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What really happened was a failure of the government to exercise proper regulatory control over mortgage banking and securities.
That's a good post that hits on many valid and worthwhile points. But the issue as far as government went was that under Bush-43 and Greenspan, there was no intention to exercise proper regulatory control over much of anything to start out with. Bush upped low-income targets for the GSE's, cut leverage limits for the Big Five on Wall Street, and basically told everybody to do more and more and more of just what they were doing. Greenspan put his stamp of approval on everything that was going on in subprime credit markets, even when directly questioned about rising indications of credit market abuse that he should have been dealing with.
But what really happened hinged more on simple private sector greed and corruption. The success of CRA loans in "traditionally underserved" (i.e., red-lined) neighborhoods in the 1990's was like the discovery of gold in California in the late 1840's. In an otherwise rather staid market, here was this whole untapped pool of potential profit waiting to be exploited. Sadly, among the first to arrive on the scene were an ambitious but unscrupulous group of unregulated private mortgage brokers. In tandem with Wall Street, they simply built a bypass around the controls and filters of the GSE's that could carry almost any sort of paper from these newly emerging primary markets into the secondary markets where the money of institutional investors awaited. The GSE's for their part had been expecting that they would play the same role for subprime credit that they did for prime credit. They had been conducting research and testing to develop the sorts of instruments and guidelines that would be most appropriate in a subprime situation, but they were headed off at the pass by the Wall Street end-around that left the likes of Countrywide, Ameriquest, and New Century Financial in the market-defining driver's seat that the GSE's had traditionally occupied. All went well enough for a while. There was more access to credit, broader real estate markets, and handsome profits and bonuses for all involved. Problems arose however once that newly discovered pool had actually been drained. There came a point in time where everyone who actually wanted or needed and was qualified for a new mortgage already had one. The only way for Wall Street to maintain its glitzy profits and bonuses was to do massive lending to people who were plainly not qualified for it and to start using strong-arm tactics to get unqualified people into such loans when they were resistant to it. And that's what happened. "I'll be gone, you'll be gone. It will all be somebody else's problem." That was the mantra and ethic of Wall Street at the time and no one with responsibility for it chose to do a single thing about it. So, the predictable occurred. More and more paper that everyone knew could not survive a rise in interest rates was written, sold to private-label securitizers, and then packaged off into secondary markets hungry for yield in light of very low official interest rates. When interest rates began to rise in mid-2004, more and more of these defective loans began to fail. By mid-2006 the original trickle had become a torrent and by mid-2007 major international players were taking huge mark-to-market losses and with webs of opaque systemic risk sapping trust by tainting everyone's books, we were smack dab in the middle of a global credit crisis. Untreated, that crisis spread from the financial economy into the real economy where it soon begat the Great Recession and the long shadow of it that we still grapple with today.
There wasn't anything actually wrong with any of the instruments that were used in this era. Each of them would have a proper role under certain circumstances. The problem was with the way in which these instruments were used and with the motivations of the people who were doing the using. After them come the people who should have been putting a stop to all this but didn't.
You can't write laws that will erase history. You write laws to help shape the future and the first attempts at such things are rarely the last. The bailouts meanwhile were not for the purpose of aiding the banks or the bankers. They were to shore up an international financial system teetering on the brink of collapse on which the welfare of you and billions of other people around the world critically depends. Without a functional financial system, economic activity collapses, taking product and income with it. That's the scenario that was being warded off. Yours are the interests that were being protected.
Unless you want to make the situation permanent, nationalizing the banking system is a tough go. It would be very difficult to re-privatize. And of course, you would have to begin the nationalized era by leaving all the same private sector people in place if you wanted these nationalized banks to be capable of actually functioning, and that means you won't be able to lock them all up in some new version of Abu Ghraib.
There is nothing inherently wrong with any form of financial derivative. All of them were invented to address legitimate needs and purposes. The problems result from the misuse of whatever instruments are available. Misusers simply misuse. If you can't control the misusers, the array of available instruments simply won't matter.
The President does not have authority over the FED. Congress does. The FED does seek to support the economic policies of the President to the extent that such support is consistent with its mission to maximize employment while maintaining stable prices and moderate rates of interest.
The Pres certainly has input though. For instance he picks the big cheese.
And second The Treasury is part of the Executive. And as such has significant influence.
Because it isn't. Except in the salons of whacko-world.
Check your facts and get back to me. It is owned by the big banks.
Quote:
Originally Posted by ContrarianEcon
"The Federal Reserve is literally owned by a conglomerate of banks; and Hank Paulson, who heads the U.S. Treasury, entered that position through the revolving door of investment bank Goldman Sachs, where he was formerly CEO." from the link.
Most people forget or don't know that the Fed is owned by the big banks.
Is the article in error in its facts? if so can you show a credible source to back up what you say?
The President does not have authority over the FED. Congress does. The FED does seek to support the economic policies of the President to the extent that such support is consistent with its mission to maximize employment while maintaining stable prices and moderate rates of interest.
This is entirely false. The FED is a US government agency. Everyone who works there is a federal employee. The regional reserve banks are a network of agents for the Board of Governors that were also established by Congress. No part of the system is owned by any bank, large or small.
I will let the accuracy of your last statement about the president not having input into the actions of the Fed speak for your accuracy in this matter as well. Or here is about the top hit on google to the question who owns the Fed Who Owns The Federal Reserve? | Global Research
this was published before we were told that "our credit markets were frozen"!
cough cough it is the people stupid not the derivatives that drive the economy.
first things first 20-30 trillion to bail out the banksters would be 1000x better spent giving every man woman and child citizen of the usa 100k.
instant inflation for the time being but MUCH better never the less.
and inflation would fall off to about 10-20% anyway.
compared to now 30-40-50% inflation rates since 2008.
people would have paid their homes and took it and spent it creating demand.
prices would go up and then crash again but that would have been 100x better than now.
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