Quote:
Originally Posted by sebastian_dangerfield
None of the banks - particularly the investment banks - were adequately prepared for the risk of a housing bubble bursting. And they all knew it was a bubble. They believed, quite wrongly, that they could flip the loans rather than keep them in portfolio, and blend the garbage loans with good loans in securities, to pass off risk. They knew that even a small uptick in delinquencies would set off a disastrous chain reaction.
And they knew the fundamentals behind the loans were lousy. A majority of the bubble was people replacing jobs they could no longer find or hold with income from flipping. People were sucking equity out of homes to survive. It was a fucking joke even the least astute watcher of r/e and economics could plainly see. Built to collapse.
And yet almost all of the big banks played along with the charade: Housing will never go down.
So yeah, I have sympathy for those who faced a run for no fault of their own. But in 2008, those banks were about 10% of banks. And 0% of investment banks.
Oh, and the shmucks who bought that credit default coverage from Cassano? They deserve to eat it the most. They all knew he was writing that which he couldn't possibly cover. Reporting on the crisis included multiple interviews with people who wondered how he could write so much.
The banks were so leveraged, and skepticism about the stability of the residential r/e market so high below the surface (despite the financial media's attempt to paint a rosy picture), a small loss was a big loss. I think it was a mere 3% increase in defaults on loans one tier above subprime that started the whole mess.
The banks knew they'd created a bubble and it'd burst, badly. Among the things that happens when bubbles burst? Bank runs. They should have planned for that given the size and fragility of the bubble they'd been knowingly creating.
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I'm ketchupping and trying to avoid responding to you. But your analysis of 2008 is so fucking wildly off that it's impossible. Maybe I'm confusing what you're trying to convey because you're not doing it well?
A bubble is a bubble precisely because everyone in it can't see that it's a bubble. There were
books and movies about how only a handful of people understood the flaws in the packaged MBS products. The idea that AIG or any of the investment banks permitted the type of multiple levels of gambling on "insurance" products that would bring down the entire institution (and the global economy) with the full knowledge that a slight uptick in mortgage defaults would create such a scenario is nuts. Very few people understood the impact. Very few people understood the market. And
none of the people who did were in a position to turn down the "easy-money" fees associated with selling those products (or allowing those departments to sell those products).
In 2008, when Bear Stearns (not a commercial bank) failed, we were on the brink of total financial collapse. If
one more bank failed, there would be a run on
all banks, the entire economy would collapse all over the world. Your limited analysis of well-run and poorly-run banks is ridiculous. It may work when the economy isn't having any issues (and the bail-out would be FDIC-related for account-holders). But this was a full-blown global crisis. There is absolutely no way we could have let one more bank fail. And they were
all on the brink. Citibank was trading at like $2 per share. Looking back after we successfully kept the entire global economy from collapsing and acting like we could have allowed a few more banks to fold is beyond fucking stupid.
I had this exact conversation with Taxwonk in 2008. After he said, "Maybe we should have let the entire system fall," (and that's as dumb an argument as Sarandon saying Trump being elected is a good thing because it will bring about more change after he destroys everything) he finally came to his senses. You're not there yet and it's 20fucking20.
TM
