The Big Lie

Discussion in 'Economy' started by Synthaholic, Nov 7, 2011.

  1. Synthaholic
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    Synthaholic Platinum Member

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    Why are people trying to rewrite the history of the crisis? Some are simply trying to save face. Interest groups who advocate for deregulation of the finance sector would prefer that deregulation not receive any blame for the crisis.

    Some stand to profit from the status quo: Banks present a systemic risk to the economy, and reducing that risk by lowering their leverage and increasing capital requirements also lowers profitability. Others are hired guns, doing the bidding of bosses on Wall Street.

    They all suffer cognitive dissonance — the intellectual crisis that occurs when a failed belief system or philosophy is confronted with proof of its implausibility.

    And what about those facts? To be clear, no single issue was the cause. Our economy is a complex and intricate system. What caused the crisis? Look:



    • Fed Chair Alan Greenspan dropped rates to 1 percent — levels not seen for half a century — and kept them there for an unprecedentedly long period. This caused a spiral in anything priced in dollars (i.e., oil, gold) or credit (i.e., housing) or liquidity driven (i.e., stocks).
    • Low rates meant asset managers could no longer get decent yields from municipal bonds or Treasurys. Instead, they turned to high-yield mortgage-backed securities. Nearly all of them failed to do adequate due diligence before buying them, did not understand these instruments or the risk involved. They violated one of the most important rules of investing: Know what you own.
    • Fund managers made this error because they relied on the credit ratings agencies — Moody’s, S&P and Fitch. They had placed an AAA rating on these junk securities, claiming they were as safe as U.S. Treasurys.
    • Derivatives had become a uniquely unregulated financial instrument. They are exempt from all oversight, counter-party disclosure, exchange listing requirements, state insurance supervision and, most important, reserve requirements. This allowed AIG to write $3 trillion in derivatives while reserving precisely zero dollars against future claims.
    • The Securities and Exchange Commission change the leverage rules for just five Wall Street banks in 2004. The “Bear Stearns exemption” replaced the 1977 net capitalization rule’s 12-to-1 leverage limit. In its place, it allowed unlimited leverage for Goldman Sachs, Morgan Stanley, Merrill Lynch, Lehman Brothers and Bear Stearns. These banks ramped leverage to 20-, 30-, even 40-to-1. Extreme leverage leaves very little room for error.




    MORE AT THE LINK.
     
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  2. California Girl
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    California Girl BANNED

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    For a minute there, I thought you'd actually managed to think for yourself. Imagine how completely shocked I was to discover that you were just regurgitating crap.
     
  3. Wiseacre
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    Wiseacre Retired USAF Chief Supporting Member

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    Short shrift to the housing bubble that lead to the credit crisis in the 1st place. Leaving that aside, I think a big part of the problem wasn't a deregulated financial sector but instead the regulators didn't really do their jobs under the existing rules. And there was little or no enforcement either.
     
  4. California Girl
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    California Girl BANNED

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    Months ago, when I talked about the same points as have been raised in the OP, morons like Synthia had a hissy fit and insisted it was down to Bush. Of course, anyone with more than a modicum of intellect can track decisions back to Clinton... and beyond that led us to this clusterfuck.

    Apparently, it is only truth if someone in the media says it is.

    Fucking idiots.
     
    Last edited: Nov 7, 2011
  5. Samson
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    Samson Póg Mo Thóin Supporting Member

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    :eusa_eh:

    The Washington Post just figured this out?

    Oddly, any fault of Fanny/Freedie seems to have been omitted........
     
    Last edited: Nov 7, 2011
  6. Wiseacre
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    Wiseacre Retired USAF Chief Supporting Member

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    McCain’s attempt to fix Fannie Mae, Freddie Mac in 2005; Update: Obama can’t get AIG right « Hot Air

    Back in 2005, John McCain introduced a bill that if passed would have prevented the crisis. The dems shot it down.

    snippet from link, this is what the bill was all about:

    (1) in lieu of the Office of Federal Housing Enterprise Oversight of the Department of Housing and Urban Development (HUD), an independent Federal Housing Enterprise Regulatory Agency which shall have authority over the Federal Home Loan Bank Finance Corporation, the Federal Home Loan Banks, the Federal National Mortgage Association (Fannie Mae), and the Federal Home Loan Mortgage Corporation (Freddie Mac); and (2) the Federal Housing Enterprise Board.

    Sets forth operating, administrative, and regulatory provisions of the Agency, including provisions respecting: (1) assessment authority; (2) authority to limit nonmission-related assets; (3) minimum and critical capital levels; (4) risk-based capital test; (5) capital classifications and undercapitalized enterprises; (6) enforcement actions and penalties; (7) golden parachutes; and (8) reporting.

    It never made it out of committee. Chris Dodd, then the ranking member of the Banking Committee and now its chair, was in the middle of receiving preferential loan treatment from Countrywide Mortgage, one of the companies gaming the system in the credit crisis. Meanwhile, Barack Obama took hundreds of thousands of dollars from the lobbyists McCain mentions in this speech, making him the #2 recipient of Fannie/Freddie money.
     
    Last edited: Nov 7, 2011
  7. Synthaholic
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    Synthaholic Platinum Member

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    You are a liar. Find those posts and prove it.
     
  8. Synthaholic
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    Synthaholic Platinum Member

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    That's because it turns out they were a minor cause.

    You boys should keep up with the news!


    Private sector loans, not Fannie or Freddie, triggered crisis



    Federal housing data reveal that the charges aren't true, and that the private sector, not the government or government-backed companies, was behind the soaring subprime lending at the core of the crisis.


    Subprime lending offered high-cost loans to the weakest borrowers during the housing boom that lasted from 2001 to 2007. Subprime lending was at its height from 2004 to 2006.


    Federal Reserve Board data show that:

    • More than 84 percent of the subprime mortgages in 2006 were issued by private lending institutions.
    • Private firms made nearly 83 percent of the subprime loans to low- and moderate-income borrowers that year.
    • Only one of the top 25 subprime lenders in 2006 was directly subject to the housing law that's being lambasted by conservative critics.
     
  9. Synthaholic
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    Synthaholic Platinum Member

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    I feel good!
     
  10. editec
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    editec Mr. Forgot-it-All

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    Most folks here want a single simply answer to the events leading up to the meltdown.

    Sadly, any explanation simple enough to satisfy their need for simple answers is too simple-minded to really explain it.

    Anybody trying to pin this disaster on one POTUS, or one sector of the economy, or one party, or one policy, is telegraphing you that news they are just damned too stupid to get it.
     

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