Those banks are ultimately all owned by the Koch Brothers, the real power in America.
Remembering the Glass-Steagall Act
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g5000
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Since we are differentiating between commercial and investment banks when discussing Glass-Steagall, your use of the word "banks" without a qualifier is virtually meaningless.
Investment banks invested in MBS because they were not restricted under Glass-Steagall from doing so. However, while they could invest in MBS, they conversely could not accept deposits.
g5000
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As I stated earlier, commercial banks began petitioning Congress to weaken Glass-Steagall decades ago. Gramm-Leach-Bliley was simply the final cut.
You can read about the decline of Glass-Steagall over time here: Decline of the Glass Steagall Act
You can read about the decline of Glass-Steagall over time here: Decline of the Glass Steagall Act
Toddsterpatriot
Diamond Member
Commercial banks could write bad mortgages under Glass-Steagall.
You never did defend your claim that every bank failure during the crisis was due to derivatives. Or that writing derivatives was a guaranteed money maker. Why did you run away from your silly claims?
g5000
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One of the main drivers of the boom was the Collateralized Debt Obligation. A CDO was built out of loans. During and after the recession in the early years of the Bush Administration, the housing sector was the only business sector that was performing well, and this is why the subsequent lending boom revolved around mortgages. But it could just as easily been any other sector.
There was $70 trillion of investor cash floating around out there, and the financial sector needed to get that money to work so they could extract their fees. The CDO was the perfect vehicle for this.
But there was not $70 trillion worth of AAA borrowers out there. Not even close. And this propelled Wall Street to make riskier and riskier loans as time went by. They began shoving money into the hands of people who had no business borrowing money. What's more, they would take someone who was a good risk up to $200,000 and shove $500,000 into their hands instead. That's why you saw all your middle class neighbors buying McMansions and taking out Home Equity Lines of Credit (HELOC) for SUVS, boats, motorcycles, and Disney vacations.
No one was forcing the banks to make these loans. That's one of the biggest lies ever told.
The financial sector was spending big money getting our American Politiboro and the White House to grease the skids for them to make loans. The politicians went along with it because they got to take credit for getting more people into homes.
Because the competition was fierce for loans to bundle into CDOs, firms like Lehman Brothers bought their own chain of mortgage brokers who had exclusive contracts with Lehman to keep their pipeline fed. That's what makes the claim about the banks being forced to make loans so damned laughable.
These firms also talked a lot of municipalities into taking on more and more debt. And then they ran circles around municipal employees, outright bribing them in some cases, and talked them into bizarre and twisted derivative schemes.
I'll place a diagram of what they did to Jefferson County, Alabama in my next post.
There was $70 trillion of investor cash floating around out there, and the financial sector needed to get that money to work so they could extract their fees. The CDO was the perfect vehicle for this.
But there was not $70 trillion worth of AAA borrowers out there. Not even close. And this propelled Wall Street to make riskier and riskier loans as time went by. They began shoving money into the hands of people who had no business borrowing money. What's more, they would take someone who was a good risk up to $200,000 and shove $500,000 into their hands instead. That's why you saw all your middle class neighbors buying McMansions and taking out Home Equity Lines of Credit (HELOC) for SUVS, boats, motorcycles, and Disney vacations.
No one was forcing the banks to make these loans. That's one of the biggest lies ever told.
The financial sector was spending big money getting our American Politiboro and the White House to grease the skids for them to make loans. The politicians went along with it because they got to take credit for getting more people into homes.
Because the competition was fierce for loans to bundle into CDOs, firms like Lehman Brothers bought their own chain of mortgage brokers who had exclusive contracts with Lehman to keep their pipeline fed. That's what makes the claim about the banks being forced to make loans so damned laughable.
These firms also talked a lot of municipalities into taking on more and more debt. And then they ran circles around municipal employees, outright bribing them in some cases, and talked them into bizarre and twisted derivative schemes.
I'll place a diagram of what they did to Jefferson County, Alabama in my next post.
g5000
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Wow! You need it proven the crash was because of derivatives? What an astounding profession of ignorance! How could you live through the crash and not know this and still believe you know something about it?
Amazing.
Well, let's start with AIG. Collapsed due to selling Credit Default Swaps (CDS) against Wall Street's CDOs without backing them up with even a modicum of cash reserves.
CDS and CDO are both derivatives.
Bear Stearns. Collapsed due to CDOs.
Lehman Brothers. Collapsed due to CDOs.
Name a collapsed bank, I'll show you the derivatives that brought them down.
I mentioned about how Wall Street also snookered municipalities into buying derivatives. That's not all. They also snookered insurance companies, pension funds, college endowment funds, 401k funds. All over the world.
Example: Banks Sell Toxic Waste CDOs to Calpers Texas Teachers Fund - Bloomberg
You're an idiot.
There were bonds backed by mortgage loans, backed by car loans, backed by credit card debt, even an issue backed by perspective earnings from a David Bowie album.
The rest ofyour post is ignorant fantasy as well.
It was Dick Cheney all along. He wanted banks to go bust so they could be sold to Halliburton for pennies on the dollar!
Toddsterpatriot
Diamond Member
CDOs are bonds. Lehman and Bear failed because they financed huge bond positions, including mortgages and MBS, with overnight loans.
Yes, idiots bought derivatives they didn't understand. And?
nat4900
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Investment banks have turned....as we all suspect...into casinos. When you're "too big to gail," you also know that the deferal government offers you a parachute when investments turn sour. The "parachute" MUST be removed or we will once again see an economic meltdown.
These Wall Street bankers cannot have it both ways.....Capitalistic when the gamble pays off....and socialistic when the gamble fails miserably.
These Wall Street bankers cannot have it both ways.....Capitalistic when the gamble pays off....and socialistic when the gamble fails miserably.
bendog
Diamond Member
Basically what is rigged the merger of the credit(risk) market with the
The Giant Pool of Money This American Life
The meltdown in a nutshell. And, you are correct.
For once you make sense. The root of all this is gov't guarantee of depositors' money. IN the old days the bank's directors were personally responsible for those deposits. Imagine how prudent banks would be if we reinstuted that rule.
bendog
Diamond Member
Yeah, its all that FDIC's fault.
Largely. Banks know they are playing with someone else's money so why not take huge risks? Now they know not only will their depositors get bailed out, their company will too. Thus no downside to stupid decisions.
g5000
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A CDO is an instrument used to transfer risk. You can look at the payments flowing in from all the loans out there as a revenue stream. An investor can buy a cup to dip into that stream. Bigger cups are cheaper than little cups, but little cups get to dip into the stream first.
A firm like Lehman Brothers gets a fee for creating a revenue stream and from selling the cups. So the more streams Lehman can make, the more fees it collects. More profit.
Therefore, there is huge motivation for making as many loans as possible since they are what create the streams.
You lend the money, then recoup the money, and then some, when you sell those cups. There is virtually zero risk to you, if you don't drink your own bongwater.
Lehman drank their own bongwater.
A broker at the beginning of the pipeline has the lowest risk of all. Before the ink is even dry on the mortgage contract, he has sold it up the pipeline for a profit, which he then turns around into even more loans.
As long as the upper part of the pipeline is screaming for more loans, the broker will keep making them. And if he runs out of good borrowers, he is going to start looking for anyone with a pulse to throw money at. "If we don't do it, someone else will" became their motto.
Once the broker-dealer gets the loan from the broker, he slices and dices it up into all kinds of wild and wonderful pieces. This is the derivatives portion of the program. He then bundles these pieces into CDOs, creates an SPV, and starts selling cups.
The first CDOs were actually very low risk. They were comprised of loans made to blue chip corporations, and so the chance of one of those CDOs going kaput was very, very, very low. Nonetheless, in order to convince the regulators they didn't need to have the required capital reserves, the CDO creators bought credit default swaps against them. And this is where AIG comes in.
AIG saw there was zero risk of ever having to pay any money against any losses, and so the CDS payments were like free money coming in. So they didn't put any cash in reserves in the eventuality of a CDO failure.
As good risk borrowers dried up, rather than slow down, Wall Street sped up. Investors had a real appetite for those cups. So CDOs began being built out of more and more toxic loans. Only AIG wasn't paying close attention and did not notice for a while. Not until the beginning of 2006 or so.
Once AIG caught on, they got out of the CDS business. But it was too late for them. Once all those toxic loans began resetting in 2007 and 2008, all hell broke loose.
And when AIG notified Wall Street they were not longer selling CDS, Wall Street began selling them to themselves! They created synthetic CDOs and pawned them off onto their investors. This is when the real fraud starting really taking off.
An Adjustable Rate Mortgage and a Pick-A-Payment loan reset after three to five years. And then the borrowers were finding their principle was bigger than when they started. Especially in the case of the Pick-A-Payment borrowers. 80 percent of them were making the minimum payment, which is a negative amortization payment.
So a loan that was made in the heyday period of 2005 didn't blow up until 2008 or so. And then the revenue streams began drying up to the point where even the little cups who dip first found no water.
And then the CDO owners went to AIG to collect on their losses. BOOM! There goes AIG.
Not only that, anyone could buy a CDS against a CDO. You didn't even have to have any ownership of a CDO. It's like being able to buy a fire insurance policy against your neighbor's house. So if that house burns down, not only does the insurance company have to pay the homeowner, they would also have to pay you. A $200,000 house that burns down cost them $400,000 in losses.
That was AIG.
And that's why there's a reason why you can't buy fire insurance against your neighbor's house. There'd be arsons all over the place.
And yet CDS do not have an insurable interest requirement. And they STILL don't to this day.
A firm like Lehman Brothers gets a fee for creating a revenue stream and from selling the cups. So the more streams Lehman can make, the more fees it collects. More profit.
Therefore, there is huge motivation for making as many loans as possible since they are what create the streams.
You lend the money, then recoup the money, and then some, when you sell those cups. There is virtually zero risk to you, if you don't drink your own bongwater.
Lehman drank their own bongwater.
A broker at the beginning of the pipeline has the lowest risk of all. Before the ink is even dry on the mortgage contract, he has sold it up the pipeline for a profit, which he then turns around into even more loans.
As long as the upper part of the pipeline is screaming for more loans, the broker will keep making them. And if he runs out of good borrowers, he is going to start looking for anyone with a pulse to throw money at. "If we don't do it, someone else will" became their motto.
Once the broker-dealer gets the loan from the broker, he slices and dices it up into all kinds of wild and wonderful pieces. This is the derivatives portion of the program. He then bundles these pieces into CDOs, creates an SPV, and starts selling cups.
The first CDOs were actually very low risk. They were comprised of loans made to blue chip corporations, and so the chance of one of those CDOs going kaput was very, very, very low. Nonetheless, in order to convince the regulators they didn't need to have the required capital reserves, the CDO creators bought credit default swaps against them. And this is where AIG comes in.
AIG saw there was zero risk of ever having to pay any money against any losses, and so the CDS payments were like free money coming in. So they didn't put any cash in reserves in the eventuality of a CDO failure.
As good risk borrowers dried up, rather than slow down, Wall Street sped up. Investors had a real appetite for those cups. So CDOs began being built out of more and more toxic loans. Only AIG wasn't paying close attention and did not notice for a while. Not until the beginning of 2006 or so.
Once AIG caught on, they got out of the CDS business. But it was too late for them. Once all those toxic loans began resetting in 2007 and 2008, all hell broke loose.
And when AIG notified Wall Street they were not longer selling CDS, Wall Street began selling them to themselves! They created synthetic CDOs and pawned them off onto their investors. This is when the real fraud starting really taking off.
An Adjustable Rate Mortgage and a Pick-A-Payment loan reset after three to five years. And then the borrowers were finding their principle was bigger than when they started. Especially in the case of the Pick-A-Payment borrowers. 80 percent of them were making the minimum payment, which is a negative amortization payment.
So a loan that was made in the heyday period of 2005 didn't blow up until 2008 or so. And then the revenue streams began drying up to the point where even the little cups who dip first found no water.
And then the CDO owners went to AIG to collect on their losses. BOOM! There goes AIG.
Not only that, anyone could buy a CDS against a CDO. You didn't even have to have any ownership of a CDO. It's like being able to buy a fire insurance policy against your neighbor's house. So if that house burns down, not only does the insurance company have to pay the homeowner, they would also have to pay you. A $200,000 house that burns down cost them $400,000 in losses.
That was AIG.
And that's why there's a reason why you can't buy fire insurance against your neighbor's house. There'd be arsons all over the place.
And yet CDS do not have an insurable interest requirement. And they STILL don't to this day.
Last edited:
Toddsterpatriot
Diamond Member
Jimmy Cayne and Richard Fuld could tell you about the downside.
g5000
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Lehman Brothers, et al, were not FDIC insured institutions. It has nothing to do with the FDIC.
Mac1958
Diamond Member
...
There was no excuse for allowing AIG to write those swaps without reserve requirements; there was no excuse for the ratings companies to issue AAA's on pure shit; there was no excuse for the banks to be selling products that even THEY didn't understand; there was no excuse for allowing the investment banks to be betting against their own clients, the list goes on and on.
Our financial system requires comprehensive, flexible, efficient regulation. Those who kneejerk against it do not or will not recognize this.
.
In a word: Yep.
There was no excuse for allowing AIG to write those swaps without reserve requirements; there was no excuse for the ratings companies to issue AAA's on pure shit; there was no excuse for the banks to be selling products that even THEY didn't understand; there was no excuse for allowing the investment banks to be betting against their own clients, the list goes on and on.
Our financial system requires comprehensive, flexible, efficient regulation. Those who kneejerk against it do not or will not recognize this.
.
g5000
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Yeah, the worst fraud was the selling of known toxic synthetic CDOs to their investors. Like Goldman Sachs with ABACUS 2007-AC1.
Imagine a home builder constructing a house out of the cheapest possible materials, and then stuffing oily rags between all the walls. The home builder than compromises a house appraiser (ratings agency) to give the house a top quality rating. He then sells the house to some sucker (college endowment fund, 401k manager, municipal treasurer, pension fund manager, Saudi prince).
The builder then buys fire insurance against the house from an insurance company, and waits for a sunny day.
That's Goldman Sachs and one of the houses they built (ABACUS 2007 AC-1).
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