David Stockman : 2008 Economic Depression Caused by Federal Reserve Board

[g5000]

David A. Stockman – “The Great Deformation – The Corruption of Capitalism in America”

Myth one: The 2008 financial crisis was the result of unregulated markets. TARP and the Fed saved the country from Great Depression 2.0

Nonsense, says Stockman. The financial crisis was the consequence of the Fed’s serial bubble blowing, and it should have been allowed to burn itself out in the corridors of Wall Street. Instead, Paulson and Bernanke panicked, declared economic martial law, namely that all rules of fiscal prudence and free market capitalism be tossed aside, and demanded that, via the bail-out of ‘insurance’ giant AIG, firms like Goldman Sachs, Morgan Stanley and others be saved from choking on their own outsized speculations."

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Instead of reading some partisan hack's third person interpretation of a Stockman book, read Stockman's own words:

David Stockman: Days of Crony Capitalist Plunder

Accordingly, banks which were "too big to fail" couldn't be busted up, since they were allegedly needed to shovel more credit onto already debt-saturated household and business balance sheets. Likewise, speculators who should have suffered epochal losses during the meltdown were resuscitated by Fed-engineered zero interest rates in the money market, thereby quickly reviving the same massively leveraged "carry trades" in commodities, currencies, equities, derivatives, and other risk assets which had brought on the crisis in the first place.

Why?

I want to show the world that the narcotized is finally noticing reality.

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The securitization of the planet is why.

Let's take a wheat silo for instance. In the old days, the worth of a silo was found in what it contained in that moment of time. One silo's worth of wheat.

But with securitization, the worth of the silo is the expected contents of that silo over the life of that silo. Let's say 20 years.

So a broker-dealer can sell the wheat in that silo which won't even be grown for another 19 years!

I could buy 19-years-from-now wheat and resell it if I can find a buyer who believes the price of wheat is going to be higher in 19 years than what I paid for it.

Hell, we could securitize a hooker's income if we really wanted to!

There is nothing wrong with securitization, per se. But the result of the boom in securitization which began in the 80s was that by the year 2000 there was $70 trillion of investor money washing around the planet.

That's $70 trillion looking for a place to invest.

There are not $70 trillion of prime borrowers on the planet. Not even close.

So if you want to invest $70 trillion, you are going to have to lower your lending standards. It's as simple as that.

It just so happens that after the recession of 2001, the housing sector was the only sector performing well. So that's where everyone's attention was focused.

Now, this does not just mean loaning money to low income people. In fact, it hardly means that at all. People assume that's all it means.

But it primarily means you get prime borrowers to borrow more than they traditionally borrowed. You get them to leverage up.

And that is how you make a prime borrower a "subprime borrower", by getting them to borrow outside the prime boundaries. So you might be a AAA risk if a bank lends you $200,000. But you are a subprime risk if the bank lends you $1,000,000.

And that is what banks did. Just look at all those HELOCs! People weren't just buying houses. They were borrowing against the equity to buy SUVs, Disney vacations, fishing boats, and whatnot.

Sure, you loosen up money to negroes, too. We're talking $70 trillion, after all. But you can loan A LOT more money to a prime borrower you are pushing into the subprime zone than you can loan to a negro. That's simple math.

And you also loosen up lending to, ohhhhh....Greece! Hey, they have the full faith and credit of the entire Eurozone backing them now, so what the hell!

Even better, you can make a real shitty loan and you don't have to hold onto it. You can stuff it into the pipeline and it goes upriver to Bear Stearns and they pack it into a CDO and sell it to 401k managers. You get a commission, Bear Strearns gets a fee, and the 401k manager takes the loss if that shitty loan burns down.

What's more, Goldman Sachs can bet on that shitty loan burning down and make a profit if it does.

Life is good on Wall Street!

 

[Contumacious]

The Fed's low interest rates faciliated the crash. They were not the sole cause of the crash.

Yes, indeed. The same policies which cause the great depression in 1933.

Stockman knows this.

Unfortunately the establishment is slow to admit it.

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[KnobbyWalsh]

The Fed's low interest rates faciliated the crash. They were not the sole cause of the crash.

Yes, indeed. The same policies which cause the great depression in 1933.

Stockman knows this.

Unfortunately the establishment is slow to admit it.

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Hey Condom, keep posting - about time someone here "gets it!"

 

[editec]

David A. Stockman – “The Great Deformation – The Corruption of Capitalism in America”

Myth one: The 2008 financial crisis was the result of unregulated markets. TARP and the Fed saved the country from Great Depression 2.0

Nonsense, says Stockman. The financial crisis was the consequence of the Fed’s serial bubble blowing, and it should have been allowed to burn itself out in the corridors of Wall Street. Instead, Paulson and Bernanke panicked, declared economic martial law, namely that all rules of fiscal prudence and free market capitalism be tossed aside, and demanded that, via the bail-out of ‘insurance’ giant AIG, firms like Goldman Sachs, Morgan Stanley and others be saved from choking on their own outsized speculations."

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I often do wonder what the effect would have been had they bailed out nobody.

I'm inclined to think it would have been a real disaster, but then the cure seems to be just kicking the can down the road, too.

 

[Mr. Shaman]

As would be expected, it was a DEM THAT SAW IT COMING!!!!


[ame=http://www.youtube.com/watch?v=Q_hbezbsJ8s]Rachel Maddow Show: Somebody Saw It Coming-Byron Dorgan - YouTube[/ame]​

 

[bendog]

a thread about a book nobody's read. Marvelous

 

[Mr. Shaman]

[ame=http://www.youtube.com/watch?v=7JJ_Jq9g_AE]Money, Power & Wall St: London regulation | PBS America - YouTube[/ame]​

Money, Power & Wall $treet​

 

[Contumacious]

Stick around to see the fallout from the Fed pumping billions into the NYSE, Nasdaq, etc.

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The New York Post recently ran a piece on Washington's tight-lipped Plunge Protection Team, or, the "Working Group," as it is formally known. Essentially, the role of this group is to prevent another 1987 "Black Monday" in the stock market. It was put into law in 1988, as Executive Order 12631, by Ronald Reagan. If you read the Executive Order you'll note that it essentially allows the government to intervene in the stock market — should a crash or foreseeable dip appear to be on the horizon — via legislative law, administrative fiat, or the manipulation of private bodies via coercive tactics on the part of the Federal Reserve, Treasury Department, or the executive office. Section Two of the order states that its purpose and function is to recognize "the goals of enhancing the integrity, efficiency, orderliness, and competitiveness of our Nation's financial markets and maintaining investor confidence."

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[KnobbyWalsh]

a thread about a book nobody's read. Marvelous

Of course! Know It Alls don't have to read books.

 

[KnobbyWalsh]

Greed and stupidity on many ends, up to and including "we the people." Those preditor lenders sure nabbed a lot of people, and some pretty savvy people to.

2008-2009 Financial Crisis Causes and Effects

 

[Contumacious]

The Fed's low interest rates faciliated the crash. They were not the sole cause of the crash. Stockman knows this.

The FSMA and the CFMA also greased the skids. Congress legalized gambling by the banks. Literally. They exempted banks from state laws regulating casinos and bucket shops. I kid you not. And not one states rights blowhard uttered so much as a whisper in protest.

The unanimous decision by the SEC to ease capital reserve requirements for the top five Wall Street broker dealers also led to the crash.

The ability to hide toxic assets inside complex derivatives which were in extremely high demand led to the crash.

And then just a plain old-fashioned culture of fraud and corruption led to the crash.

Without the manipulation of interest rates and loose credit, the remaining "causes" would have been rendered useless.

And the ability to bundle toxic assets within other securities was the conduit of how the mortgage crisis permeated the markets. it wasn't the cause of it. The bundling came after firms became aware that VaR models were wrong and they were sitting on a pile of toxicity.

The root cause was monetary policy and congressional "homeownership" lending mandates.

While the procedure is clear to you most Americans prefer to be ignorant.

They can't handle the truth.

.

 

[KnobbyWalsh]

The Fed's low interest rates faciliated the crash. They were not the sole cause of the crash. Stockman knows this.

The FSMA and the CFMA also greased the skids. Congress legalized gambling by the banks. Literally. They exempted banks from state laws regulating casinos and bucket shops. I kid you not. And not one states rights blowhard uttered so much as a whisper in protest.

The unanimous decision by the SEC to ease capital reserve requirements for the top five Wall Street broker dealers also led to the crash.

The ability to hide toxic assets inside complex derivatives which were in extremely high demand led to the crash.

And then just a plain old-fashioned culture of fraud and corruption led to the crash.

Without the manipulation of interest rates and loose credit, the remaining "causes" would have been rendered useless.

And the ability to bundle toxic assets within other securities was the conduit of how the mortgage crisis permeated the markets. it wasn't the cause of it. The bundling came after firms became aware that VaR models were wrong and they were sitting on a pile of toxicity.

The root cause was monetary policy and congressional "homeownership" lending mandates.

While the procedure is clear to you most Americans prefer to be ignorant.

They can't handle the truth.

.

Sometimes when I hang on forums like this I sometimes am almost ready to pick up a partisan banner and join the sheep - it's a hell of a lot easier to be delusional.

 

[Dugdale_Jukes]

Why beat around the bush? Subprime lending, encouraged by the government, led to the real estate bubble and subsequent collapse. What do you think the derivatives and bundled securities were filled with? Bad mortgages.

Take out the subprime and your IQ goes up 20 points. No high integrity person on earth has claimed that subprime was more than the match that lit the brush that flashed in the pine needles. There were US$570kkkk nominal value of UNREGULATED derivatives the day the music died.

Let us not forget Stockman is a nutball. While he dials it in that the FED is ultimately responsible for continuing the harm, there is no rational argument that the combination of deregulating mortgage requirements, ending Glass Steagall and deregulating naked speculation (low margin, no margin) in essential commodities CAUSED the bubble.

Too bad the forest wasn't let burn. We'd be a lot better off if that ratty little cocksucker Bush hadn't panicked like he did in 2001. Just like with real forest fires, interfering with nature is a real short term fix; nature still needs the fire. And nature is going to have that fire.

Write this down: the fire is coming. It's the only way to force that money at the top back into economic duty. Be clear nature doesn't care about money; nature abhors a vacuum.