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Events, policies and decisions at the top level during the prior fifteen years caused that recession. Clinton was responsible for Nafta and the dismantling of Glass-Stiegel. Bush was responsible for an unnecessary war in Iraq, irresponsible levels of deregulation and inept handling of economic decisions.
Of the five items that I mentioned, I guess that Glass-Stiegel and irresponsible levels of deregulation go to the top of the list.
What have I learned from it? Diversify investments, don't count on anything being secure, and vote for candidates that have demonstrated real mental horsepower not well hidden incompetence.
Capitalism is inherently an unstable system. It has booms and busts. It always has, in every country and every time that it was possible. The banking crisis was set up by deregulation, but there was a recession before the banking crisis. The banking crisis just added to it, and in fact the banking crisis was triggered by the recession.
What do you think the main cause of the "Great Recession"(oxymoron) was also what is/are the lessons you learned from it? Have you recovered?
The mortgage refinance fraud. Consumers were borrowing equity from their homes in order to supplement their incomes. You could track the mortgage equity cash-out's dwindling from 2005 to where it became non-existent by Q3 of 2007. The loss of this supplemental income had a huge effect on the economy since it amounted to 6 percent or more income (400-500 billion dollars) at its peak. Many homeowners couldn't afford the homes they lived in and kept pulling out cash to meet their monthly payments for anywhere from 6 to 12 months. Investment bankers were intentionally seeking out these bad credits to package into mortgage securities they were looking to sell to foreign investors.
In a nutshell, that was the activity that created the bubble but there were regulatory actions pursued by the FIRE industry to promote the housing bubble. Without the federal approval of downpayment charities and the federal regulators blocking the states from enforcing predatory lending laws, much of the subprime lending wouldn't have occurred.
I think I learned that one can protect themselves from Recessions, by keeping their skills diverse. IMO, the biggest problem with recession is people, and not the economy itself. People just aren't diverse enough to get through the rough patches any economy will have.
As an example, pre recession I did nothing but "new" work for clients. Basically I was in the residential/commercial service industry. Would install home theatres, phone/data service. etc...all which are things that are commonly bought during the 'good' times. Once the recession came I changed my skills and clients. Mind you the skill change was not that major. But I began servicing foreclosed homes, which saw surge in business. My clients went from being John Q. Public to being Chase, Wells Fargo, etc...
I was also was willing to travel for work. I know some people who stayed unemployed even though they were perfect fits for jobs 2-4 hours a way, and they had the ability to travel. At 1 time, I would stay in a hotel, work during the week 3.5 hours from home, and return on the weekend.
So, IMO, with a little flexibility and skill diversification recessions can be painless. We have a mixed economy primarily based in capitalism. There will always be change in our economy. But too many people look at 'shifts' in an economy as a bad economy, and to be honest, if you work in the US economy and are not prepared for a shift in the economy, I can see why so many people think its a bad thing. But they really arent that bad if you are preapred and willing to do what it takes to survive.
The natural state of an economy is slow, steady growth. Recessions are signs that something has gone or been done wrong. And it is the case that until the major Bush-43 debacle, recessions in the post-WWII era had been trending toward infrequent, mild, and short. That's what idiot right-wing economics will get you though. It just plain makes no sense.
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Originally Posted by tickyul
The financial-vultures should have been a part of this equation, taking care of the meaty scraps. Instead, we got endless bailouts, payoff for connected-folks, corrupt deal making, no REAL reforms, a bubble that did not TRULY deflate, ZIRP that is designed to balloon-up the stock markets.
Typical right-wing magpie malarkey. Don't screech-birds ever tire of embarrassing themselves this way? The rescues carried out here and elsewhere were not to reward or endorse the actions of anyone. They were to pump liquidity into a global financial system that was rapidly lurching toward collapse without it. Maybe wake up and smell the coffee on some days at least. Without a functional financial system, economic activity comes to a halt. That means YOU. YOU are the one who was being rescued in the so-called financial bailouts.
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Originally Posted by tickyul
Laughable that the Lefties really are not up in arms over this whole scam. Instead they babble nonsense about evil corporations and wage disparity.
No, they are more apt simply to be speaking out against more dumbo right-wing plans to solve anything and everything through increasing tax cuts for the rich and mega-corporations. Aside from those failed notions, the right-wing seems to have no economic policies at all.
Instead of watching cartoons, try reading some factual material on what caused the collapse.
I'm kind of pretty much sure that I have read and understood a great deal more factual material here than you have. Aside from its conflation of subprime lending with abuse of subprime credit markets however, the cartoon in 11 minutes does quite a respectable job of providing neophytes with a passable overview of the rise of the credit crisis. Did you disagree with any of it, or did you just not watch it?
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Originally Posted by Annuvin
It started long before Bush Sr. served as Vice President under Reagan. The root causes of the crisis was the collapse of the housing bubble (fuelled by sub-prime loans), predatory lending and deregulation - the latter which began when Carter was President:
Sorry, but that's pure piffle. The history of financial regulation and deregulation will be completely irrelevant until you can tie it in some way to actual events and ideas that were material and proximate factors in the rise of the credit crisis and subsequent Great Recession. You have not done that yet, and you won't because you can't. Not in the cases of GSG or CRA and not in the cases of GLB or CFMA either. Such arguments all collapse into flimsy smokescreens designed to divert attention away from the actual culprits -- unscrupulous cowboy capitalists on Wall Street aided and abetted by the incompetent fiscal, monetary, and regulatory actions of the inadept Bush administration in Washington. The credit crisis was born and raised between 2002 and 2006, coming into full flower in the summer of 2007. It arose from the default of too many loans that even the people who wrote those loans knew full well would default as interest rates rose. Interest rates did indeed rise between mid-2004 and mid-2006. The rest is history, albeit history that many people do not understand.
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Originally Posted by Annuvin
Blaming Dubya for the 2008 crisis is just as ludicrous as blaming Obama for ISIS.
LOL! ISIS is a by-product of that other massively ignorant blunder by Bush-43 -- the Invasion of Iraq.
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Originally Posted by Annuvin
Now before you label me a Republitard, Teabagger or whatever political slurs you Yanks get off on tossing at each other these days, it should be noted that I am a Canadian and have absolutely no dog in the fight...
Being Canadian hardly immunizes one against the ignorance of stupid ideas or unfounded opinions.
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Originally Posted by Annuvin
Seriously... No wonder your country is so messed up.
We have enough of your pipelines already, eh. Build another one over to Vancouver if you'd like.
Well, that may be why nobody takes capitalism seriously, but the problem here was much more centered around the fact that Republicans are inherently lousy stewards of the economy. Compare the big pictures before and after the Bush-43 administration. Penthouse to outhouse in eight short years.
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Originally Posted by Larry Caldwell
The banking crisis was set up by deregulation, but there was a recession before the banking crisis. The banking crisis just added to it, and in fact the banking crisis was triggered by the recession.
Solar radiation seems to be interfering with transmissions. Can you explain all that one more time?
Sorry, but that's pure piffle. The history of financial regulation and deregulation will be completely irrelevant until you can tie it in some way to actual events and ideas that were material and proximate factors in the rise of the credit crisis and subsequent Great Recession. You have not done that yet, and you won't because you can't. Not in the cases of GSG or CRA and not in the cases of GLB or CFMA either. Such arguments all collapse into flimsy smokescreens designed to divert attention away from the actual culprits -- unscrupulous cowboy capitalists on Wall Street aided and abetted by the incompetent fiscal, monetary, and regulatory actions of the inadept Bush administration in Washington. The credit crisis was born and raised between 2002 and 2006, coming into full flower in the summer of 2007. It arose from the default of too many loans that even the people who wrote those loans knew full well would default as interest rates rose. Interest rates did indeed rise between mid-2004 and mid-2006. The rest is history, albeit history that many people do not understand.
This set the stage, but all this from Carter through Clinton was really basically the liberalization of lending. Opening all the pathways and floodgates to home ownership. And that created vast opportunities and improvements in millions of lives and families. And it created vast wealth. But basic lending and banking regulations kept it all under control. In general the information was well enough known or available to be known on all sides. Consumer, lender and regulator.
Why it went kablooey thereafter is related to unfettered capitalism. Up until 2008 it was fettered enough.
And that happened because the geniuses on Wall Street had specialists figure out how to repackage and then guarantee and sell off all their dirty and crappy paper to millions of people and investment entities around the world. The whole charade couldn't happen if the lenders couldn't pawn off their crap. So without the proper oversight and regulation at this point, we got kablooey! Me, you and million other investment entities, along with Greenspan and Bernanke were clueless.
This is information asymmetry, the ruse supported by no less than S&P (!), of the worst kind for the consumer and economy.
The mortgage refinance fraud. Consumers were borrowing equity from their homes in order to supplement their incomes.
People were refinancing in order to take advantage of the free money made available by declining mortgage interest rates. People who held a pre-2001 mortgage and did not refinance one or more times after that made a huge and costly mistake.
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Originally Posted by lchoro
You could track the mortgage equity cash-out's dwindling from 2005 to where it became non-existent by Q3 of 2007.
Do you recall what interest rates were doing during at the time? Rising rates are just as big a disincentive to a refi as declining rates are a promoter of it.
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Originally Posted by lchoro
The loss of this supplemental income had a huge effect on the economy since it amounted to 6 percent or more income (400-500 billion dollars) at its peak.
Refis that lower your interest rate provide a PERMANENT improvement in your cash-flow situation. It is not some sort of come-and-go, one-time thing.
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Originally Posted by lchoro
Many homeowners couldn't afford the homes they lived in...
Many homeowners couldn't afford the tricked out notes that shysters and swindlers had dishonestly pressured and sweet-talked them into. Kind of a different thing, really.
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Originally Posted by lchoro
...and kept pulling out cash to meet their monthly payments for anywhere from 6 to 12 months.
Many people will go to significant lengths in hopes of saving the homes that they worked so long and hard for. Did you know for instance that as the crisis grew, one of the best and longest performing market sub-sectors was ITIN mortgages? Those are issued to borrowers who do not have a Social Security number and nearly all of them were held by undocumented immigrants. Until late in the game, their default rates were running at one-fourth to one-third those of actual citizens.
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Originally Posted by lchoro
Investment bankers were intentionally seeking out these bad credits to package into mortgage securities they were looking to sell to foreign investors.
That's the Wall Street cabal of cowboy capitalists you're talking about there. The Big Five investment banks and their newly built-out private-label securitizing shops, a bunch of unscrupulous private brokers (Countrywide, Ameriquest, New Century Financial, etc.), networks of compromised real estate appraisers, and of course a bunch of bewildered (at best) bond raters. These folks did make big money off mortgages with no problems for a while, but when the pool of actually qualified borrowers began to dry up, they refused to sacrifice their profits and bonuses and just kept pushing worse and worse product into the hands of less and less able clients. Not much of a surprise how that turned out.
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Originally Posted by lchoro
In a nutshell, that was the activity that created the bubble...
There wasn't a bubble. The cowboys knowingly and deliberately made loans to people who coiuld not repay them. You could call that greed and treachery, but it's not a bubble. Bubble has become just a diversionary cosmetic word used by dishonest sorts to mask criminal and related untoward behavior that they just don't want you to dwell on or worry yourself over.
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Originally Posted by lchoro
...but there were regulatory actions pursued by the FIRE industry to promote the housing bubble. Without the federal approval of downpayment charities and the federal regulators blocking the states from enforcing predatory lending laws, much of the subprime lending wouldn't have occurred.
Thank you, Elliot Spitzer, and you and others are quite right that the incompetent fiscal, monetary, and regulatory policies of the Bush-43 administration did much to encourage the crisis. But they had elections to win, you know.
This set the stage, but all this from Carter through Clinton was really basically the liberalization of lending.
That much was actually overdue. The world had changed since the 1950's and finance had not kept up. Millions of non-Ozzie-and-Harriet borrowers who were perfectly capable of repaying the loans they sought were locked out of traditional credit markets. Their capacities for wealth-building were being sapped through resort to the finance companies and their their payday-lender-like rates, fees, and charges. Some things did indeed need to change. Furthermore, every administration since FDR had taken up expanding home ownership as a goal. All of them had succeeded at it until Reagan and Bush-41. This created additional impetus for change. Clinton put some teeth into CRA, and rather suddenly, whole new pools for potential lending were opened up. Sadly, the reckless lenders got to those new markets before the cautious lenders could.
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Originally Posted by Hoonose
And that happened because the geniuses on Wall Street had specialists figure out how to repackage and then guarantee and sell off all their dirty and crappy paper to millions of people and investment entities around the world.
The cowboy capitalists at work. But it should be noted that there was nothing wrong with the tools they used. It was HOW they were used that caused all the problems. There is nothing wrong with subprime lending. There are no inherent defects in ARMs or CDOs or CDSs. But these can be like chainsaws. Used properly, they can be amazingly useful tools. Used improperly, they can cause a world of pain and damage.
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Originally Posted by Hoonose
The whole charade couldn't happen if the lenders couldn't pawn off their crap. So without the proper oversight and regulation at this point, we got kablooey! Me, you and million other investment entities, along with Greenspan and Bernanke were clueless.
It wasn't that tools for oversight and regulation were not available, it was that despite mounting alarms, use of those tools was not even considered in a laissez-faire, free-market regulatory environment. Markets are wise enough to regulate themselves. That of course was Greenspan, but Bernanke couldn't have been confirmed without a promise not to tamper with any of the outgoing Chairman's major plans and policies. Bernanke really arrived only in time to help clean up the mess, a task that he and Geithner actually handled with considerable skill.
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Originally Posted by Hoonose
This is information asymmetry, the ruse supported by no less than S&P (!), of the worst kind for the consumer and economy. This is what was new. And this is what took it all down.
Yes, S&P has some chutzpah to be saying anything at all these days. The other term for "correlations" here is of course "systemic risk" -- terrible tentacles that reach out into opaque markets and make assets dependent on each other in ways that are undetectable at any level of precision. But you can't blame David Li for any of that. As he said himself, the problem with his approach arose from the poeple who, while not really understanding it, put their implicit faith in it and bet on it to the hilt because -- for a while -- it helped them make money. Money that they weren't willing to give up. So they rode Li's horse until it dropped dead under them. Then they called out for federal help. That's capitalism for you.
Well, that may be why nobody takes capitalism seriously, but the problem here was much more centered around the fact that Republicans are inherently lousy stewards of the economy. Compare the big pictures before and after the Bush-43 administration. Penthouse to outhouse in eight short years.
Originally Posted by Larry Caldwell View Post
The banking crisis was set up by deregulation, but there was a recession before the banking crisis. The banking crisis just added to it, and in fact the banking crisis was triggered by the recession.
Solar radiation seems to be interfering with transmissions. Can you explain all that one more time?
The recession started with the explosion in crude oil prices. When gasoline hit $4/gal I knew it would suck the life out of the economy. There was a stock market bubble under way, so I bailed on the stock market. Six months later, a few $billion in paper profits evaporated. Businesses started layoffs to bolster their stock price. The continual inflation in housing prices stopped, and investors quit buying real estate intending to flip it for short term gains. Housing prices actually started to fall, and the default rate on mortgages started to rise. Banks were heavily leveraged in real estate, and investors started to call their notes. This started to reveal the underlying weakness in mortgage secured instruments. Banks were stuck with unsaleable assets, and were unable to meet the calls, which forced them into bankruptcy.
The recession was already well under way when the banking crisis hit. The Chrysler bankruptcy was not related to the banking system, it was just a result of the general recession. In retrospect, the banking crisis was the big news and people think it started the recession, but it did not. Like all recessions, it started with speculation in stocks and commodities. I was expecting a modest 25% drop in stock prices. When the banks crumbled I got a delightful 50% drop in stocks and real estate. I doubled my money in 2 years.
What I learned from the "great recession" in the 1980s was not to trust the economy. It was really painful when the Dow dropped to 600 and I was broke. This time I knew better.
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