" Thank Gawd You Are Not My Automotive Mechanic Has No Clue About Systemic Limits "
* Malfeasance Of Office *
First, the derivatives and credit default swaps, had nothing to do with the crash. Nothing. And regulating them would have done nothing. The cause of the crash, was people not paying their mortgages.
en.wikipedia.org
It repealed part of the Glass–Steagall Act of 1933, removing barriers in the market among banking companies, securities companies and insurance companies that prohibited any one institution from acting as any combination of an investment bank, a commercial bank, and an insurance company. With the bipartisan passage of the Gramm–Leach–Bliley Act, commercial banks, investment banks, securities firms, and insurance companies were allowed to consolidate. Furthermore, it failed to give to the SEC or any other financial regulatory agency the authority to regulate large investment bank holding companies.[1]
en.wikipedia.org
The Commodity Futures Modernization Act of 2000 (CFMA) is United States federal legislation that ensured financial products known as over-the-counter (OTC) derivatives are unregulated, accelerating the collapses of major financial companies. [1]
After the House passed H.R. 4541, press reports indicated Sen. Gramm was blocking Senate action based on his continued insistence that the bill be expanded to prevent the SEC from regulating swaps, and the desire to broaden the protections against CFTC regulation for "bank products."[62]
* Loan Sharks *
If everyone had paid their mortgages, no amount of, or lack of, regulations on derivatives and credit default swaps, would have caused a crash.
And when people failed to pay their mortgages, no amount of, or lack of, regulations on derivatives and credit default swaps, would have prevented a crash.
Individuals which were only capable of low downpayment , fixed interest , long term housing loans should not have been given variable interest rate loans and sec oversight of the commodities would have realized that fraud was taking place in the ratings .
en.wikipedia.org
* FDIC Underwriting Currently Fraudulent *
Second, Glass-Steagal had nothing to do with anything. Few, almost none, of the institutions that failed, would have been effected by Glass-Steagal.
Third, most of the banks around the world, have never had regulations like Glass-Steagal, and yet the problem originated in the US, not in Europe, Canada or anywhere else.
Yeah , sure .
The glass steagal act separated commercial and investment banking after the 1929 stockmarket crash and that stipulation is precluded for the underwriting of fdic insurance such that the federal government need not reimburse not one individual for the loss of moneys lost post the gram-bliley-leachy act , even though they raised the coverage to $250,000 .
A complaint about the same to one of my congressman resulting in the only time i have ever received a phone call back from the representative with a candid apology that , albeit true , there was nothing that could be done about it .
Investment banks expect approximately 15% of investments to fail and over subscription in the housing market through unregulated and ignored for sight derivatives was irrelevant to the moneys garnered by the gluttony of banksters and finance swindlers .
en.wikipedia.org
* High Risk Junk And Opportunistic Thieves Take The Money And Run *
The Federal Government through Freddie Mac, securitized Sub-prime loans, and gave these loans a "AAA" rating. Remember when everyone was screaming about how the rating agencies gave sub-prime loans a "AAA" rating? They didn't. Government did.
At the exact same time Freddie Mac was doing this, the Clinton Administration was suing banks to make bad loans.
Andrew Cuomo who was in charge of HUD, proudly admits they forced the banks to make loans to people who otherwise didn't qualify. And if you watch the end of the clip, Andrew Cuomo openly, and directly, himself admits the default rate would be higher.
At least on that prediction, history now proved him entirely correct.
So let's review. The start of the sub-prime mortgage bubble, both in the sheer number, and the effects on the housing price bubble, both started in 1997.
In 1997 Freddie Mac, an arm of the government, starts encouraging sub-prime lending by guaranteeing bad sub-prime loans, and giving them a AAA rating.
In 1998, HUD under the leadership of Andrew Cuomo, a member of the Clinton administration, puts all banks across the country on notice, that they will be sued and forced to make sub-prime loans to people who don't qualify.
And from that point on the sub-prime crash was unavoidable.
Glass-Steagal had nothing to do with it. Derivatives and CDS, had nothing to do with it. In fact, blaming Credit Default Swaps, is really ironic honestly. It was Credit Default Swaps, that minimized the damage. CDSs allowed banks to hedge against the drop in property values. Many more banks would have gone bankrupt, without CDSs.
No, the real cause of everything was government regulating the mortgage market. If not for Freddie Mac securitizing bad loans, and if not for goverment suing banks to make bad loans, none of the bubble and crash would have happened.
en.wikipedia.org
The derivative markets have played an important role in the financial crisis of 2007–2008. Specifically the credit default swaps CDSs, financial instruments traded on the over the counter derivatives markets, and the mortgage-backed securities MBSs, a type of securitized debt.[3][4] The leveraged operations are said to have generated an "irrational appeal" for risk taking, and the lack of clearing obligations also appeared as very damaging for the balance of the market.
en.wikipedia.org
The holder of any debt is subject to interest rate risk and credit risk, inflationary risk, currency risk, duration risk, convexity risk, repayment of principal risk, streaming income risk, liquidity risk, default risk, maturity risk, reinvestment risk, market risk, political risk, and taxation adjustment risk. Interest rate risk refers to the risk of the market value of a bond changing due to changes in the structure or level of interest rates or credit spreads or risk premiums.
It repealed part of the Glass–Steagall Act of 1933, removing barriers in the market among banking companies, securities companies and insurance companies that prohibited any one institution from acting as any combination of an investment bank, a commercial bank, and an insurance company.
Correct. Indymac, was only a retail bank. Countrywide, was only a mortgage bank. Bear Stearns was only an investment bank.
Few if any of the banks, would have been affected by this laws. Lehman Brothers, Wachovia, and the list goes on... none would have been affected by this.
The only one I know of off hand, is Citigroup. One bank among hundreds on hundreds that failed.
Again, none of the other countries around the world, have ever had such restrictions. Why didn't the crash start in Europe or Canada, if the repeal of that restriction had anything to do with the crash?
Furthermore, it failed to give to the SEC or any other financial regulatory agency the authority to regulate large investment bank holding companies.
Which again, would not have mattered. The problem was sub-prime loans, that the government forced banks to make.
Whether they had more regulatory authority or not, would not have changed the fact that banks were making bad loans, at the request and demand of government, and those loans defaulted.
The Commodity Futures Modernization Act of 2000 (CFMA) is United States federal legislation that ensured financial products known as over-the-counter (OTC) derivatives are unregulated, accelerating the collapses of major financial companies. [1]
I'll go with facts over opinion any day. I have already posted clear unambiguous evidence that both the sub-prime mortgage market, and the housing price bubble, started in 1997.
It is not logical, to blame legislation that passed in 2000, for a bubble that started in 1997.
After the House passed H.R. 4541, press reports indicated Sen. Gramm was blocking Senate action based on his continued insistence that the bill be expanded to prevent the SEC from regulating swaps, and the desire to broaden the protections against CFTC regulation for "bank products."[62]
Because Swaps were a net positive.
The role of credit default swaps (CDS) in the financial crisis has been debated among regulators, market participants and academics since early 2008. …
pdf.sciencedirectassets.com
Looking at the research, tells a very different story from the Wiki-stupidia, and political pundits that have no idea how the system works.
Credit default swaps have been blamed for financial instability and generating systemic risk. Much of the blame has to do with the supposed role of speculative credit default swaps in pushing up CDS spreads of entities in distress, thus making it harder for them to access the debt markets. Statesmen have been quoted as blaming CDS markets as responsible for the deterioration of their sovereign debt, the most recent example being Greece. No empirical evidence has been offered to back such anecdotic claims.
The Lehman Brothers default illustrated the problems caused by the lack of information available to individual participants before a credit event occurs. Initial media estimates suggested that total gross insurance claims would amount to USD 400 billion, much higher than Lehman’s bond debt of USD 150 billion or less. But preliminary estimates from ISDA, based on the auction, give a net figure of USD 7 billion only. According to DTCC, USD 72 billion in CDS was settled normally through the automatic settlement procedure on 21 October 2008, without incident. This made it possible to calculate the funds transferred from net protection sellers to net protection buyers at just USD 5.2 billion, or 7% of the notional amount. As a result, fears of serial default among protection sellers unable to settle their claims proved baseless.
So let's review. Many empty claims have been made about Credit Default Swaps, with zero actual evidence.
Counter-evidence, suggests they worked perfectly, and provided a mitigating factor, against the crash, and the claims that it would cause a serial default, were absolutely baseless.
Individuals which were only capable of low downpayment , fixed interest , long term housing loans should not have been given variable interest rate loans and sec oversight of the commodities would have realized that fraud was taking place in the ratings .
That's not how loaning money works. The reason people were given variable rate loans, is because they did not qualify for prime-rate mortgages.
If you don't qualify for a loan, I'm not going to give you a prime rate loan, because the whole point of you not qualifying, means you are a risky borrower. So if I am going to give you any loan, it's going to be a loan with a higher interest rate. That way if you default, I can recoup as much money has possible, from the higher interest rate or variable rate.
The higher the risk of default, the higher the interest rate has to be, to cover that risk.
And no the SEC would not have realized it was fraud, because the entire government was pushing sub-prime loans. Obama himself, sued banks to make such loans.
If you are in the SEC, and you start nailing banks for making risky loans.... when the President of the United States and his entire administration is pushing risky loans.... you are going to get yourself fired from your job.
No, you are wrong.
The glass steagal act separated commercial and investment banking after the 1929 stockmarket crash and that stipulation is precluded for the underwriting of fdic insurance such that the federal government need not reimburse not one individual for the loss of moneys lost post the gram-bliley-leachy act , even though they raised the coverage to $250,000 .
Well, again, I don't know how else to present the facts, that will convince you. Go look up Countrywide financial was exclusively a mortgage bank. IndyMac was exclusively an investment bank. Bear Stearns was exclusively an investment bank. Lehman Brothers was exclusively an investment bank. AIG was exclusively an insurance company.
I don't know how else to explain to you the most simple and easy to understand facts in this discussion. Glass Steagal would have done nothing to the vast majority of the banks.
Again, the rest of the world, has never had such restrictions. Germany, UK, France, Luxemburgh, Denmark, and Canada, has never had such a requirement that Investment, Retail, and Commercial banks be separated. Never. Even to this day, my understanding is that Canada still doesn't have such regulations, and most of Europe.
So why didn't the crash start there? Why did it start here?
And by the way, why did the bubble start two years before the repeal, if it had anything to do with it?
Facts over opinion.
The derivative markets have played an important role in the financial crisis of 2007–2008. Specifically the credit default swaps CDSs, financial instruments traded on the over the counter derivatives markets, and the mortgage-backed securities MBSs, a type of securitized debt.[3][4] The leveraged operations are said to have generated an "irrational appeal" for risk taking, and the lack of clearing obligations also appeared as very damaging for the balance of the market.
So now, you seem to be implying that derivatives itself, are a problem.
Do you even know the history of how derivatives came to exist? Government. Government created derivatives.
Ginnie Mae guaranteed the first mortgage pass-through security of an approved lender in 1968.
In 1971, Freddie Mac issued its first mortgage pass-through.
In 1981, Fannie Mae issued its first mortgage pass-through, called a
mortgage-backed security.
Government did all of this. What changed in 1997, is that Freddie Mac, guaranteed mortgage backed securities, that included sub-prime mortgages, which had never been done before.
As soon as the government stamped their approval on high yield, high risk mortgages........ THEN.... The leveraged operations are said to have generated an "irrational appeal" for risk taking.
That did not happen prior. Again, you look at the evidence.
Sub-prime loans had always existed as a niche market. The explosive growth, and resulting price bubble that caused the crash, only started in 1997, because that is when the government made it happen.
If the crash had nothing to do with government through Freddie Mac guaranteeing bad loans..... why didn't the boom happen in 1994, or 1995, or 96... or before, why didn't it happen in 1980, or 1985? Or why didn't it happen in 1999 when the repeal of Glass Steagal happened? Or 2000, when the modernization act was passed?
No, it didn't happen any of those other times, because the cause was government supporting sup-prime loans, which it did in 1997. That was the issue.
Facts. That's the facts. Your claims, do not fit the facts.
