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"What happened," said Roger, "is that investment banks and hedge funds created ever more arcane instruments which they could flog to one another in a completely false market. Because it was over the counter, in private, the regulators couldn’t see it. Then they could sell an inverted iceberg of bets on the likelihood of the original instruments defaulting. They were able to account a notional profit on the balance sheet on all this Alice in Wonderland crap and so pay themselves gargantuan bonuses."
Other conversations along the table were dying out as people began to sense drama or blood.
Veals smiled thinly. "I’m afraid it’s rather more complicated than that."
"Do you know what?" said Roger. "It really isn’t. It’s a fraud as old as markets themselves. The only difference is that it’s been done on a titanic scale. At the invitation of the politicians. Behind the backs of the regulators and with the dumb connivance of the auditors. And with the fatal misunderstanding of the ratings agencies."
"That’s a cute story," said Veals. "But financial life is more - "
"No, it isn’t," said Roger, his voice growing louder. "Do you know how high a million dollars in $100 bills would come up off the table tightly packed" I’ll tell you. Four and a half inches. And do you know how far a trillion reaches?"
"Yes. I can work it out." John Veals paused only for a moment. The whole table was now watching and listening as his fabled mental arithmetic went to work. "Seventy-one miles."
"Correct," said Roger. "That’s how much has been misappropriated or mislaid. And all of it will have to be paid back before the world can move on. Every inch of the tightly packed seventy-one miles. Over a period of - how long would you say? Five years? Ten? And it won’t be paid back by people like you, John, you or the bankers, because I don’t suppose you pay tax, do you?"
"I pay what I’m legally required to pay."
"I think we can take that as a no," said Roger. "And the misdemeanors of the bankers will be paid for by millions of people in the real economy losing their jobs. And in paper money, the trillion will be repaid in higher tax on people who have no responsibility for its disappearance. And the little tossers in the investment banks who’ve put away their two and three and four million in bonuses each year over ten years . . . They’ll hang it on to it all.. And they of course will be the only ones who won’t pay back a coin. Which is bloody odd when you come to think of it. Because really they ought to be in prison."
The Repubs for pushing the changes to Wall Street investments.
The Dems for pushing debt on people that couldn't qualify for it.
It took both sides to cause the crash.
Or just the one side that controls policy on bother sides. The liberals created the artificial demand and the conservatives created the bank credit. The liberals think we get rich with welfare and the conservatives think we get rich from housing and private debt. Both act like a money pump to the rich. Like I have said, the electorate are helpless and ignorant and they cannot save themselves.
Two million mortgages never saw the first payment paid. Thebuyers lived free for a few years till the banks could foreclose.. many states takes 3 years or more to get the foreclosure through...
Bush wanted to do an investigation on the housing industry but the democrats objected saying all was fine with Fannie Mae and Freddit Mac... Barney Frank and Maxine Waters were at the head of the pack.
What a totally rational and unbiased source !!
I am convinced.
Did the Community Reinvestment Act (CRA) Lead to Risky Lending?
Yes, it did. We use exogenous variation in banks’ incentives to conform to the standards of the Community Reinvestment Act (CRA) around regulatory exam dates to trace out the effect of the CRA on lending activity. Our empirical strategy compares lending behavior of banks undergoing CRA exams within a given census tract in a given month to the behavior of banks operating in the same census tract-month that do not face these exams. We find that adherence to the act led to riskier lending by banks: in the six quarters surrounding the CRA exams lending is elevated on average by about 5 percent every quarter and loans in these quarters default by about 15 percent more often. These patterns are accentuated in CRA-eligible census tracts and are concentrated among large banks. The effects are strongest during the time period when the market for private securitization was booming.
I recall Greenspan for many years was screaming about the housing bubble that was going to burst.. the shadow banking that was not regulated was also pushing loans.
Clinton, Reno, Holder, Dodd, Frank, Waters, Raines, Cisneros, Cuomo.....the list is endless.
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