Well, this is interesting

"davedave1111" (davedave1111) 11/20/2015 at 18:51 • Filed to: None

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Apparently the only thing worse than having bankers running the banks is not having bankers running the banks. I wonder when people will stop talking about the repeal of Glass-Steagall - which is itself largely a myth - having caused the crash, when in fact ‘casino banking’ had nothing to do with it. It’s almost like there’s some conspiracy theory about bankers, or something...

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Berang > davedave1111 11/20/2015 at 19:02

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“because it is a story of the failure of a bank”

important: “a bank”

The author seems to have missed that part even though it is in the quote they want people to pay attention to.

davedave1111 > Berang 11/20/2015 at 19:11

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Er, no, that’s explored in the article. And it’s also true of US banks, generally - you can’t expect one article to include every single bit of the whole story.

Obviously this only refers to the UK, but:

“The three great failures of the time were as follows. Northern Rock, which suffered a wholesale bank run. This stuff happens in fractional reserve banking and while their strategy was at risk of this it wasn’t an absurdly awful strategy for them to follow. Their loan book, which the government took over, has just been sold at a profit for example. Perhaps they should have got liquidity assistance but they weren’t systemic so they didn’t and that’s that then.

“The second was RBS, and they went bust simply because they grossly overpaid for ABN Amro. Yes, there were subsidiary issues as well, but that’s the main over arching one.

“And now we’ve the third, HBOS, which went bust as banks have been going bust for millennia. Simply lending to people who don’t pay the cash back.”

And yes, there are plenty of people here who think it was because bankers were gambling with other people’s money. It’s important to keep pointing out that that is nothing more than a thinly disguised antisemitic conspiracy theory, which bears zero relation to the truth.

Berang > davedave1111 11/20/2015 at 19:19

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Hey if it’s not one bias it’s another.

davedave1111 > Berang 11/20/2015 at 19:47

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Yes, in this case the author has a bias that I share. It’s towards actually looking at the facts and then doing what’s necessary to fix what really went wrong, rather than grandstanding, or indulging one’s own prejudices, or attempting to use the opportunity to pursue unrelated policies.

If you’re more interested in the US side of things, this is really worth a read:

http://www.forbes.com/sites/timworst…

OK, it originates with the CEPR, who certainly aren’t unbiased, but the data is clear. The recession was because of the nationwide collapse in the housing market in the US - which was something no-one thought could happen. All the stuff with the banks, and ‘too big to fail’ was - and I know this sounds odd, given the amount of money involved - just the details.

Berang > davedave1111 11/20/2015 at 20:03

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Yeah. I’m not going to trust anything on the matter coming from Forbes. My brain still aches from a piece I read there (ostensibly) about cars, where it was painfully obvious the author had no clue what they were talking about and was just trying to push his opinions through by cherry picking facts that suited his argument. So they’re on a my shit list.

Second of all, if nobody was F’n around - why should anybody be worried if somebody wants to make rules against F’n around?

davedave1111 > Berang 11/20/2015 at 20:20

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Heh, Forbes employs an awful lot of freelancers - some are good, some bad. But you shouldn’t trust anything without some corroboration.

“Second of all, if nobody was F’n around - why should anybody be worried if somebody wants to make rules against F’n around?”

Well, apart from the fact that most of the claims of fucking around are just thinly veiled antisemitic conspiracy theories, which on its own is an objectionable state of affairs, we’re not really looking at laws against fucking around, we’re looking at the politician’s syllogism.

Nimbus The Legend - Riding on air like a cloud > davedave1111 11/20/2015 at 21:17

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Correct imo. The banks started giving out loans cause they thought they had enough coming in to cover a few bad loans, but then everyone got bad loans and couldnt pay it back. Event he banks didnt predict that interest rates would fluctuate so much. They literally didnt have enough money to cover quite literally everyone and their mamas variable rate home loans. Thats why the big lending banks failed. And it was a domino effect with the big investment banks having invested so much money in those banks and gambling on the future projected returns on those loans IF everyone was able to pay for their loans, which almost no one was able to do.

davedave1111 > Nimbus The Legend - Riding on air like a cloud 11/20/2015 at 21:29

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Not quite. No-one expected every loan to be paid back. That was the point of bundling loans together and splitting them up into slices with different degrees of risk. And in fact, it’s turned out that almost all of those loan-bundle-slices were actually just fine.

When the housing market crashed nationwide - which is what caught everyone out, because ‘everyone knew’ it was impossible - there was a problem: no-one knew which tranches of debt were bad, and who had how many of them. That meant banks didn’t want to lend each other money, and that’s normally a key part of the banking system.

As it turned out, the big banks weren’t insolvent, just illiquid - that is, they had assets worth more than their debts, but couldn’t turn them into cash as fast as they needed to if they were going to meet their payment obligations. That’s the reason for the bailouts, which were actually just loans to keep everything going, and have since been paid back with interest.

The one change that needs to be made, when it comes to the ‘too big to fail’ banks is very simple: charge them the value of the liquidity insurance they’re getting from the government. The UK is already doing that, and I understand that the US has dragged its feet but is going that way.

ScoundrelPDX > davedave1111 11/23/2015 at 00:52

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So “everyone” was at fault, because “everyone knew”? Sounds like a failure of risk management to me.

davedave1111 > ScoundrelPDX 11/23/2015 at 07:02

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That’s not what I said. ‘Everyone knows’ is not a good basis on which to make such decisions, clearly, but my point was that it’s only when we see such a widespread misconception that such things can happen.

One of the systemic problems that caused the bubble was that there’s no way to short housing, so the markets only reflected the views of the bulls, not the bears. Given that they were in the vast majority, their views predominated.

As for risk management, yes, that’s correct. Governments all round the world failed to realise that they were offering implicit guarantees to big banks and charge them an appropriate fee for the insurance.

Lots of people being wrong about housing, with no way for the market to get the opposite signal, combined with the failure to charge banks for the guarantees, really are all that caused the whole mess.

Nimbus The Legend - Riding on air like a cloud > davedave1111 11/25/2015 at 14:19

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I understand your point about the market crash, and what i saw happening in the housing market was all these loans, all the defaults, all these short sales, all the foreclosures, sure the banks had a lot of assets in real estate property. But not enough people on the consumer level to turn those assets into liquid cash. That combined with the illiquidity you speak of came together to really decimate the whole economy. Im quite sure the banks didnt want to lend each other money because they saw these loans and just thought, “what were you thinking giving this guy a loan, we’re not giving you any money.”

Just for the sake of conversation, do you think this was done intentionally? Do you think there was a bigger plan to alter the value or direction or distribution of money and wealth? What would the banks have had to gain if everything went according to their plan? Could it be higher interest rates? could it be a an increased valuation of the dollar or could they have been trying to devalue the dollar? Could they have been trying to appease an international trade partner? Could they have been trying to devalue another currency while trying to bring the dollar back to the #1 spot?

I mean i just cant accept that this was simply lack of foresight, or lack of oversight, or ignorance. Nothing in the world happens money-wise with out some prior planning and some sort of motive. Just look at why america really went into Iraq the last time...

davedave1111 > Nimbus The Legend - Riding on air like a cloud 11/27/2015 at 03:53

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“Im quite sure the banks didnt want to lend each other money because they saw these loans and just thought, “what were you thinking giving this guy a loan, we’re not giving you any money.””

Well, no, that’s not really what it was about. Bear in mind that almost all mortgages were actually fine: the problems were that a) a small proportion were toxic, and b) no-one knew where they were. The net effect was that banks were worried that they were lending billions to other banks, and that one of those banks might be insolvent. That caused the entire banking system to grind to a halt until that was all worked out.

“Just for the sake of conversation, do you think this was done intentionally?”

No, absolutely not. First up, that, and the rest of that paragraph, are simply old antisemitic conspiracy theories with the word ‘Jew’ taken out. Please note that I’m not accusing you of believing in any such ideas, but there are unfortunately still people who do, and they’ve fed you a line of claptrap. So, we have a plausible explanation for the existence of such theories despite their lack of truth.

Then, we can look at the ideas themselves, and they simply don’t make sense. For starters, the banks have clearly fucked themselves if they were trying anything like you suggest: plainly they’re not capable of pulling it off, so you have to assume they were deluded enough to think they could. Also, it’s counter-productive, since the banks’ (or rich people’s) share of the pie hasn’t changed much, and the pie itself is much smaller than it would have been if we hadn’t had the crash.

Maybe the nail in the coffin of the whole thing, though, is that we have good evidence that bankers were investing their own money in the areas which were overvalued, showing that they were just wrong, not using some trick.

“Nothing in the world happens money-wise with out some prior planning and some sort of motive.”

On the contrary, almost everything happens despite the strongest efforts of everyone involved. We don’t have a steering wheel for the economy, and a windscreen to see through: we have a system more like passing messages to the driver via Chinese Whispers, while navigating by listening to reports of what other people could see looking out the back window five minutes ago.

With the benefit of hindsight, we can see what caused the crash. The US housing market was over-inflated because of some not-obviously-wrong-at-the-time government policies, and that, combined with the widespread expectation that a nationwide crash couldn’t happen, led to everything else.

“Just look at why america really went into Iraq the last time...”

This is sort of half on-topic, because it’s important to understand that Bush and Blair weren’t evil, but rather that they invaded Iraq because they’d managed to convince themselves that they were doing the right thing. (Of course, for Bush, generating lots of business for US companies, securing oil, and so-on was a good thing - but it was a bonus, not the point.) Don’t forget, Blair was waaaaaay to the left of anyone who’s even been a Democrat candidate, let alone any US president. It just doesn’t make sense to suggest that he went into Iraq for oil and to help big corporations.

Nimbus The Legend - Riding on air like a cloud > davedave1111 11/30/2015 at 20:11

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I still feel there was something more to variable interest rate mortgages. I feel they carried a greater weight than you give it credit for.

Would you really be surprised if there was an attempt to manipulate the value of the dollar considering china is a debtor?

Were the banks pulling an Enron?

As far as Iraq, There were no weapons of mass destruction, no biological weapons, and before the invasion there were rumors that Iraq wanted to charge Euros for oil, instead of american dollars like Saudi.