Here Comes the Recession

[hog88]

The financial disaster was caused by there being exponentially more credit swaps being issued by banks on the mortgages than the mortgages themselves. You're right about the government but it was their fault in deregulating the SEC in the early 2000s. It didn't help either, that S&P and Moody's went private. Too many high risk mortgages were lumped and rated the same as low risk mortgages. Then of course, the banks invented a product for shorting the mortgages because they were too stupid and not paying attention to the rising default rates. Go to your library and check out the book The Big Short. Hell, just watch the movie and you will have a better understanding of what happened

Gramm-Leach-Bliley Act was in 1999, not the 2000s.

 

[BowlBrother85]

The sub prime loans and the resulting default didn't cause the 2008 crisis. Not even close

Not sure what you are talking about. The 2007 financial crisis ushered in the 2008 Great Recession. The subprime mortgage crisis started in 2007, when the housing industry's asset bubble burst. With the previous years increasing home values and low mortgage rates, houses were bought not as places to live in, but as investments or "flips". Since the financial industry heavily invested in mortgage-backed derivatives, the housing industry's downturn became the financial industry's crisis. Hedge funds had invested an unknown amount in mortgage-backed securities and unlike mutual funds, the SEC didn't regulate hedge funds. There was no way to know how many of these hedge fund investments had toxic debt. Hedge funds use sophisticated derivatives, which I don't even understand myself... but they allowed for these hedge funds to borrow money to make investments. When the market went south, these derivatives magnified the losses.

If you are in the blame game, I would start with Ben Bernanke. He completely misread the problem in 2007.

 

[825VOL]

The financial disaster was caused by there being exponentially more credit swaps being issued by banks on the mortgages than the mortgages themselves. You're right about the government but it was their fault in deregulating the SEC in the early 2000s. It didn't help either, that S&P and Moody's went private. Too many high risk mortgages were lumped and rated the same as low risk mortgages. Then of course, the banks invented a product for shorting the mortgages because they were too stupid and not paying attention to the rising default rates. Go to your library and check out the book The Big Short. Hell, just watch the movie and you will have a better understanding of what happened

I lived through it and was part of it. I don’t need to read the book. There was an Alt-A product and that was all that subprime was. Those were for self-employed, 20% down, and 700+ credit scores. The banks could not have crafted all those stupid swap products if the government would have stayed out of the mortgage business by not encouraging the risky behavior. The government entities started buying Alt-A paper this the Alt-A lenders started lowering standards to keep market share. It was a fight between the private market and government as to whom would take the crappiest loans. Too much money for either to back down until it was too far out of control. Wall Street saw there were basically no more rules and did what they wanted.

 

[05_never_again]

The 2008 financial crisis is a great example of when a market is highly regulated but price, effectively, is not. I remember hearing someone describe Enron's shenanigans in the California electricity market in early 2000s that way and it has stuck with me ever since.

Unfortunately, the mortgage market and California electricity market are held up as straw man examples of "free markets" by leftists, and used to push agendas that favor more government intervention, which is what caused the problem in the first place. The market for student loans is the same way.

A highly regulated market with prices that can go wherever isn't a free market. A system full of bizarre rules, regulations, and compromises but allows prices to go where they may is absolutely insane.

 

[AM64]

Probably right , I’m willing to pay the difference to avoid all the idiot at our Walmart . Sacrifices have to be made . Lol

Right there with you. I avoid Walmart like the plague, but I do shop at Sam's pretty regularly.

 

[AM64]

The 2008 financial crisis is a great example of when a market is highly regulated but price, effectively, is not. I remember hearing someone describe Enron's shenanigans in the California electricity market in early 2000s that way and it has stuck with me ever since.

Unfortunately, the mortgage market and California electricity market are held up as straw man examples of "free markets" by leftists, and used to push agendas that favor more government intervention, which is what caused the problem in the first place. The market for student loans is the same way.

A highly regulated market with prices that can go wherever isn't a free market. A system full of bizarre rules, regulations, and compromises but allows prices to go where they may is absolutely insane.

Agreed, and we could leave it all up to the banking and investment sector to self regulate ... except. Our big problem is that sometimes it appears regulation is required (1929, 2008, etc), but a bought congress is really not that much better than self regulation by the industry.

 

[hog88]

Agreed, and we could leave it all up to the banking and investment sector to self regulate ... except. Our big problem is that sometimes it appears regulation is required (1929, 2008, etc), but a bought congress is really not that much better than self regulation by the industry.

Glass Steagall should have been left alone.

 

[05_never_again]

Agreed, and we could leave it all up to the banking and investment sector to self regulate ... except. Our big problem is that sometimes it appears regulation is required (1929, 2008, etc), but a bought congress is really not that much better than self regulation by the industry.

2008 wasn't caused by the banks being allowed to self-regulate. It was caused by the Federal Government and Federal Reserve creating a certain environment and encouraging certain things, then allowing the banks to do whatever they wanted after that. They heavily regulated the market, yet price was deregulated. It's a recipe for disaster.

 

[MontyPython]

Not sure what you are talking about. The 2007 financial crisis ushered in the 2008 Great Recession. The subprime mortgage crisis started in 2007, when the housing industry's asset bubble burst. With the previous years increasing home values and low mortgage rates, houses were bought not as places to live in, but as investments or "flips". Since the financial industry heavily invested in mortgage-backed derivatives, the housing industry's downturn became the financial industry's crisis. Hedge funds had invested an unknown amount in mortgage-backed securities and unlike mutual funds, the SEC didn't regulate hedge funds. There was no way to know how many of these hedge fund investments had toxic debt. Hedge funds use sophisticated derivatives, which I don't even understand myself... but they allowed for these hedge funds to borrow money to make investments. When the market went south, these derivatives magnified the losses.

If you are in the blame game, I would start with Ben Bernanke. He completely misread the problem in 2007.

Greenspan was the root problem. Bernanke was handed a bomb with a short fuse.

 

[hog88]

Greenspan was the root problem. Bernanke was handed a bomb with a short fuse.

Both deserve a good portion of the blame.

 

[AM64]

2008 wasn't caused by the banks being allowed to self-regulate. It was caused by the Federal Government and Federal Reserve creating a certain environment and encouraging certain things, then allowing the banks to do whatever they wanted after that. They heavily regulated the market, yet price was deregulated. It's a recipe for disaster.

OK, I'll go along with that. What happened in the banking/investment sector after Glass-Stegall was axed was more like what happens in a grammar school classroom when the teacher leaves for an extended period ... the total absence of self control or failure to regulate behavior.

 

[05_never_again]

Both deserve a good portion of the blame.

Greenspan is your guy for the '08 crisis.

Bernanke (and Yellen) are your people for the next crisis, whenever it comes. Bernanke had no choice but to do ZIRP in the wake of 2008, but the decisions for round after round after round of QE will be scrutinized closely in coming years, IMO.

 

[05_never_again]

OK, I'll go along with that. What happened in the banking/investment sector after Glass-Stegall was axed was more like what happens in a grammar school classroom when the teacher leaves for an extended period ... the total absence of self control or failure to regulate behavior.

It's more like a grammar school teacher giving the kids lots of assignments, then giving them candy and soft drinks, then giving them all As on the tests even though they are wired and can't focus.

Leftists are people who look at that situation and say "See, that's what happens when you have no authority from the teacher! She just let all those kids pass with flying colors!" No, the problem was the teacher.

 

[hog88]

It's more like a grammar school teacher giving the kids lots of assignments, then giving them candy and soft drinks, then giving them all As on the tests even though they are wired and can't focus.

Leftists are people who look at that situation and say "See, that's what happens when you have no authority from the teacher! She just let all those kids pass with flying colors!" No, the problem was the teacher.

Need more likes to give this post.

 

[BowlBrother85]

2008 wasn't caused by the banks being allowed to self-regulate. It was caused by the Federal Government and Federal Reserve creating a certain environment and encouraging certain things, then allowing the banks to do whatever they wanted after that. They heavily regulated the market, yet price was deregulated. It's a recipe for disaster.

Banks bundled bad home loans with good ones and sold them as mortgage-backed securities. Investors who bought them, believed that AIG insurance protected them. Is that what you are talking about here?

 

[05_never_again]

Banks bundled bad home loans with good ones and sold them as mortgage-backed securities. Investors who bought them, believed that AIG insurance protected them. Is that what you are talking about here?

More or less, plus the banks as a whole were leveraged about 30:1. The leverage is what took a problem and made it a full-blown crisis that threatened the whole financial system.

 

[Fun coupon VOL]

Right there with you. I avoid Walmart like the plague, but I do shop at Sam's pretty regularly.

You go to Walmart to watch people. The most white trash people on the planet are there.

It reminds me of why the world is the way it is.

 

[MontyPython]

Still doubt a recession is coming?

Italy will close all schools and universities across the country
Italy will close all schools and universities around the country until mid-March in an effort to stop the coronavirus outbreak, CNN affiliate Sky TG24 and state broadcaster Ansa news agency report.
A cabinet meeting in Italy is ongoing, and official word of the closures is expected soon.

 

[hog88]

Still doubt a recession is coming?

Italy will close all schools and universities across the country
Italy will close all schools and universities around the country until mid-March in an effort to stop the coronavirus outbreak, CNN affiliate Sky TG24 and state broadcaster Ansa news agency report.
A cabinet meeting in Italy is ongoing, and official word of the closures is expected soon.

I didn't realize schools produced so many goods and services.

 

[MontyPython]

I didn't realize schools produced so many goods and services.

Hog. I'm rolling my eyes again. Come on man. You know this spells economic crisis there, at least. If the virus spreads and we start taking similar action, it'll be a major, major issue.

 

[05_never_again]

Hog. I'm rolling my eyes again. Come on man. You know this spells economic crisis there, at least. If the virus spreads and we start taking similar action, it'll be a major, major issue.

Italy's effectively been in and out of recessions since 2008. It's a big deal there, not sure how much of a ripple effect it has.

 

[SpaceCoastVol]

The financial disaster was caused by there being exponentially more credit swaps being issued by banks on the mortgages than the mortgages themselves. You're right about the government but it was their fault in deregulating the SEC in the early 2000s. It didn't help either, that S&P and Moody's went private. Too many high risk mortgages were lumped and rated the same as low risk mortgages. Then of course, the banks invented a product for shorting the mortgages because they were too stupid and not paying attention to the rising default rates. Go to your library and check out the book The Big Short. Hell, just watch the movie and you will have a better understanding of what happened

Are you bipolar?

 

[Velo Vol]

 

[hog88]

Hog. I'm rolling my eyes again. Come on man. You know this spells economic crisis there, at least. If the virus spreads and we start taking similar action, it'll be a major, major issue.

How? Italians basically take 1/2 a day off every day and their productivity is crap to begin with. For the life of me I can't see how Italy shutting schools down for 2-3 weeks is going to going cause a world wide recession.

 

[MontyPython]

How? Italians basically take 1/2 a day off every day and their productivity is crap to begin with. For the life of me I can't see how Italy shutting schools down for 2-3 weeks is going to going cause a world wide recession.

My point is both Japan and Italy are closing schools nationwide. This is a harbinger of things to come should the virus spread here.