Near as I can tell, Greenspan pumping trillions of near free credit into the economy is nearly if not more culpable than the loose underwriting at these banks - after all, if they didn’t loosen them, they’d lose their market share in near free credit environments.
And what about the borrowers that were signing up for these completely unrealistic loans? How do they fit in?
And the poor bastards bidding crazy amounts trying to get a house, any house, and also way overpaying in any real sense because of these crazy bidding wars?
It’s easy to blame amorphous entities, it’s hard to really nail down what was actually happening - and point out that everyone in the US was playing a part in a spiraling out of control mess.
Most of those details are in the findings of the Financial Crisis Inquiry Commission [1]:
"More than 30 years of deregulation and reliance on self-regulation by financial institutions, championed by former Federal Reserve chairman Alan Greenspan and others, supported by successive administrations and Congresses, and actively pushed by the powerful financial industry at every turn, had stripped away key safeguards, which could have helped avoid catastrophe. This approach had opened up gaps in oversight of critical areas with trillions of dollars at risk, such as the shadow banking system and over-the-counter derivatives markets. In addition, the government permitted financial firms to pick their preferred regulators in what became a race to the weakest supervisor."
...
"In the years leading up to the crisis, too many financial institutions, as well as too many households, borrowed to the hilt. ... [A]s of 2007, the leverage ratios [of the five major investment banks] were as high as 40 to 1, meaning for every $40 in assets, there was only $1 in capital to cover losses. Less than a 3% drop in asset values could wipe out a firm. To make matters worse, much of their borrowing was short-term, in the overnight market—meaning the borrowing had to be renewed each and every day. ... And the leverage was often hidden—in derivatives positions, in off-balance-sheet entities, and through "window dressing" of financial reports available to the investing public. ... The heavy debt taken on by some financial institutions was exacerbated by the risky assets they were acquiring with that debt. As the mortgage and real estate markets churned out riskier and riskier loans and securities, many financial institutions loaded up on them."
...
> Near as I can tell, Greenspan pumping trillions of near free credit into the economy is nearly if not more culpable than the loose underwriting at these banks - after all, if they didn’t loosen them, they’d lose their market share in near free credit environments.
None of the firms told Greenspan to stop. They pushed for more and more deregulations and continued to take the money.
> And what about the borrowers that were signing up for these completely unrealistic loans? How do they fit in?
> It’s easy to blame amorphous entities, it’s hard to really nail down what was actually happening - and point out that everyone in the US was playing a part in a spiraling out of control mess.
No, it's pretty well documented. Calling the financial industry "amorphous entities" is... well, just kind of humorous. It's your choice whether to hold the industry that spent decades eliminating regulations for themselves accountable, or the people the industry took advantage of once they were free of oversight.
In line with your argument, if our financial elite don't know more about finance than everyday citizens (why else hold them equally accountable), and they're too incompetent to regulate themselves (else they would have corrected the Fed's behavior), what is their purpose? Wouldn't it be cheaper for everyone if we gave practically interest free money directly to businesses that produce actual goods and services?
[1] https://en.wikipedia.org/wiki/Financial_Crisis_Inquiry_Commi...
You can certainly go on about all the folks who didn't stand up and say 'Stop!' - but really, we've got a bunch of those brewing in tech, and no one listens to anyone saying stop there either. There are a million apocalypses predicted every day - and it's rare if any of them ever ACTUALLY happen.
In retrospect, you can find those doing it in Finance back then, but they couldn't stop this mess anymore than anyone else - and plenty of people easily papered over the possibility of the crash, the same as we paper over a million other issues in tech.
The regulators were in on all this too.
So you can blame 'finance', same as someone could blame 'tech' for the election. But it doesn't really mean anything and it won't change anything, because it doesn't provide any useful information or potential corrective action.
> You can certainly go on about all the folks who didn't stand up and say 'Stop!' - but really, we've got a bunch of those brewing in tech, and no one listens to anyone saying stop there either. There are a million apocalypses predicted every day - and it's rare if any of them ever ACTUALLY happen.
They built models on the basis that house prices do not go down, counter to lessons I learned in a 9th grade economics class about boom and bust cycles. They lobbied to remove regulations designed to reduce risk and over leveraging, and the risk increased and they became over leveraged. They continued to repackage bad loans from predatory lenders as AAA investments well after they understood the consequences. That's why the major firms offloaded those financial instruments to anyone they could find, even if it meant wiping out the life savings of millions of people by saddling pension funds with negative equity. It was not an apocalypse. It was history repeating itself.
> In retrospect, you can find those doing it in Finance back then, but they couldn't stop this mess anymore than anyone else - and plenty of people easily papered over the possibility of the crash, the same as we paper over a million other issues in tech.
It looks like we agree that they are incapable of regulating themselves. If they aren't competent enough to understand the regulations they dismantled, or to take boom and bust cycles into account for financial planning, what is their purpose? If they can't mitigate risk or provide liquidity in a crisis, what function do they serve in the economy?
> So you can blame 'finance', same as someone could blame 'tech' for the election. But it doesn't really mean anything and it won't change anything, because it doesn't provide any useful information or potential corrective action.
Nations like Canada did not remove the regulations, and did not have a similar liquidity crisis, although they did suffer economically because the US financial system crash was so severe. There was a wealth of information on the effectiveness of regulation and firewalls between banking institutions, and many economists predicted another financial crisis before Glass-Steagall was effectively repealed after decades of lobbying from the financial industry. Canada was able to apply this useful information and take corrective action which kept them out of the crisis.
Similarly, there was plenty of literature on why placing social media outside the regulatory environment for all other media was dangerous well before the election and QAnon. The tech industry could do something similar, but you and I both know they are lobbying to keep regulations out. They are purposefully avoiding corrective action, despite the severity of the consequences, because it means they may make less money and have more competition. They want all the profit from their monopolies, but they don't want to spend any money to moderate it or comply with regulations. It's nothing but greed and hubris, and it is just as contemptible as the same motivations in the financial industry.
The solution is not mysterious or unknown, it's effective regulation. Your hypothesis is that no one in the tech or financial industries are capable of understanding the effect of their actions, or accepting accountability for them. I believe they do understand the effects of billions of dollars in lobbying activity, and know that if their scheme fails, they can avoid accountability, keep their profits, and still get bailed out. In either case, the "potential corrective action" is the same: effective regulation.
