What caused the eonomic meltdown?

[TakeAStepBack]

Lets not forget how the ratings agencies rated the junk securities as AAA with absolutely no history to go on.

Yes, that's an intersting point. I think a few agencies found themselves more than a little humiliated by the collapse of some apparently solid banks.

They were drunk on federal govt. and federal reserve monetary policy. There was a belief the lender of last resort would cover the base if the risk proved too great. They were correct. Plus VaR by design created the grounds for excessive risk. It wasn't until it was too late that the realization came. That's when the bundling with other assets began to hedge and mitigate loss.

 

[uscitizen]

Lets not forget how the ratings agencies rated the junk securities as AAA with absolutely no history to go on.

Yes, that's an intersting point. I think a few agencies found themselves more than a little humiliated by the collapse of some apparently solid banks.

This also spread the problem worldwide more than if the finiancial instruments had been rated properly (much lower rating).

 

[there4eyeM]

G overnment mishandling
R etirement fund mismanagement
E conomists with their heads up their derrières
E nthusiasm for profit at any moral cost
D erivatives

Some of the reasons.

 

[CrusaderFrank]

What do you consider to be the MAIN driving force behind the 2008 economic meltdown?

Fannie and Freddie under Democrat control

 

[The Rabbi]

QW -

I agree that all of the factors listed share some responsibility, but it is so clearly established that the lack of regulation over 30 years sparked the rush of greed and fraud that I don't know why anyone would suggest otherwise.

Bush was on watch at the time, and holds massive responsibility for ignoring the warnings that were being made by experts. Martin Wolffe in the Financial Times outlined the crisis in great detail three months before it happened - Bush ignored that information.

There was no lack of regulation. Banking was and is one of the most regulated activities in this country. If there was lack of regulation, it came through lack of oversight on Fannie and Freddie. The Wall St Journal editorial page ran several editorials on how mismanaged those entities were and how they put tax payers at risk for trillions of dollars. All of which turned out to be true.

 

[Saigon]

There was no lack of regulation.

Ah, ok.

 

[The Rabbi]

G overnment mishandling
R etirement fund mismanagement
E conomists with their heads up their derrières
E nthusiasm for profit at any moral cost
D erivatives

Some of the reasons.

Did greedy people not exist before 2002?
People blame bankers. It isn't so. They were given certain incentives and they followed them. Anyone would.
In this case unrealistically low interest rates made real estate loans very profitable. Property values rose consistently and people pointed out that real estate always goes up (which isnt true now and wasnt then but so what). Since rising property values enhanced security on loans lenders could afford to take more risk. This created the up cycle. But as loan quality deteriorated, it was only a matter of time before the junkier ones would default. About 18 months to be exact. Once that happened the cycle reversed itself, with falling property values creating larger risk, leading to tighter criteria, leading to lower sales.

 

[The Rabbi]

There was no lack of regulation.

Ah, ok.

That is a major misconception. That somehow the GOP did away with all banking regulation under Bush and this is what caued the melt down. It isn't true. Not a single word. No regulation would have prevented what happened, which was hardly unprecedented. Similar things happen about every 20 years no matter wha tthe regulatory enivronment.

 

[Saigon]

Rabbi -

Actually the lack of regulation dates back to Reagan. While it is a bit of a stretch to blame Reagan for the actual crash, he did remove oversight in a way that helped move some of the chest pieces into the positions which would contribute to the crisis.

 

[CrusaderFrank]

Lets not forget how the ratings agencies rated the junk securities as AAA with absolutely no history to go on.

You know Fannie and Freddie were the first to sell AAA rated "no income no assets" paper, right?

 

[Ava]

What do you consider to be the MAIN driving force behind the 2008 economic meltdown?

The Community Reinvestment Act of 1977:

* The Community Reinvestment Act is a United States federal law that requires banks and thrifts to offer credit throughout their entire market area and prohibits them from targeting only wealthier neighborhoods with their services, a practice known as "redlining." The purpose of the CRA is to provide credit, including home ownership opportunities to underserved populations and commercial loans to small businesses. It has been subjected to important regulatory revisions.

* The bill encouraged the Federal National Mortgage Association, commonly known as Fannie Mae, to enable mortgage companies, savings and loans, commercial banks, credit unions, and state and local housing finance agencies to lend to home buyers. It also encouraged the Federal Home Loan Mortgage Corporation, commonly known as Freddie Mac, to buy mortgages on the secondary market and sell them as mortgage-backed securities on the open market. Due to massive financial losses, on September 7, 2008 the Federal Housing Finance Agency (FHFA) put Fannie Mae and Freddie Mac under the conservatorship of the FHFA.

Community Reinvestment Act of 1977



I believe there has been more alarm raised about potential unsafty and unsoundness [of Fannie Mae and Freddie Mac] than, in fact, exists."- Barney Frank... 9/25/2003

The more people, in my judgment, exaggerate a threat of safety and soundness, the more people conjure up the possibility of serious financial losses to the Treasury, which I do NOT see. Barney Frank---9/11/ 2003

I want to roll the dice a little bit more in this situation towards subsidized housing."--Barney Frank---9/25/2005

"These two entities--Fannie Mae and Freddie Mac---are not facing any kind of financial crisis." Barney Frank -- 9/11/2003

"Fannie and Freddie are fundamentally sound, they are not in danger of going under----I do think their prospects of going forward are very solid." -- Barney Frank-- 7/14/2008

 

[CrusaderFrank]

Rabbi -

Actually the lack of regulation dates back to Reagan. While it is a bit of a stretch to blame Reagan for the actual crash, he did remove oversight in a way that helped move some of the chest pieces into the positions which would contribute to the crisis.

What wasn't "regulated"?

 

[Saigon]

Frank -

The main problem with Reagan’s outlook was a failure to recognize that government regulation can serve business interests quite effectively. Many of the regulatory programs started by Franklin D. Roosevelt’s New Deal in the 1930s aimed to promote fairness in economic competition. That legislation required greater transparency so that investors could more intelligently judge the value of securities in the stock market. The reforms mandated a separation of commercial and investment bank activities, since speculative investments by commercial banks had been one of the principal causes of the financial crash. Roosevelt’s New Deal also created a bank insurance program, the FDIC, which brought stability to a finance industry that had been on the verge of collapse.

The turn away from rules that promote fair business practices fostered dangerous risk-taking. An early sign of the troubles occurred on Reagan’s watch. When the requirements for managing savings and loan institutions became lax in the 1980s, leaders of those organizations invested money recklessly. Many institutions failed or came close to failure, and the cleanup cost more than $150 billion. Yet blame for that crisis did not stick to the Teflon President.

History News Network

 

[CrusaderFrank]

Frank -

The main problem with Reagan’s outlook was a failure to recognize that government regulation can serve business interests quite effectively. Many of the regulatory programs started by Franklin D. Roosevelt’s New Deal in the 1930s aimed to promote fairness in economic competition. That legislation required greater transparency so that investors could more intelligently judge the value of securities in the stock market. The reforms mandated a separation of commercial and investment bank activities, since speculative investments by commercial banks had been one of the principal causes of the financial crash. Roosevelt’s New Deal also created a bank insurance program, the FDIC, which brought stability to a finance industry that had been on the verge of collapse.

The turn away from rules that promote fair business practices fostered dangerous risk-taking. An early sign of the troubles occurred on Reagan’s watch. When the requirements for managing savings and loan institutions became lax in the 1980s, leaders of those organizations invested money recklessly. Many institutions failed or came close to failure, and the cleanup cost more than $150 billion. Yet blame for that crisis did not stick to the Teflon President.

History News Network

You said "Reagan" not Clinton.

GO back and change the post and you might be less wrong

 

[Saigon]

Frank -

There are times when you come across not as simply stupid, but as a veritable haruspex of stupidity.

 

[The Rabbi]

Rabbi -

Actually the lack of regulation dates back to Reagan. While it is a bit of a stretch to blame Reagan for the actual crash, he did remove oversight in a way that helped move some of the chest pieces into the positions which would contribute to the crisis.

There was no lack of regulation in banking under Reagan. You are simply misinformed. Nor is there any regulation that would have prevented the meltdown. You have failed to make your case every time here. Quit while you're behind.

 

[there4eyeM]

G overnment mishandling
R etirement fund mismanagement
E conomists with their heads up their derrières
E nthusiasm for profit at any moral cost
D erivatives

Some of the reasons.

Did greedy people not exist before 2002?
People blame bankers. It isn't so. They were given certain incentives and they followed them. Anyone would.
In this case unrealistically low interest rates made real estate loans very profitable. Property values rose consistently and people pointed out that real estate always goes up (which isnt true now and wasnt then but so what). Since rising property values enhanced security on loans lenders could afford to take more risk. This created the up cycle. But as loan quality deteriorated, it was only a matter of time before the junkier ones would default. About 18 months to be exact. Once that happened the cycle reversed itself, with falling property values creating larger risk, leading to tighter criteria, leading to lower sales.

You absolve bankers as being like anyone else, then point out they disregarded the obvious, that real estate does not and CAN not go up indefinitely. These guys were the experts, and still persisted with erroneous presumptions.
But bankers are not the only guilty ones. Those behind the infernal 'derivatives' have sold not only their own souls, but everyone else's as well.
Lack of proper, prudent regulations contributed. In general, however, it was and is GREED and the love of money (i.e., the slavering, voracious appetite for more and greater profits at any cost to anyone else). That realization does not make me a communist, by the way, so don't 'go there'.

 

[HUGGY]

What caused the eonomic meltdown?


Obama.

 

[longknife]

I think Aqua Athena hit the nail on the head!

But, she should have gone back further to The Peanut Farmer who started the whole idea that everybody had the "right" to own a home. He was the one who pushed sub-prime loans to people who could not possibly pay them back.

This is another failed socialist agenda that goes along with community housing or whatever they call them that end up being breeding grounds for gangs, drugs, rapes, murders and every other crime under the sun.

The only solution is to change our education and regulatory systems. Give children and parents the ability to decide whether they want schooling to lead to academic pursuits or the trades. There are literally tens of thousands of jobs for those trained to use their hands to maintain our society. In addition, instead of computer theoreticians, thousands of jobs exist for those capable of just being computer "users", something that needs an education in the "Three R's" something mission in our current system.

THEN, when people have good, solid jobs, they will be able to qualify for a loan with the promise of being able to pay it back.

And finally, the throttling rules and regulations need to be removed or revised so businesses can start hiring again.

That will never happen under Obozo or Democrat/Socialist administrations.

 

[Saigon]

Rabbi -

Actually the lack of regulation dates back to Reagan. While it is a bit of a stretch to blame Reagan for the actual crash, he did remove oversight in a way that helped move some of the chest pieces into the positions which would contribute to the crisis.

There was no lack of regulation in banking under Reagan. You are simply misinformed. Nor is there any regulation that would have prevented the meltdown. You have failed to make your case every time here. Quit while you're behind.

Ah - so the material I linked before was faked?

That is good to know.

Here is more faked information on that deregulation that never happened:

“This bill is the most important legislation for financial institutions in the last 50 years. It provides a long-term solution for troubled thrift institutions. ... All in all, I think we hit the jackpot.” So declared Ronald Reagan in 1982, as he signed the Garn-St. Germain Depository Institutions Act.

http://www.nytimes.com/2009/06/01/opinion/01krugman.html