubble popped.

    The government backed them and created a moral hazard. They loaned out money to people who couldn't afford them at ridiculously low interest rates - Greenspan wanted to inflate a new market after the dot com crash. The rest was inevitable after that. They screwed the American people, they should have simply let them fail to teach them a lesson. This was a swindle from the jump.
    I know Forbes et al have been relentless in trying to turn the world on its head and say government regulation actually caused the GFC rather than acknowledging that it was an enormous market failure, but please read Financial crisis of 2007–2008 on Wikipedia rather than parroting that line. In the thirteen different sections on the causes of the crisis, you will find some mention of government culpability in the Subprime lending section to give you your anti-government kicks, but the remainder is about the context of the time, events, deregulation and the many ways in which the market failed.

    The fundamental problem is that financiers are taking risks on behalf of other people rather than themselves, but they get a large slice of the reward, know the system well and can find myriad ways to exploit this to benefit themselves. The feedback systems that are supposed to make Markets work don't apply when incentives are misaligned from the start or can be easily skewed, there are enormous information/knowledge gaps between parties and there is no transparency.

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    Hall of Fame Member hendrix's Avatar
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    I'm with Ikki on this one.

    I agree that the incentive systems were and still are out of whack but I think that's something that would have eventually been realigned anyway.
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  8. #18698
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    Quote Originally Posted by Ikki View Post
    If government wasn't involved so many banks wouldn't have engaged in sub-prime loans - they were called sub-prime for a reason. Crooks exist, but these guys by and large are businessmen and it's not a coincidence banks like Lehmann brothers were over 150 years old when the bubble popped.

    The government backed them and created a moral hazard. They loaned out money to people who couldn't afford them at ridiculously low interest rates - Greenspan wanted to inflate a new market after the dot com crash. The rest was inevitable after that. They screwed the American people, they should have simply let them fail to teach them a lesson. This was a swindle from the jump.
    Do you actually realize the consequences of that happening. To "big to fail" is not just a euphemism. Whether it should have got to that point and should have been better regulated is a differrent discussion.

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    Hall of Fame Member hendrix's Avatar
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    They should have absolutely let them fail. No doubt in my mind about that one.

    Now, buying into them as an investor to reap returns - that's another question.

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    Quote Originally Posted by hendrix View Post
    They should have absolutely let them fail. No doubt in my mind about that one.

    Now, buying into them as an investor to reap returns - that's another question.
    What you then are talking about is a form of nationilzation and taking on unkown debt (the whole issue). Loaning the money and then giveing liquidity to the banks is not a bad decision, if you are trying to maintain stability, which is a primary function of central/reserve banks and governments.

    The fact that they gave the liquidity to them and then do not want to give them oversight and ensure they use that money for all rather than just self-preservation is a differrent issue. Banks (and financial institutions) are holding onto cash reserves, given to them by governments, and that should not be allowed because it is keeping the economy stagnant.

  11. #18701
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    Quote Originally Posted by hendrix View Post
    They should have absolutely let them fail. No doubt in my mind about that one.

    Now, buying into them as an investor to reap returns - that's another question.
    Banks are not normal businesses tbf. When a company like Enron falls over that's one thing, but as we saw in Europe failing banks threatens the stability of the entire economy.

    From what I've heard, when Paulson forced the banks to swallow the bailout money the whole system was on the verge of disintegration.

  12. #18702
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    It was not even actually the banks themselves that where the problems (even though they helped cause it), it was the insurance underwriters (like AIG) that would be left holding the bag...and those companies are so big and have their fingers in so many pies that if they had to declare bankrupcy, the entire system shuts down.

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    Quote Originally Posted by hendrix View Post
    They should have absolutely let them fail. No doubt in my mind about that one.

    Now, buying into them as an investor to reap returns - that's another question.
    If the government had let the banks fail then the losses would have been borne by depositors (i.e. not bankers). So the expectation of a government bailout isn't what produced the moral hazard. Limited liability did.
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  14. #18704
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    Our former Labor PM, who was the best treasurer we've had, put some of the blame on Greenspan for his handling of interest rates after the dot com bubble. 'All that cheap money going into useless US assets when it could have been invested in value adding enterprises in emerging economies'

  15. #18705
    Hall of Fame Member Ikki's Avatar
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    Quote Originally Posted by StephenZA View Post
    As far as I`m aware a big problem was the deregulation of the seperation between investment and commercial banking in 1999, that then allowed greater risk taken by commercial bank; and is a primary reason that caused the 2007 crash.

    https://papers.ssrn.com/sol3/papers....act_id=2690921
    Quote Originally Posted by straw man View Post
    I know Forbes et al have been relentless in trying to turn the world on its head and say government regulation actually caused the GFC rather than acknowledging that it was an enormous market failure, but please read Financial crisis of 2007–2008 on Wikipedia rather than parroting that line. In the thirteen different sections on the causes of the crisis, you will find some mention of government culpability in the Subprime lending section to give you your anti-government kicks, but the remainder is about the context of the time, events, deregulation and the many ways in which the market failed.

    The fundamental problem is that financiers are taking risks on behalf of other people rather than themselves, but they get a large slice of the reward, know the system well and can find myriad ways to exploit this to benefit themselves. The feedback systems that are supposed to make Markets work don't apply when incentives are misaligned from the start or can be easily skewed, there are enormous information/knowledge gaps between parties and there is no transparency.
    It's actually irrelevant. Many countries, including Canada, didn't have Glass Steagal or like legislation, so what about them? And that's not the only point against it although to save time I'll explain what drove the malinvestment because it's to misunderstand the phenomena to put it down to this regulation.

    If the banks had no regulation at all, the market would still provide regulation. People do not put money into banks to lose it and the bank's job is to invest it wisely which is why financiers getting a cut is not the issue, it is that they had little incentive to get it right. That's why they usually have standards on loans - prime, sub-prime, etc. When the government is essentially mandating you give to lower income earners and setting the interest rate at 1% they are encouraging lending. This isn't to absolve the banks from doing the wrong thing but without the instrument of government there is no fall-back and far less of them are likely to engage - particularly on such a grand scale. It's also not coincidental that the politicians overseeing this rise and fall are well rewarded from the banks.

    None of these banks were too big to fail. Even if they go under, it doesn't mean some other entity, bank or otherwise, won't take over or buy its assets. And in a free market that is what you want: profits and losses to occur. If you fix the game for [false] profits, you are essentially taking away the risk factor from doing the wrong thing which translates to more of it. You want the market to punish bad actors so good actors can take them over in such an event.
    Last edited by Ikki; 13-10-2017 at 01:34 PM.



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