Dad2three
Gold Member
So, let's go through those.
Jimmy Carter's Depository Institutions Deregulation and Monetary Control Act of 1980 (DIDMCA) phased out a number of restrictions on banks' financial practices, broadened their lending powers, allowed credit unions and savings and loans to offer checkable deposits, and raised the deposit insurance limit from $40,000 to $100,000 (thereby potentially lessening depositor scrutiny of lenders' risk management policies).
I'm against FDIC to begin with, and for the reasons given here. However... What's that go to do with sub-prime loans? Mortgage backed securities? Or anything else? There's no evidence that I have seen yet, which shows how this is related.
In October 1982, U.S. President Ronald Reagan signed into law the Garn–St. Germain Depository Institutions Act, which provided for adjustable-rate mortgage loans, began the process of banking deregulation, and contributed to the savings and loan crisis of the late 1980s/early 1990s.First, why did government do this? Answer, because of the stagflation. Savings and Loans S&Ls had a huge problem with inflation, and interest rates. So they would make a home loan, at a fixed interest rate of say 10%. Then inflation and interest rates would go up to 20%. So the S&L had two bad options. They could pay the 20% interest on deposits, while only earning 10% on their loans... thus losing money.... or they could pay less than the market interest rate, and have all their depositors withdraw their cash, to put in other banks with higher rates. One way they go broke quickly, and the other they go broke slowly.
The ARM, allowed the bank to avoid going bankrupt, even in a jacked up inflation, interest rate environment. It was very need at the time. Today, not so much, just because inflation and interest rates have been so low for almost two decades. But it was different then.
Second, regardless I would deny this was directly related to the 2008 crash, because only a fraction of ARM loans were part of the big crash. They played a part.... yes. I don't deny that. But most of the failures were in other sub-prime loans.
In November 1999, U.S. President Bill Clinton signed into law the Gramm–Leach–Bliley Act, which repealed part of the Glass–Steagall Act of 1933. This repeal has been criticized for reducing the separation between commercial banks (which traditionally had fiscally conservative policies) and investment banks (which had a more risk-taking culture).[92][93] However, there is perspective that Glass-Steagall being in effect may not have made any difference at all as the institutions that were greatly affected did not fall under the jurisdiction of the act itself.
It's not just a "perspective". It's the reality. Countrywide, IndyMac, Wachovia, Bear Stearns, and literally hundreds of others, would not have been affected in any way, had GLB Act never existed. None of them were commercial and investment bank combos.
Also, if that was the problem, then why hasn't the problem started elsewhere in the world? No other country in the world, has ever had the Glass-Staegall type restriction. Canada doesn't. UK doesn't. France, Sweden, all of the EU, or Asia. Singapore, Hong Kong, Tiawan and S.Korea. None have ever had this restriction, and yet the problem started here, not there.
In 2004, the U.S. Securities and Exchange Commission relaxed the net capital rule, which enabled investment banks to substantially increase the level of debt they were taking on, fueling the growth in mortgage-backed securities supporting subprime mortgages. The SEC has conceded that self-regulation of investment banks contributed to the crisis.
It's always interesting how when trying to discuss facts, people toss in opinion. What the SEC 'concedes', isn't relevant. What are the facts? The SEC did not just relax the rules, they were regulated. Banks could apply to the SEC for an exemption. The SEC granted a total of 7 banks, Bear Stearns, Lehman Brothers, Merrill Lynch, Morgan Stanley, Goldman Sachs, Citibank, and JP Morgan Chase.
Bear Stears, Lehman Brothers, Merrill Lynch, all failed.
Citibank, was in a pinch, but survived.
Goldman Sachs, JP Morgan Chase, and Morgan Stanley, all had no problem.
If the net capital requirement were the issue, why didn't they all fail? And for that matter, why did all those banks that didn't get exemptions fail? Countrywide, Indymac, Wachovia? Here's the trick: The ones that failed, and Citi, were all involved in sub-prime loans. It wasn't the net capital requirements.
And by the way, Canada's net capital requirements have always been lower. UK is lower. EU, is lower. Most countries have lower capital requirements than the US.
Financial institutions in the shadow banking system are not subject to the same regulation as depository banks, allowing them to assume additional debt obligations relative to their financial cushion or capital base.[97] This was the case despite the Long-Term Capital Management debacle in 1998, where a highly leveraged shadow institution failed with systemic implications.
But they ARE regulated, it's just not the same regulations. And obviously, if that was the problem, then we should have been having banking melt downs every single year since the 1950s. They have never had to follow the same exact regulations.
And even then, what's this got to do with sub-prime loans? Sub-prime loans are what caused the problem. If there had been no sub-prime loans, there would have been no crash, no matter about the rest of this.
Regulators and accounting standard-setters allowed depository banks such as Citigroup to move significant amounts of assets and liabilities off-balance sheet into complex legal entities called structured investment vehicles, masking the weakness of the capital base of the firm or degree of leverage or risk taken. One news agency estimated that the top four U.S. banks will have to return between $500 billion and $1 trillion to their balance sheets during 2009.[98] This increased uncertainty during the crisis regarding the financial position of the major banks.[99] Off-balance sheet entities were also used by Enron as part of the scandal that brought down that company in 2001
I'm not sure what this has to do with anything. How they move and mix the bad loans, after the loans are made, is focusing on a cracked toe-nail when you have a hole blown through your foot.
And again, this isn't deregulation. If you have to ask permission from the government.... then you are not deregulated lol
As early as 1997, Federal Reserve chairman Alan Greenspan fought to keep the derivatives market unregulated.[101] With the advice of the President's Working Group on Financial Markets,[102] the U.S. Congress and President Bill Clinton allowed the self-regulation of the over-the-counter derivatives market when they enacted the Commodity Futures Modernization Act of 2000. Derivatives such as credit default swaps (CDS) can be used to hedge or speculate against particular credit risks without necessarily owning the underlying debt instruments. The volume of CDS outstanding increased 100-fold from 1998 to 2008, with estimates of the debt covered by CDS contracts, as of November 2008, ranging from US$33 to $47 trillion. Total over-the-counter (OTC) derivative notional value rose to $683 trillion by June 2008.[103] Warren Buffett famously referred to derivatives as "financial weapons of mass destruction" in early 2003.What does this have to do with the cost of tea in China? What does it have to do with anything?
Derivatives were not the problem. Out of the entire derivative market, only a tiny tiny fraction failed, and they were all related to sub-prime loans.... why? Because the sub-prime loans failed.
Credit Default Swaps did not cause people to default on their mortgage payments, did not cause mortgage backed securities with those loans to fail, cause institutions holding those MBS's to fail.
In fact.... many of the investors, purchased CDS's to hedge against the risk of those Mortgage Backed Securities. In other words, they mitigated the effect of the crash, not caused it.
All you are doing is explaining what the government did. You're not countering my arguments.
The fact that what we saw involved only a fraction of the global derivatives market makes matters worse.
Again, there was no problem with the unregulated derivatives market. The problem was with the sub-prime loans, which were regulated.
No, I countered each of your arguments. Every single one of them, in detail. Read it again.
Liar. Shocking you'd ignore all your previous posts then claim victory, lol
