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The 2008 Crisis

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  • The 2008 Crisis

    Not to derail the wealth thread... and this info is making news today...

    Two days after U.S. officials decided to let Lehman Brothers collapse in September 2008, and just before the Federal Reserve was about to unleash a torrent of new support programs to bolster a crumbling financial system, central-bank officials were still struggling to grasp the magnitude of the calamity that had hit the U.S. economy.

    The transcripts show how Mr. Bernanke transformed from mild-mannered former professor to audacious crisis manager, and provide deeper glimpses into the views of Janet Yellen, the Fed's current chairwoman who then was president of its San Francisco regional bank.

    Ms. Yellen went along with Mr. Bernanke's decision at the September meeting to keep rates steady, but she warned: "I am very concerned about downside risks to the real economy and think that inflation risk is diminished."

    Other Fed officials were deeply worried.

    "We took a calculated bet," Boston Fed President Eric Rosengren said of the decision to allow Lehman Brothers to fail. "If we have a run on the money market funds or if the nongovernment tri-party repo market shuts down, that bet may not look nearly so good."

    Two days later, as markets went into a tailspin and the Fed moved to bail out AIG, Mr. Bernanke and Treasury Secretary Henry Paulson went to Congress and urged lawmakers to support a bailout for the U.S. banking system.

    By year-end the Fed had cut interest rates to zero, announced plans to start buying private mortgage-backed securities, and set up programs to prop up money-market funds and the commercial-paper market and individual banks such as Citigroup.
    Rather telling that even those at the center of things with all the best information, didn't know or understand what was going on until after it was going on.

    thoughts?



    http://online.wsj.com/news/articles/...LEFTTopStories

  • #2
    Re: The 2008 Crisis

    Yes, I've got a lot of thougts.

    Someone like Bernanke (and DEFINITELY someone like Yellen) believe in a more Keynsian approach to handling crises. No harm/no foul: As Sluggo has explained numerous times, there is a right time for the proper use of the Keynsian model and that 2008 crisis was the right time...

    But, unfortunately, they didn't stop there. Typically (according to theorists like Friedman), inflation is controlled by controlling the money supply. Alan Greenspan controlled the money supply through the lending rates. Bernanke (et al) properly applied Keynes practices (huge infusions of Government cash) but they were supposed to define the END game (the point at which they would no longer flood the market with new dollars). They also SHOULD have dealt out the cash more evenly and not just focused on the Banks (and that whole "too big to fail" was a canard I STILL cannot believe we bought into).

    So those "stimulus" packages could have worked, had they been applied properly but now the failed securities are STILL being packaged and traded, but the banks who bundled them (and almost failed) have learned NO lesson from that debacle because Bernanke (et al) were there to bail them out. There was no price to pay. Further, that stimulus package that Bush pushed through and left for Obama to pay out ... is STILL sitting there in large part: Money that was to go to "shovel ready jobs" (the REAL proper use of a Keynsian economic process), just sitting there unused AND a crumbling infrastucture.

    I'm telling you: LET businesses pay the consequences of their decisions ... AND if the government feels it has to get involved, GET involved in improving our infrastructure and our net capability (instantly creating hundreds of thousands of jobs, to boot).

    מה מכילות החדשות?


    • #3
      Re: The 2008 Crisis

      Originally posted by tsquare View Post
      Not to derail the wealth thread... and this info is making news today...






      Rather telling that even those at the center of things with all the best information, didn't know or understand what was going on until after it was going on.

      thoughts?



      http://online.wsj.com/news/articles/...LEFTTopStories
      Tsquare, with all of the debate, all of the pointing fingers, all of our guesses, we still do not know if the federal reserve did the BEST thing, we only know it didn't do the WORST thing, or the world economy would be no more. We can debate until we are blue in the face, but without past experiments in straightening out such a mess, it will only be opinion that could easily be refuted.

      But one thing we hear from Progressives, and conservatives alike is---------->it was someones fault. Progressives love to point at GW, conservatives like to point at the democratic congress....and that makes it seem we are at odds with one another, but I disagree.

      And before progressives jump this post, may I suggest that you THINK about what you are setting yourselves up for if you do not win a majority of elections!!
      Last edited by tsquare; 02-21-2014, 01:22 PM. Reason: Removed DP

      מה מכילות החדשות?


      • #4
        Re: The 2008 Crisis

        Originally posted by tsquare View Post
        Rather telling that even those at the center of things with all the best information, didn't know or understand what was going on until after it was going on.

        thoughts?
        I don't actually find that surprising at all.
        Last edited by tsquare; 02-21-2014, 01:22 PM. Reason: Removed DP

        מה מכילות החדשות?


        • #5
          Re: The 2008 Crisis

          Originally posted by Imawhosure View Post
          Tsquare, with all of the debate, all of the pointing fingers, all of our guesses, we still do not know if the federal reserve did the BEST thing, we only know it didn't do the WORST thing, or the world economy would be no more. We can debate until we are blue in the face, but without past experiments in straightening out such a mess, it will only be opinion that could easily be refuted.

          But one thing we hear from Progressives, and conservatives alike is---------->it was someones fault. Progressives love to point at GW, conservatives like to point at the democratic congress....and that makes it seem we are at odds with one another, but I disagree.

          If both sides proclaim that the opposite side caused this, than thinking individuals can only draw one conclusion------------>whichever side of the political spectrum caused this; and even if BOTH sides through economic ignorance had a hand in helping this disaster along, then everyone from both sides can logically conclude that the government DUMBASSES have to much power; no matter what party they are from....to impose ideas that do not work for ideological reasons.

          The best and safest bet for both partys, is to get the damn government out of our hair, away from us with their stupid ideas, and let us do the right thing. You can't blame GW for over reaching, then support Obamas more over reaching, because what if that sets a continuing plane, and the next President is from the GOP? And of course, vice-versa!

          Is it not safer to remove the ability from government to screw with the economy as they do, setting us up for more failure?
          I think that everyone in the entire country, perhaps even the entire world, would be better off if government stayed the hell out of the economy.

          The conservatives and about 1/2 of the Republicans would be OK with that, the rest of them would object because it would limit the amount and scope of their overt social engineering that they could implement, and they couldn't have that.

          Seems that these people feel that it's their 'right' and government's 'right' to manipulate and distort the markets, as if this right was given to from God to only them.

          מה מכילות החדשות?


          • #6
            Re: The 2008 Crisis

            Originally posted by Imawhosure View Post
            If both sides proclaim that the opposite side caused this, than thinking individuals can only draw one conclusion------------>whichever side of the political spectrum caused this; and even if BOTH sides through economic ignorance had a hand in helping this disaster along, then everyone from both sides can logically conclude that the government DUMBASSES have to much power; no matter what party they are from....to impose ideas that do not work for ideological reasons.

            The best and safest bet for both partys, is to get the damn government out of our hair, away from us with their stupid ideas, and let us do the right thing. You can't blame GW for over reaching, then support Obamas more over reaching, because what if that sets a continuing plane, and the next President is from the GOP? And of course, vice-versa!

            Is it not safer to remove the ability from government to screw with the economy as they do, setting us up for more failure?
            Or maybe it is a false dichotomy to blame one side of the political spectrum.

            There's enough blame to go around, and most of it should be directed at people themselves.

            People buying homes they could not afford with mortgages they didn't understand.
            Lenders making bad loans to people who were high risk.
            Home flippers and speculators driving up home prices to artificial highs.
            So the housing bubble bursts.

            And then there's the bad timing of it coinciding with a downturn in the business cycle, and a contraction in the labor market, so all these people were losing their jobs.

            And all these global financial institutions were doing these credit default swaps which really exacerbated the problem.

            And then the widespread panic in the stock markets, with many great stocks losing more than half their value. That must have been demoralizing to people.

            It was a 1-2-3 punch that just pummeled the economy. GDP was contracting at 6%.

            מה מכילות החדשות?


            • #7
              Re: The 2008 Crisis

              Originally posted by Jihad4Beer View Post
              Or maybe it is a false dichotomy to blame one side of the political spectrum.

              There's enough blame to go around, and most of it should be directed at people themselves.

              People buying homes they could not afford with mortgages they didn't understand.
              Lenders making bad loans to people who were high risk.
              Home flippers and speculators driving up home prices to artificial highs.
              So the housing bubble bursts.

              And then there's the bad timing of it coinciding with a downturn in the business cycle, and a contraction in the labor market, so all these people were losing their jobs.

              And all these global financial institutions were doing these credit default swaps which really exacerbated the problem.

              And then the widespread panic in the stock markets, with many great stocks losing more than half their value. That must have been demoralizing to people.

              It was a 1-2-3 punch that just pummeled the economy. GDP was contracting at 6%.
              More than enough blame to go around, both political parties, multiple industries, multiple regulators, and all fueled by cheap and easy money, from Fannie and Freddie as well as the Investment Banksters.

              Should any one or two of those actors involved had not made the decisions that they had or taken the actions they had, it wouldn't have been such a huge impact when the bubble burst.

              מה מכילות החדשות?


              • #8
                Re: The 2008 Crisis

                Originally posted by eohrnberger View Post
                More than enough blame to go around, both political parties, multiple industries, multiple regulators, and all fueled by cheap and easy money, from Fannie and Freddie as well as the Investment Banksters.

                Should any one or two of those actors involved had not made the decisions that they had or taken the actions they had, it wouldn't have been such a huge impact when the bubble burst.
                And when it is going good, most people don't want to question it.

                Like Warren Buffet said, "Be fearful when others are greedy, and greedy when others are fearful."

                מה מכילות החדשות?


                • #9
                  Re: The 2008 Crisis

                  Originally posted by Jihad4Beer View Post
                  And when it is going good, most people don't want to question it.

                  Like Warren Buffet said, "Be fearful when others are greedy, and greedy when others are fearful."
                  The Bernak was already saying that it was 'an overabundance of optimism', so in his way, he was warning congress. Too bad they didn't listen, and instead directed their appointed flunkies at F&F to increase their exposure to this risk by buying more. And yes, that was a Democratically held congress at the time. Why else would Frank and Dodd be the chairmen of their committees?

                  מה מכילות החדשות?


                  • #10
                    Re: The 2008 Crisis

                    Originally posted by tsquare View Post
                    Not to derail the wealth thread... and this info is making news today...






                    Rather telling that even those at the center of things with all the best information, didn't know or understand what was going on until after it was going on.

                    thoughts?



                    http://online.wsj.com/news/articles/...LEFTTopStories
                    I don't think it's surprising there were people who seemed to be positioned as having the best information who were, in hindsight, not so well informed. In this rather lengthy article, Ben Bernanke discusses the role of the shadow banking system.

                    A number of the vulnerabilities I listed a few moments ago were associated with the increased importance of the so-called shadow banking system. Shadow banking, as usually defined, comprises a diverse set of institutions and markets that, collectively, carry out traditional banking functions--but do so outside, or in ways only loosely linked to, the traditional system of regulated depository institutions. Examples of important components of the shadow banking system include securitization vehicles, asset-backed commercial paper (ABCP) conduits, money market mutual funds, markets for repurchase agreements (repos), investment banks, and mortgage companies. Before the crisis, the shadow banking system had come to play a major role in global finance.
                    Read more: http://www.realclearpolitics.com/art...#ixzz2u3ZbHkxw
                    Follow us: @RCP_Articles on Twitter

                    Conclusion
                    The financial crisis of 2007-09 was difficult to anticipate for two reasons: First, financial panics, being to a significant extent self-fulfilling crises of confidence, are inherently difficult to foresee. Second, although the crisis bore some resemblance at a conceptual level to the panics known to Bagehot, it occurred in a rather different institutional context and was propagated and amplified by a number of vulnerabilities that had developed outside the traditional banking sector. Once identified, however, the panic could be addressed to a significant extent using classic tools, including backstop liquidity provision by central banks, both here and abroad.

                    Read more: http://www.realclearpolitics.com/art...#ixzz2u3YNg5qp
                    Follow us: @RCP_Articles on Twitter

                    מה מכילות החדשות?


                    • #11
                      Re: The 2008 Crisis

                      There were many people warning about the potential of the housing problem but the politicians didn't want to hear it. They all stuck their heads in the sand.

                      מה מכילות החדשות?


                      • #12
                        Re: The 2008 Crisis

                        Originally posted by OldmanDan View Post
                        There were many people warning about the potential of the housing problem but the politicians didn't want to hear it. They all stuck their heads in the sand.
                        In your opinion, what should the politicians have done?

                        מה מכילות החדשות?


                        • #13
                          Re: The 2008 Crisis

                          Originally posted by Quinn View Post
                          In your opinion, what should the politicians have done?
                          They should have reigned in Fannie and Freddie. They were buying these bad loans so the banks kept making them. It didn't take a brain surgeon to recognize that the sticks and bricks people were buying were not worth anywhere near what was being charged.

                          מה מכילות החדשות?


                          • #14
                            Re: The 2008 Crisis

                            Originally posted by OldmanDan View Post
                            They should have reigned in Fannie and Freddie. They were buying these bad loans so the banks kept making them. It didn't take a brain surgeon to recognize that the sticks and bricks people were buying were not worth anywhere near what was being charged.
                            Wouldn't 'reigning in Fannie & Freddie' be interfering with the free market?

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                            • #15
                              Re: The 2008 Crisis

                              What bothers me the most about the 2008 Crisis is how much the government does not get credit but is directly responsible for both how liquidity moves and the definition of credit as it relates to mortgage debt and student debt (the #1 and #2 ranking of the type of debt we typically go into.)

                              At the time of the collapse there really was limited options on what to do. It does not matter if you subscribe to Keynesian Economics or Austrian Economics where we were as a nation was devoid of the principles of both schools of economic thought. Neither would have suggested what Greenspan did with artificially low rates for such a long period of time. Also, neither would have suggested all the government was doing with the encouragement of risk (you can fault everything from CRA type thinking to any and all mechanisms to get a home loan in less than ideal risk to reward terms.) Lastly, neither would have suggested everything that lead up to the activity over at Fannie and Freddie. Deregulation did not cause the crisis to happen, all it did was merge what was happening anyway (moving wealth gambling with collections of mortgage debt.) It accelerated the implosion, that is about it... liquidity movement allowed the housing bubble to inflate faster. What caused it was the government.

                              As such the solution the Fed and government went with was devoid of both schools of economic thought as well. It is a real disservice to Keynes to suggest what we did aligns with that notion of economics. It is an even bigger disservice to suggest what we did has roots in Austrian Economics.

                              The only option left to avoid an even greater collapse was to support the banking system that was operating in the manner the government was influencing. When you are dealing with such a free fall the only option left is to force finding a floor (the economic cycle trough.) It was not pretty but I realize now we had little option left. Else, there would have been a run on every major bank in the US causing catastrophic monetary system collapse. It was already happening at the time of the decision to prop up the banking industry.

                              Now you can make an argument that what the Fed did do has some elements that were Keynesian, but there was a major player to did not keep up their end of the deal. Congress and Obama.

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