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Originally Posted by ThurgreedMarshall
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
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Bill Gross (the PIMCO letter he authored quarterly was always all over the financial press) called for a downturn in housing in 2008.
https://www.reuters.com/article/us-p...22392620071114
I’ll accept the argument the banks did not know what was going on to a point. But only to a small point. These people do exist in clueless enclaves of like minds where people only know charts which do not always offer an accurate picture of what’s going on in a market.
BUT, these banks also have loads of economists and analysts on their payroll. And no one - no one - with a basic grasp of economics could miss the fact that the housing bubble replaced the economic activity and wealth lost in the dot com bust (which had replaced a lot of economic activity and wealth otherwise lost from preceding jobless recoveries from earlier recessions).
People at the street level were living off gains from trading residential r/e via flips (or simply mining equity out of their homes’ increasing values).
But what would happen when the run up in prices plateaued? Well, in that instance, the owner of residential r/e would have to pay his mortgage with money from his job. But what if these people didn’t have jobs adequate to do this? What if they’d been living off a bubble economy in r/e? Uh oh.
This wasn’t hard to see coming. Of course, no one knew the depths of it.*. That was shocking. But a significant correction in r/e prices was bound to test whether the novices in that bubble economy could carry their investments (or their primary residences) when the prices flattened (nevermind fell).
That Michael Lewis wrote a book about a few people who made a fortune on the collapse doesn’t mean legions of others didn’t see it. They did. And this cannot be refuted: A ton of the bankers who claim they didn’t were employing willful ignorance or simply following IBGYBG.
I don’t disagree with the bailout. It had to be done. I disagree with the argument that the assets at issue actually had value near that at which they’d been booked (Adder’s argument) and the fact that management of these financial institutions weren’t all barred from the industry. (Making them wear a sign that says “I’m a failed business person and recipient of corporate welfare” would perhaps suffice.)
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* I’m being generous there. It is an often made argument that the more severe the bubble, the more extreme its fallout. Taleb would blame this on fragility increasing with size, which I think he’s supported with math. This would seem to be proven by the fact that only a 3% uptick in delinquencies, when honestly booked, set off the chain that brought it all down. It’s partly a feature of the structuring of the securities but also a behavioral issue (people freak and stop buying the securities and the banks, in herd fashion, have all placed themselves in uniquely fragile positions).
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