When the next Great Recession hits, how will republicans respond?

[CrusaderFrank]

What aborted the comeback is still debated. Some economists blame President Franklin Roosevelt for signing tax hikes and cuts in New Deal jobs programs. Others blame the Federal Reserve. Dartmouth College economist Douglas Irwin argues that the Roosevelt administration triggered the relapse by buying up gold, removing it from the U.S. monetary base.

The most common argument by Keynesians for the second dip is that the Republicans gained control of Congress in the 1936 elections and began curbing government spending.

The move to prevent inflation succeeded all too well, causing deflation.

We are actually in danger of deflation right now. The dollar's strength is increasing.

Yeah because government spending was doing ******* wonders from 1933-1936

 

[CrusaderFrank]

Hey, pssst...democrats were in charge when Fannie Mae collapsed bringing the entire world economy down with it.

It was not Fannie Mae which brought the world economy down, idiot. And Fannie Mae's demise was built between 2003 and 2007. The GOP was in charge most of that period.

Holy shit, will you please stop drinking the piss of hacks who have no clue about what happened?

GSE's gave AAA rating to subprime paper

 

[EdwardBaiamonte]

Do the words "Lehman Brothers" mean anything to you? That was what precipitated the collapse.

how childlike can you be? Mortgage backed securities caused the crisis and they were in effect created by Fan Fred Fed whose liberal policy was to get people into homes the free market said they could not afford.

 

[NoTeaPartyPleez]

Hey, pssst...democrats were in charge when Fannie Mae collapsed bringing the entire world economy down with it. Democrat Barney Frank was the chair(person) of the powerful "house banking committee" which had oversight responsibility for Fannie Mae and Frank told Americans that Fannie was solvent when it was in desperate trouble. The question is whether democrats nudged Fannie over the edge as the biggest October surprise in history or it was typical democrat negligence.

Yup, Dems took over in 2006 & it's been all downhill since.

If republicans were in control, how would they assist the thousands, potentially millions of people who lost their jobs against their will? What policies would they put in place?

This is a simple question gramps. Answer it.

By inacting conservative fiscal policies, lowering taxes, cutting spending, and reducing the enormous deficit. You know, the exact opposite of every failed Democrat policy.

Republican policies created the global financial crisis when Wall Street was allowed to sell trash mortgages to millions of Americans and insured themselves against the inevitable default.

Google "NINJA loans"...start there and stop blathering right wing talking points.

 

[g5000]

Does anyone here understand why AIG went under?

AIG sold insurance against the financial derivatives the financial services industry was selling. A bunch of loans were packaged into a CDO. Unlike with MBS, an investor in a CDO could choose their level of risk.

AIG sold insurance against the senior and super-senior tranches in CDOs. AIG considered the premiums being paid to them as free money since it was believed the odds of a senior tranche ever defaulting was on the order of a comet hitting Miami dead center.

What took them several years to realize is that while that was true for the first CDOs sold, it was no longer true for later CDOs. That is because the first CDOs were comprised of good loans made to low risk borrowers. But then greed kicked in. When the financial services industry ran out of good risks, they still wanted to make more money. So they began making worse and worse loans so they could keep building more CDOs. It took a while for AIG to figure out the quality of loans in the CDOs they were insuring was rapidly declining.

A third party analyzing company found that 80 to 90 percent of the loans in the most current CDOs were toxic, and so AIG announced to the world they were out of the CDO insurance business at the end of 2005.

AIG assumed they had gotten out in time.

They hadn't.

But even then, Wall Street did not want the music to stop. So they started selling their own insurance against the toxic CDOs to each other. These were synthetic CDOs. And they sold these to investors knowing full well the investors were going to lose buckets of money on them. When a dealers sells something to an investor knowing they just cheated them, they say with glee, "I ripped his face off!"

Open fraud, people. Open fraud.

Abacus 2007-ac1 is the more famous example. Goldman Sachs and John Paulson.


The investors bought a tranche in a synthetic CDO, and the premiums they were receiving looked identical to the revenue streams they had been getting from a normal CDO tranche. What they did not fully realize is that by accepting the premium payments, they were putting themselves out there as insurance sellers and were liable for any losses incurred by the underlying CDO.

Those things blew up in their faces big time.

The lawsuits are still going on.

Imagine you are a home builder. You are allowed to build a house, sell it, and then buy fire insurance against it. What do you think an immoral home builder will do?

That's right. He will build a firetrap, then he will sell it, then he will buy fire insurance against it. He makes money selling the house, and then he makes money when it burns down.

This is what Goldman Sachs and every other broker-dealer out there did.

This is why CDS need to be regulated just like insurance. They need to have an insurable interest requirement. And believe it or not, they still don't to this very day.

 

[g5000]

Do the words "Lehman Brothers" mean anything to you? That was what precipitated the collapse.

how childlike can you be? Mortgage backed securities caused the crisis and they were in effect created by Fan Fred Fed whose liberal policy was to get people into homes the free market said they could not afford.

 

[g5000]

Hey, pssst...democrats were in charge when Fannie Mae collapsed bringing the entire world economy down with it.

It was not Fannie Mae which brought the world economy down, idiot. And Fannie Mae's demise was built between 2003 and 2007. The GOP was in charge most of that period.

Holy shit, will you please stop drinking the piss of hacks who have no clue about what happened?

GSE's gave AAA rating to subprime paper

Nope. You obviously don't understand even the basics.

The ratings agencies gave AAA ratings to toxic CDOs. Wall Street CDOs and GSE CDOs. Why do you ignore the much bigger picture and focus on the smallest player in the secondary market? Wall Street's CDOs were far more prevalent and far more toxic.

You ignore it because you have been deliberately kept ignorant by your hack media sources.

 

[g5000]

Do you know where a ratings agency gets its income from?

They get their income from the financial institution whose products they are rating. Conflict of interest, or what?

 

[g5000]

The ratings agencies and the financial institutions were using mathematical models built by quants. Mathematicians and economists from the academic world.

I showed EconChick one of the most famous mathematical models in the world, and she did not recognize it, even though it was one of the biggest economic discoveries of the past 100 years and is used by tens of thousands of people every market minute of the day! The guys who came up with it won a Nobel prize.

Anyway, nobody ever plugged in a negative number into the models used to rate CDOs. The underlying assumption was that house prices would go up forever.

 

[Toddsterpatriot]

If there is a crash, it will be bigger than last time. There will be nothing any government can do about it because the banks are no longer Too Big To Fail. They are Too Big To Save. Nothing would be able to save them or from taking everything with them.

If there is a crash, it will be bigger than last time.

Why?

Nothing would be able to save them or from taking everything with them.

They're much better capitalized, they don't make the same stupid, no money down loans, and they have trillions in excess reserves, why would they need to be saved?

 

[g5000]

If there is a crash, it will be bigger than last time. There will be nothing any government can do about it because the banks are no longer Too Big To Fail. They are Too Big To Save. Nothing would be able to save them or from taking everything with them.

If there is a crash, it will be bigger than last time.

Why?

Banks are bigger than ever, and they are as leveraged as ever, and they are making massive carry trades that would make your hair fall out. The risks they are taking are astronomical, and if this shit ever unwinds we are seriously fuct.

Nothing would be able to save them or from taking everything with them.

They're much better capitalized, they don't make the same stupid, no money down loans, and they have trillions in excess reserves, why would they need to be saved?

Much better capitalized? BWA-HA-HA-HA!

You seem to believe that just because they stopped making home loans that they are no longer taking risks. Do you have an idea of the myriad ways that money can be put at risk? A home loan is just one of many, many, many, many, many ways.

You have no idea what is going on out there, do you. No wonder rubes are so easy to bullshit. You are blank slates, and whoever writes on your credulous minds has the upper hand.

 

[g5000]

The bond bubble we are in right now totally dwarfs the subprime bubble into insignificance.

There have also been heavy cash inflows into developing nations. If that reverses because of a strengthening US dollar, you are going to see Asia fall first, and that will become more infectious than Ebola.

But don't you worry. The Right will find a way to blame negroes. And the gays.

 

[RKMBrown]

When 8 million people lost their jobs to the recession of 2008, the republican response was "find another job!" Now of course that is the ultimate goal, but what republicans were too stupid to realize is that those 8 million jobs were GONE. They didn't exist anymore. That means the large majority of those people were hopelessly unemployed for the immediate future. An immediate solution to that problem was needed. Luckily, adults were in power at the time and federal unemployment insurance was extended for those who desperately needed it. See the extension of the unemployment insurance was an emergency measure. The rightwing in their simple, childish minds thought that meant dems wanted everyone to live off the government. How could they be this stupid? Obviously it didn't turn out this way. The extension of those benefits was part of Obama's stimulus package. The stimulus of consumer spending given to these individuals created jobs in the process. From there, the massive job loss ceased and private sector job growth began and never ceased. Whew.

My point is when it comes to a national crisis like a Great Recession, a government solution is needed. Now let's pretend republicans were in control and another crisis hit. How would they respond? They would probably cut taxes for the wealthy which A) has proven to be a poor economic stimulator for the lower classes and B) would do nothing to help the growing unemployed in such an emergency.

The bottom line is you better hope and pray repubs don't control the gov in 2016.

The bottom line is you are a lying POS.

 

[Toddsterpatriot]

Does anyone here understand why AIG went under?

AIG sold insurance against the financial derivatives the financial services industry was selling. A bunch of loans were packaged into a CDO. Unlike with MBS, an investor in a CDO could choose their level of risk.

AIG sold insurance against the senior and super-senior tranches in CDOs. AIG considered the premiums being paid to them as free money since it was believed the odds of a senior tranche ever defaulting was on the order of a comet hitting Miami dead center.

What took them several years to realize is that while that was true for the first CDOs sold, it was no longer true for later CDOs. That is because the first CDOs were comprised of good loans made to low risk borrowers. But then greed kicked in. When the financial services industry ran out of good risks, they still wanted to make more money. So they began making worse and worse loans so they could keep building more CDOs. It took a while for AIG to figure out the quality of loans in the CDOs they were insuring was rapidly declining.

A third party analyzing company found that 80 to 90 percent of the loans in the most current CDOs were toxic, and so AIG announced to the world they were out of the CDO insurance business at the end of 2005.

AIG assumed they had gotten out in time.

They hadn't.

But even then, Wall Street did not want the music to stop. So they started selling their own insurance against the toxic CDOs to each other. These were synthetic CDOs. And they sold these to investors knowing full well the investors were going to lose buckets of money on them. When a dealers sells something to an investor knowing they just cheated them, they say with glee, "I ripped his face off!"

Open fraud, people. Open fraud.

Abacus 2007-ac1 is the more famous example. Goldman Sachs and John Paulson.


The investors bought a tranche in a synthetic CDO, and the premiums they were receiving looked identical to the revenue streams they had been getting from a normal CDO tranche. What they did not fully realize is that by accepting the premium payments, they were putting themselves out there as insurance sellers and were liable for any losses incurred by the underlying CDO.

Those things blew up in their faces big time.

The lawsuits are still going on.

Imagine you are a home builder. You are allowed to build a house, sell it, and then buy fire insurance against it. What do you think an immoral home builder will do?

That's right. He will build a firetrap, then he will sell it, then he will buy fire insurance against it. He makes money selling the house, and then he makes money when it burns down.

This is what Goldman Sachs and every other broker-dealer out there did.

This is why CDS need to be regulated just like insurance. They need to have an insurable interest requirement. And believe it or not, they still don't to this very day.

The investors bought a tranche in a synthetic CDO, and the premiums they were receiving looked identical to the revenue streams they had been getting from a normal CDO tranche. What they did not fully realize is that by accepting the premium payments, they were putting themselves out there as insurance sellers and were liable for any losses incurred by the underlying CDO.

Buying a tranche of a CDO (or a synthetic CDO) is not like selling insurance.
Where do you get this stuff?

 

[g5000]

The investors bought a tranche in a synthetic CDO, and the premiums they were receiving looked identical to the revenue streams they had been getting from a normal CDO tranche. What they did not fully realize is that by accepting the premium payments, they were putting themselves out there as insurance sellers and were liable for any losses incurred by the underlying CDO.

Buying a tranche of a CDO (or a synthetic CDO) is not like selling insurance.
Where do you get this stuff?

Investing in a synthetic CDO is like selling insurance. Just because you don't know what a synthetic CDO is does not change that fact.

As a matter of fact, it is your kind of ignorance which was taken advantage of by Wall Street when it sold that toxic shit to investors.

The people who manage your 401k and public employee pension funds think being in close proximity to a lot of money makes them smart. Well, they got taken to the cleaners because of that hubris.

 

[Toddsterpatriot]

If there is a crash, it will be bigger than last time. There will be nothing any government can do about it because the banks are no longer Too Big To Fail. They are Too Big To Save. Nothing would be able to save them or from taking everything with them.

If there is a crash, it will be bigger than last time.

Why?

Banks are bigger than ever, and they are as leveraged as ever, and they are making massive carry trades that would make your hair fall out. The risks they are taking are astronomical, and if this shit ever unwinds we are seriously fuct.

Nothing would be able to save them or from taking everything with them.

They're much better capitalized, they don't make the same stupid, no money down loans, and they have trillions in excess reserves, why would they need to be saved?

Much better capitalized? BWA-HA-HA-HA!

You seem to believe that just because they stopped making home loans that they are no longer taking risks. Do you have an idea of the myriad ways that money can be put at risk? A home loan is just one of many, many, many, many, many ways.

You have no idea what is going on out there, do you. No wonder rubes are so easy to bullshit. You are blank slates, and whoever writes on your credulous minds has the upper hand.

Banks are bigger than ever, and they are as leveraged as ever

They are bigger, they aren't more leveraged. They're less leveraged.

Banks are bigger than ever, and they are as leveraged as ever, and they are making massive carry trades

Don't leave us hanging, tell us more about these massive carry trades.

Much better capitalized? BWA-HA-HA-HA!

Yes, despite your confusion.

 

[Toddsterpatriot]

The investors bought a tranche in a synthetic CDO, and the premiums they were receiving looked identical to the revenue streams they had been getting from a normal CDO tranche. What they did not fully realize is that by accepting the premium payments, they were putting themselves out there as insurance sellers and were liable for any losses incurred by the underlying CDO.

Buying a tranche of a CDO (or a synthetic CDO) is not like selling insurance.
Where do you get this stuff?

Investing in a synthetic CDO is like selling insurance. Just because you don't know what a synthetic CDO is does not change that fact.

As a matter of fact, it is your kind of ignorance which was taken advantage of by Wall Street when it sold that toxic shit to investors.

The people who manage your 401k and public employee pension funds think being in close proximity to a lot of money makes them smart. Well, they got taken to the cleaners because of that hubris.

Investing in a synthetic CDO is like selling insurance.

Okay, I buy a synthetic CDO that mirrors a portfolio of single family housing in Massachusetts.
How is that in any way like I sold insurance?

 

[g5000]

I will explain what a synthetic CDO is, but it will take a lot of text. You can skip this post if you don't want to know.

First, I have to explain what an MBS is, then what a CDO is, then what a synthetic CDO is so you can appreciate the beauty of the con that was pulled off by the fraudsters.


If you are a bank, you have a finite amount of cash. If you loan that cash to someone, you have to wait for that loan to be paid back before you can lend it again.

Note: Let's not go off on a diversion into fractional reserve banking, mm-kay? That's for another day.

Under this system, you aren't going to want to make a 30 year loan because you don't want to have to wait 30 years to make another loan. So your loans are going to be short term. And that's the way things were for a long time.

But what if you could make the loan, and then sell the paper for that loan to someone else for a small profit? This way, you get your cash back, plus a small profit, and can make another loan right away. Then you can sell that loan, too, and then rinse and repeat as long as you can find investors to buy the paper for the loans you make.

That would be awesome, right?

Well, that is the way it worked from about the 1930s until about the year 2000.

Loans get bought and bundled into Mortgage Backed Securities. The monthly payments from each borrower makes a revenue stream. That revenue stream gets divided among all the investors who bought into the MBS pool.

If any borrowers default, every MBS investor loses money equally.

Note: Let's not go off on how MBS revenues can be sliced and diced. We are sticking to generalities for brevity.

The nice thing about an MBS is that the investors are looking for a long term income. This facilitates the creation of 30 year mortgages. An MBS investor gets a nice steady income of principal and interest payments for 30 years as they live their golden years in Florida.

Not really. The average home loan lasts about 8 years before the borrower refinances. Then the principal is paid off all at once. But you get the idea.

Okay. So that's how things worked until fancier derivatives were invented.

Now, if you are that original banker, and you were lending money to a borrower, you were going to do some serious due diligence on that borrower because that was your money you are lending. You are going to want to see some pay stubs, a semen sample, and get a lien on their first born, right?

In the MBS system, you are relieved of a lot of risk. The investors who buy your loans are taking on most of the risk now. But if you make too many bad loans, there goes your business. They won't buy from you any more.


Then along comes the Collateralized Debt Obligation.

I should pause here to mention that home loans are not the only revenue stream. Auto loans, home equity lines of credit (HELOC), student loans, signature loans, credit card debt, and so forth. All of these are revenue streams. The principal payments and the interest payments that come in each period.

All of these forms of revenue can be bundled.

Continued in next post.

 

[g5000]

A CDO differs from an MBS in that you get to choose how much income you want for a given dollar investment. The more income, the higher the risk you are taking.

I like to explain it thusly:

Imagine the revenue stream as an actual river. And someone is offering to sell you a cup to dip into that river. You can buy a big cup, a medium sized cup, or a small cup. The cups come in many sizes.

The people who buy the smallest cups get to dip their cups into the river first. The people with the biggest cups dip their cups last.

The bigger cups are cheaper than the smaller cups.

The risk the bigger cup buyers are taking is that there won't be any water left when their turn rolls around.

But in the entire history of the Universe, no one has ever seen a river dry up before anyone gets to dip even one cup into the river. This is the actuarial upon which all risk models and ratings agency grades are built.

The source of all the rivers is a snowcapped mountain.

As a CDO investor, you are buying a tranche (cup) based on how much risk you want to take. The equities tranches are big cups, the senior tranches are little cups.

AIG sold insurance against the little cups. They believed this was free money because no river had ever run dry before a little cup got to dip in the water.

But here's the thing. Nature (the natural business cycle) had created natural rivers. These had always been there and big towns had been built on them. Everything worked pretty well, and the banks made money for decades selling the same-sized cups to investors.

Then the variable-sized cups were invented. Still no problem.

But then...Wall Street began digging man-made rivers and selling variable-sized cups for those.

When these artificial rivers were dug, no one changed their assumptions about rivers running dry. They assumed the risks were identical!

What no one stopped to think about was that the snow on the mountain was finite. And it was just a matter time that with all those cups dipping into all those rivers, it was just a matter of time before EVERY river dried up.

When rivers dried up when only a handful of small cups had dipped into them, suddenly AIG had to pay out on the insurance they had sold.

Guess what? They didn't have it. They thought the premiums were free money and so they had not put aside any cash in the eventuality of having to pay out on a policy. They believed that was an impossibility.

More in the next post.

 

[g5000]

AIG made their money by collecting premiums for collateralized debt swaps (CDS). A CDS is a lot like insurance, except for one very critical difference. They do not require an insurable interest.

What is an insurable interest?

What if you could buy a life insurance policy against your neighbor's life? What do you think would happen to the murder rate? You could buy an insurance policy against your ***** ex-wife and then have her killed and collect on the policy. Win/win.

What if you could buy fire insurance for any house on the planet? What do you think would happen to the arson rate? You pay a hundred bucks for insurance on some guy's house who you don't even know, then collect $200,000 when his house burns down.

What if ten people could insure one $200,000 house? If it burns down, the insurance company isn't out 200 grand. They are out $2 million.

That is why you have to have an insurable interest to buy insurance. You have to stand to lose something if something happens to what it is you are insuring. You have to suffer a personal loss.

Not so with CDS. You can bet against someone else's loan.

So what do you think happened to the loan default rate?

TA-DAAAAAA!

If you get to build a house, then sell it, then buy fire insurance against it, what will happen to the quality of houses being built?

TA-DAAAAA!

That's what happened to the quality of loans being made.


Okay, let's back up a little bit now.

"AIG made their money by collecting premiums."

Think about what money coming in from premiums is.

Got it yet?

That's right! IT IS A REVENUE STREAM!

And what can we do with a revenue stream? We can bundle it into a CDO!


And that is what a synthetic CDO is. It is the revenue stream built out of insurance premiums.

So if you buy a tranche in a synthetic CDO, your income is coming from insurance premiums (CDS payments). And if you accept an insurance premium, then you are on the hook for what is being insured.

D'oh!

And that is how Wall Street was able to keep the music playing after AIG got out of the CDS business in 2005. They just tricked their investors into selling insurance against the firetraps they were building in the home mortgage world.


Don't believe me?

Google "ABACUS 2007-ac1".