So... Let's give money to banks to create more debtFollow

And you believe the way to get there is through backpedaling and sabotaging societal development? Or is your agenda in no way relevant to this thread in any meaningful way?

Ask yourself "Is the way to do that through not preventing a global economic collapse?"

Not talking about the derivatives market. You're looking at the tail end of the problem. The root cause occurred somewhere else.

Couldn't possibly be more false. The root cause was an unregulated derivative market, inarguable, thanks for playing.


Merged Commercial/Investment banking groups were required to comply with CRA requirements, which meant that they were effectively forced to buy up "some" bundled mortgage securities. How much was subject to the whim of the organizations assessing their compliance with CRA. They absolutely could not just say "We won't trade those".

False.


Ok. Perhaps "laws" is too strong a word. "Rules"? Fannie and Freddie bundle mortgages. In the process, they obfuscate the underlying mix of good vs bad debt in those bundles. The financial institution buying the security can't know the exact ratio of debt inside the bundle. Only the GSE handling it does. Combine that with the CRA requirements, and you've effectively required them to accept whatever mix of bad/good debt the GSE's hand them. Blindly.

And..False.

What a surprise.

You mean....like society works now?

Smash is right. Let me restate what we all know. You can check out the 60 minuets story on this problem or the This American Life episode.

Loans were made to people with adjustable rates, which they now cannot pay, and since their homes are worth less then they were, they cannot sell. Ultimately, the demand for this was investors who wanted to buy up highly profitable home mortgages, partly due to the Federal government of the US keeping rates low. There were barriers to doing this - which actually stem from the early 1900's in the US - which were removed. That is why this crisis happened now, not say 25 years ago. These barriers deal with subdividing the single loan so that one person does not have to buy the whole thing, but only a tiny fraction of it. It was illegal then. This giant demand to buy up mortgages could have been diffused via realistic risk assessment - the credit ratings assigned to the mortgages. These scores were horrible, individually, but when enough were grouped together, the ratings turned to gold. And they were sold as extremely save investments. This was not done by the government. There are competing ratings companies. They all got it wrong. The investors knew that even if the loans defaulted, they would own the actual properties which have value and historically had done very well. Unlike, for example, stock in a company which could become worthless. However, the huge demand drew up prices to very high levels - and investors still bought in.

You can assign blame to:
(A) investors who bought the mortgages (chopped up into tiny pieces)
(B) the people who bought the homes and had adjustable rates
(C) the lenders who loaned crazy adjustable rates which people wouldn't be able to afford when they adjusted
(D) the US congress and president for legalizing the chopping up of the mortgages
(E) the credit ratings agencies for getting it wrong (assigning low risk)

I don't really care.

However, the notion that somehow there was too much regulation is insane. It is virtually a certainty that several key steps to this process will become illegal so as to avoid a repeat.

Pulling yourself up by your own bootstraps only works when you have boots on your feet.

Can't even afford boots? Sucks to be you!

I've got two things to say:

- Economics is the voodoo black magic of the modern world.
- Soulshaver is a retarded hippy.

That's a good way of ignoring a few essential realities. Wages have fallen in real dollars for years and the stratification of wealth has become more prominent. People spend partly to ignore those realities-- or rather, credit has become a way of pacifying people and slowly taking away the wealth from the bottom four quintiles, while adding to the wealth at the top. They term it "trickle down economics" except, everyone in power knows that nothing ever really trickles down. Now, personally, instead of blaming themselves and being settled with their lot in life like good little paeans, I think maybe this should be a sign that unfettered capitalism has failed everyone except the elite. Granted, this has been hitting us in the head for decades but it takes a lot for people to penetrate through the veil of American mythology.

Edited, Mar 30th 2009 7:08pm by Annabella