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A lot of mathematicians and economists say, that because there was less debt in the system, that if we would have just dealt with it then the pain would have been less severe then it will be for the next crisis.
Now we have tremendous debt, and no bullets in the Fed gun.
But that's what happens when you try to create a society that doesn't feel pain, instead of teaching them grit and toughness.
It started out as mortgage crisis but became a credit crisis primarily due to the exotic derivatives that were created from bundling the bad mortgages and selling them. Businesses could not conduct normal business, like make payroll, because they could not get short term loans. The depth and breadth of the credit crisis was incredible. It spread globally so obviously was way beyond just a few Americans who had bad home loans.
not quite what happened .
actually how it got kicked off was the public and institutions were crying for higher yields .
so wall street took the same old mortgage bundles they always did which were still pretty high quality and decided to market them with an untested twist . this is why the credit agency's gave them the all clear , credit wise they were fine .
the twist to these cdo's was that investor group one got the same conventional package they always got and a low interest rate .
group 2 got the same package too but they got a higher rate of interest under 1 stipulation , they get no payments until group 1 got paid .
group 3 got a higher rate but they had to wait for 1 and 2 to get paid .
things went along just fine until news broke that some banks made loans they should not have and the loans may eventually be riskier than thought .
well group 3 and group 2 wanted out only there were no takers . with no takers there were no investors to buy up more recently made loans and little by little the flow of money was drying up freezing things .
simultaneously , picture a las vegas betting parlor where you could bet on group 1 ,2 or 3 getting paid off eventually or stiffed . that is the credit swap market .
there were bets on whether loans would be paid that were bigger than the loans . the brokerages were using borrowed money to bet against or for these loans being paid .
eventually when some defaulted the brokerages like Lehman owed more money than they could come up with and things started to crumble fast .
money which is the blood of the economy was almost out of circulation . banks were dry as all movement stopped .
eventually business's started to fail and miss pay roll and that is when homeowners lost jobs and couldn't pay worsening an already bad situation .
we sold one of our nyc co-ops in 2008 . 2 banks reneged when closing came because they had no money to loan .
We dodged a huge bullet. Our entire economy is based on credit and liquidity and both had almost disappeared in October 2008. If TARP had not stepped in I believe we could have suffered a collapse worse than the 1929 crash.
It would have been really bad, but not as bad as the Great Depression.
I don't think a situation like the Great Depression could occur in this country in this day and age given where technology is.
"It began in 2007 with a crisis in the subprime mortgage market in the USA, and developed into a full-blown international banking crisis in 2008."
not the whole story , it was far more complex . no one woke up one morning and said , i have been paying my mortgage all along so today i think i won't pay .
there were events and reasons that led up to them losing their jobs and not being able to pay . the main reasons for the collapse of company's and jobs was the frozen credit markets from the PERCEPTION that there may be riskier loans in the packages . there was a rash of subprime mortgages issued with two-year teaser rates. These rates would be around 4 to 6%, and then possibly jump crazy high after that . that struck fear in the tiers that would not get paid until the groups below them did .
the defaults came later .
Last edited by mathjak107; 01-17-2017 at 04:42 PM..
They should of let it crash. That way big corps and banks that made bad decisions would of went belly up, the businesses that didn't make bad decisions and others with money would of had a tremendous amount of opportunity to pick up the pieces, expand, produce, etc......
We would of been much better off in the end and recovered faster. Now, we just have a bunch of big corps and banks who feel no matter what they do the government will always bail them out.
They should of let it crash. That way big corps and banks that made bad decisions would of went belly up, the businesses that didn't make bad decisions and others with money would of had a tremendous amount of opportunity to pick up the pieces, expand, produce, etc.....
I tend to go with that. Perhaps better to have let the entire financial system flush itself out.
Bottom line: the reason they injected capital into banks rather than using the cash to pay homeowners directly is leverage. If you use $100 Million to assist homeowners with mortgages, then you're done. But if you use $100 Million to inject capital into banks, those banks, can use it to refinance Billions via leverage.
Which is a great 1st person account of the Inspector General auditing the results of the program. Banks didn't always use the money the way it was hoped.
*****
During the height of the crisis, General Electric couldn't get a loan from banks for liquidity based on their non-cash liquid assets. Think about that: General Electric, one of the best run corporations in the world, and one with a solid balance sheet, could not get a short term loan.
Why? Banks were too scared. They were like deer caught in the headlights.
That's nuts.
If we had not bailed out the banks, essentially every corporation and business in America would have run out of cash and gone belly up.
As it stands I think it was worse than the Great Depression for a couple reasons...mostly because it affected many more people - but also because the ramifications may last even longer. Here we are 10 years later and it's fair to say that many of the debts (including much of the Federal Debt related to it) will take at least another decade to filter through the system. But this time we won't have consumer manufacturing and the baby boom, etc. to pull us out - so it may effectively spell the beginning of the end of the American Economic Miracle.
That said - without the Government involvement, I believe we would have had a full blown Depression along with the possibility of stuff like having to revalue the currency (turn in your $20 for new $10 bills, etc.). The worldwide repercussions would have been even more vast.
As far as the reasons for it - this is a simple story. Wall Street and Corporate Greed. Period. Of course, this had to be allowed by the lack of regulation and removal of protections over the 30 years before...but it was all done very purposefully.
Notice that whenever all these things occur - whether war, recession, excess debt, out of control medical costs, etc - one thing results "an increase in inequality". In other words, all of these actions end up sucking away wealth from the average American and granting it to the top 1%.
When our debt and deficit rises - because of War and Medical Costs and Tax Cuts - each American ends up with the debt (portion). However, that money enriches the corporate set and the 1%.
There is a club and, as George Carlin put it, you are not in it.
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