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Did We Need TARP?

No one ever thought it would keep lending as it was. There was lending that was outright fraudulent. Do you want that to continue. The American household is way overleveraged, do you want that to continue. You are wrong in saying that lending was expected to stay the same.

I don't want that, but policymakers wanted that.

On your last point I am not sure who you are saying we rewarded in a perverse way. Most of the banks that really failed went out of business, the leaders lost many millions. I do not feel bad for them but that is a fact that no one wants to acknowledge.

Many other banks should have gone under, and many other lending institutions as well. The muck should have been cleared. We, in effect, rewarded their bad business decisions, as companies that engaged in good practices were not granted access to that money.
 
I don't want that, but policymakers wanted that.



Many other banks should have gone under, and many other lending institutions as well. The muck should have been cleared. We, in effect, rewarded their bad business decisions, as companies that engaged in good practices were not granted access to that money.

It would be interesting to know what you consider the bad practices you did not want them to do. Perhaps Citi and Bank of America should have been allowed to fail. I think Citi was allowed to stay around becuase a Saudi prince owns a lot of it. They needed Bank of America so they would take out Merrill which would have gone down.
 
It would be interesting to know what you consider the bad practices you did not want them to do. Perhaps Citi and Bank of America should have been allowed to fail. I think Citi was allowed to stay around becuase a Saudi prince owns a lot of it. They needed Bank of America so they would take out Merrill which would have gone down.

Making loans that defaulted more than they expected, to put it as simply as possible.
 
Making loans that defaulted more than they expected, to put it as simply as possible.

You do know that most of the loans were made by those loan companies almost all of which are out of business. Companies like Lehman, Bear Sterns, Goldman did not originate any loans. What they did was package the loans into bonds. Even a company like Citi was not a very large originator of home loans. What Citi did was keep more of the loans that they packaged rather than sell them.

The administration has done a very effective job of lying to the public. The media is simply an echo chamber for whatever nonsense comes out of politicians mouths. Most people do not have a great grasp of business, but know they want someone to blame.
 
You do know that most of the loans were made by those loan companies almost all of which are out of business. Companies like Lehman, Bear Sterns, Goldman did not originate any loans. What they did was package the loans into bonds. Even a company like Citi was not a very large originator of home loans. What Citi did was keep more of the loans that they packaged rather than sell them.

Who cares whether or not it originated with them? They were liable for them, and so if they failed they deserved to fail if so much was riding on them.
 
Who cares whether or not it originated with them? They were liable for them, and so if they failed they deserved to fail if so much was riding on them.

I clearly do not know your background. No offense but I am not sure you understand how any of this stuff works. Companies like Goldman, when they sell off the bonds have no liability at all on them. This was a classic run on the banks. They were borrowing short term so when people refused to roll over their debt they had no souce of funding.

There are good reasons to be angry about the mistakes made that caused the problem we have. Most people just want a scapgoat though. As if any one actor in this mess is the root cause.

Probably if there is a group who may be held most responsible it is the regulators. The Federal reserve and the SEC allowed changes in leverage and new mortgages that undermined the system. That as well as the Federal deficit and current account deficit and growth in money supply. So you had a ton of dollars looking for better returns. Not dissimilar to what the Federal reserve is creating today with quantitative easing.
 
I clearly do not know your background. No offense but I am not sure you understand how any of this stuff works. Companies like Goldman, when they sell off the bonds have no liability at all on them. This was a classic run on the banks. They were borrowing short term so when people refused to roll over their debt they had no souce of funding.

There are good reasons to be angry about the mistakes made that caused the problem we have. Most people just want a scapgoat though. As if any one actor in this mess is the root cause.

If a run on the bank would have caused them to fail then they should go under. However that may have occurred, if they don't have the money that they promise to have, then what is there to defend?

Probably if there is a group who may be held most responsible it is the regulators. The Federal reserve and the SEC allowed changes in leverage and new mortgages that undermined the system. That as well as the Federal deficit and current account deficit and growth in money supply. So you had a ton of dollars looking for better returns. Not dissimilar to what the Federal reserve is creating today with quantitative easing.

Plus the expectation that the government would not allow a companies that big to go under. They had free reign.
 
I haven't totally caught up on this thread or what the issue is, but I do want to mention my feelings towards these loans.

1) Loan originators may have made the loans, but they made them with the intent and expectations of selling the loans to the large banks. If the banks were purchasing these bad loans, the banks were ultimately responsible for any shadey loan origination.

2) These banks then "packaged" these bad loans with the sole purpose of hiding the bad loans that were in the package.

3) The banks then used their good reputations to sell these bad loans to unsuspecting investors.

Ultimately, unethical business practices were conducted by the banks involved. Doesnt matter who made the loans or who purchased them. And our government was complicit by not outlawing what was obviously a fraudulent activity.

Derivitives should be outlawed.
 
If a run on the bank would have caused them to fail then they should go under. However that may have occurred, if they don't have the money that they promise to have, then what is there to defend?



Plus the expectation that the government would not allow a companies that big to go under. They had free reign.

No bank in the world can withstand a run. The reason we have insurance on deposits is to avoid this problem.
 
I thanked the post, but I don't see anything inherently fraudulent about derivatives. Bad ones go bad, good ones pay off. I see it like any other investment, but we need the people who failed to fail.
 
No bank in the world can withstand a run. The reason we have insurance on deposits is to avoid this problem.

If you have a high enough reserve ratio you can withstand a run. If all banks are keeping their reserve ratio too low, then they should all fail. Why should we subsidize those who can't keep a promise?
 
I haven't totally caught up on this thread or what the issue is, but I do want to mention my feelings towards these loans.

1) Loan originators may have made the loans, but they made them with the intent and expectations of selling the loans to the large banks. If the banks were purchasing these bad loans, the banks were ultimately responsible for any shadey loan origination.

2) These banks then "packaged" these bad loans with the sole purpose of hiding the bad loans that were in the package.

3) The banks then used their good reputations to sell these bad loans to unsuspecting investors.

Ultimately, unethical business practices were conducted by the banks involved. Doesnt matter who made the loans or who purchased them. And our government was complicit by not outlawing what was obviously a fraudulent activity.

Derivitives should be outlawed.

Not sure why I bother responding to these posts but... Packaging of mortgages had been going on for awhile. The problem is less about the packaging of loans as the loans that were originated. In to many instances the mortgage broker and the buyer of the home willfully committed fraud. What do you think the term liar loans is all about?

The reason taking a bunch of shaky loans, putting them in a package and sold as a higher rated security is because the "modelling" that was done said that the probability of housing prices going down throughout the country was remote. If the underlying asset appreciated in value it did not matter if the person could pay the mortgage. If they could not pay they could sell at a profit and move somewhere else. So all those greedy people were given mortgages they did not deserve. They bought houses oftentimes as a get rich scheme for underachievers.

It is great politics to blame bankers for the problems for which they are part. To ignore the others responsible is like so much of America these days. Blame someone else for debt and deficits, blame others for a poorly educated populace, say other people should pay for what you consume.

Weak.
 
washunut said:
Packaging of mortgages had been going on for awhile. The problem is less about the packaging of loans as the loans that were originated. In to many instances the mortgage broker and the buyer of the home willfully committed fraud. What do you think the term liar loans is all about?

Indeed. GNMA first started pooling mortgages and selling the resulting securities in the mid-1970's.
 
That's true. The underlying problem was just the scope of loans, not the loans themselves. You cut off an arm or leg, it may grow back. You cut off the head, the body dies.

Ginnie Mae's issue was that she was covering bases for FNMA and FHLM (Fannie and Freddie), but that the tidewater rose too high to bail out with just the bucket she's given. That's what happens when bad money keeps chasing bad, especially in the bonded public sector.

I've always viewed it as regulation being the problem, not a lack thereof.
 
That's true. The underlying problem was just the scope of loans, not the loans themselves. You cut off an arm or leg, it may grow back. You cut off the head, the body dies.

Ginnie Mae's issue was that she was covering bases for FNMA and FHLM (Fannie and Freddie), but that the tidewater rose too high to bail out with just the bucket she's given. That's what happens when bad money keeps chasing bad, especially in the bonded public sector.

I've always viewed it as regulation being the problem, not a lack thereof.

I am not sure I entirely agree with that statement. A lot of the shadow banking system was built around regulatory arbitrauge (some good, some bad). The whole point was to get around the regulations that limited what a commercial bank could and could not do.

Not to mention that fannie and freddie were allowed too much leverage (not unlike the private FHC's), which would more or less amount to poor/inadequate regulation.

Then you must take into account that the entire shadow banking system, which was roughly the size of our commercial banking system, was relient upon the short term money market for funding. In almost all situations the only "official" backstop was found where the loan originated at the commercial banks. There were no official stops in place to prevent a run. As you said, you cut off the head (the short term money market funding) and its over. That is exactly what happened in the money markets. Commercial paper, repo, etc, quit moving and liquidity dried up.
 
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Originally expected to cost the U.S. Government $356 billion, the most recent final net estimate of the cost, as of October 5, 2010, will be close to $30 billion, including expected returns from interest in AIG.[1] This is significantly less than the taxpayers' cost of the savings and loan crisis of the late 1980s. The cost of that crisis amounted to 3.2% of GDP during the Reagan/Bush era, while the GDP percentage of the current crisis' cost is estimated at less than 1%.
Wiki

It was worth it.
 
I thanked the post, but I don't see anything inherently fraudulent about derivatives. Bad ones go bad, good ones pay off. I see it like any other investment, but we need the people who failed to fail.

Derivitives are fraudulent if the pupose of the derivitive is to hide the fact that the derivitive has a lot of risky loans. I suspect that many of the companies that package derivitives intentionally put the risky loans into the derivitive package and then pawned them off on unsuspecting investors, while they kept them less risky loans. The packaging companies then paid rating companies to give the derivitatives a good rating.

The relationship between the rating company and the derivitive packaging company is by definition a conflict of interest - companies have to please their customers, in this case, the customer was the derivative company and what they wanted were high ratings of their products. Rating companies should be paid by the end purchaser, not the seller.
 
Derivitives are fraudulent if the pupose of the derivitive is to hide the fact that the derivitive has a lot of risky loans. I suspect that many of the companies that package derivitives intentionally put the risky loans into the derivitive package and then pawned them off on unsuspecting investors, while they kept them less risky loans. The packaging companies then paid rating companies to give the derivitatives a good rating.

The relationship between the rating company and the derivitive packaging company is by definition a conflict of interest - companies have to please their customers, in this case, the customer was the derivative company and what they wanted were high ratings of their products. Rating companies should be paid by the end purchaser, not the seller.

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If you have a high enough reserve ratio you can withstand a run. If all banks are keeping their reserve ratio too low, then they should all fail. Why should we subsidize those who can't keep a promise?

Reserve ratio? Maybe you mean their leverage ratio. You would still be wrong but at least closer to reality. Loan loss reserves are set up as a reduction to equity in case an asset goes bad. It is a non-cash item.

A bank run is when people come to the window and ask for their money. In this case it was mostly that people who lent them short term money refused to roll it over.

How can we have a debate about TARP when some basic facts are just not known and understood.
 
In to many instances the mortgage broker and the buyer of the home willfully committed fraud. What do you think the term liar loans is all about?

Why is it that we have a industry of non-licensed loan originators who have immediate customers hungry to purchase their products? Could it be that the purchasers of these loans prefer to have someone else do the "dirty work"? Don't you think that the companies that purchase these loans are aware that the loan originators collude with home buyers to get fraudulent loans? Is it possible that the companies that purchase these loans do so will full knowlege that each group of loans will have numerous duds? Why would derivitive packaging companies keep buying loans that have fraud issues?

The simple fact is that the companies that package derivitives really dont give a crap that many of these loans are quite shaking. They don't care because they are not investors, they are in the business of buying turds at low prices and shining them up to look like diamonds. I call this practice fraud because in any other industry it would be considered fraud. I wonder how many times a derivative sales person has told his sucker (oops, I mean customer) that percentage of the morgages that back their security were fraudulent.

You mentioned "greed", the greediest people are the ones who purchase these fraudulent derivitives. Their greed and ignorance allowed them to be easily tricked into thinking that if they purchased these derivitives that they would make above average profits. Lazyness and stupidity also had something to do with it. Instead of investing their money into something that took an effort on their part, like creating a new product, or managing a business, they took the lazy man's way out. I really don't feel sorry for anyone involved on any end of this scam, although I have some anger towards the criminals who packaged and sold this fraud.

It is great politics to blame bankers for the problems for which they are part.
It is great politics to blame others for the fraud that some bankers have committed.

Blame someone else for debt and deficits, blame others for a poorly educated populace, say other people should pay for what you consume.

I really don't know why you brought that up, it has nothing to do with fraud in the derivitive market. I pay for what I consume. I ask nothing from anyone other than a fair price for my products.
 
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???
 
imagep said:
Why is it that we have a industry of non-licensed loan originators who have immediate customers hungry to purchase their products? Could it be that the purchasers of these loans prefer to have someone else do the "dirty work"? Don't you think that the companies that purchase these loans are aware that the loan originators collude with home buyers to get fraudulent loans? Is it possible that the companies that purchase these loans do so will full knowlege that each group of loans will have numerous duds? Why would derivitive packaging companies keep buying loans that have fraud issues?

The simple fact is that the companies that package derivitives really dont give a crap that many of these loans are quite shaking. They don't care because they are not investors, they are in the business of buying turds at low prices and shining them up to look like diamonds. I call this practice fraud because in any other industry it would be considered fraud. I wonder how many times a derivative sales person has told his sucker (oops, I mean customer) that percentage of the morgages that back their security were fraudulent.

The problem wasn't the derivative market itself. It's that the government bonded, insured, and even financed (to an extent) the derivative market. Because of this, many corporations felt absolutely no need to hedge these or other risky investments because they either win their own money or lose someone else's. While one person may view the problem as the government not stepping in to prevent these kinds of risky investments and money market manipulations, I view the problem as government subsidizing it in the first place.

Too big to fail. Those may be the four most dangerous words spoken in the last 30 years. If multi-billion dollar investment firms were left to simply make it or break it on derivatives, futures trading, and other tools like that you'd see a lot less money thrown at them.

If you throw a steak at a dog and he eats it, is it the dog's fault?
 
It is great politics to blame others for the fraud that some bankers have committed.



I really don't know why you brought that up, it has nothing to do with fraud in the derivitive market. I pay for what I consume. I ask nothing from anyone other than a fair price for my products.

Actually it is lousy politics to blame anyone other than banks. At a minimum you should know that.

I brought up the final point not thinking of you but of all the people in the chain of this problem. People who bought houses as a speculation and then when they lost their bet blamed everything on anyone but them. It is easy to be a cheap politican or media person and show families being tossed out of their homes. Which is a terrible thing. But not going into why so many people thought it was a good idea to but a house no rational person thought they could afford.

If we are going to feel sorry for these people why did we not feel sorry for the saps who put their life savings into high flying tech stocks in 2000 only to lose 95% of their investments. Why not have the Federal government give those knuckleheads their money back. Why not go to race tracks and have a Federal government line where if you have a losing ticket the Feds give you the face value of the ticket, even though it has no value.

I feel bad that people made stupid mistakes. I do NOT feel it is my responsibility as a taxpaying member of this nation to pick up the tab of people who make bad decisions, just like I do not expect to help me out when I make bad investment decisions ( and I do).
 
Actually it is lousy politics to blame anyone other than banks. At a minimum you should know that.

I brought up the final point not thinking of you but of all the people in the chain of this problem. People who bought houses as a speculation and then when they lost their bet blamed everything on anyone but them. It is easy to be a cheap politican or media person and show families being tossed out of their homes. Which is a terrible thing. But not going into why so many people thought it was a good idea to but a house no rational person thought they could afford.

If we are going to feel sorry for these people why did we not feel sorry for the saps who put their life savings into high flying tech stocks in 2000 only to lose 95% of their investments. Why not have the Federal government give those knuckleheads their money back. Why not go to race tracks and have a Federal government line where if you have a losing ticket the Feds give you the face value of the ticket, even though it has no value.

I feel bad that people made stupid mistakes. I do NOT feel it is my responsibility as a taxpaying member of this nation to pick up the tab of people who make bad decisions, just like I do not expect to help me out when I make bad investment decisions ( and I do).

There was this guy who had a horse that died. He sold 1,000 raffle tickets at $1 each with the horse as the prize (without the purchasers knowing that it was dead). I asked him how the winner felt about winning the dead horse, he said that "the guy really didn't mind because I gave him is dollar back".
 
If we are going to feel sorry for these people why did we not feel sorry for the saps who put their life savings into high flying tech stocks in 2000 only to lose 95% of their investments. Why not have the Federal government give those knuckleheads their money back. Why not go to race tracks and have a Federal government line where if you have a losing ticket the Feds give you the face value of the ticket, even though it has no value.

I feel bad that people made stupid mistakes. I do NOT feel it is my responsibility as a taxpaying member of this nation to pick up the tab of people who make bad decisions, just like I do not expect to help me out when I make bad investment decisions ( and I do).

Money is not created in the trading of stocks, bonds, or derivitives. Money is exchanged from one hand to another. For every winner there is a loser.

You may not feel it is "Right" for the government to "play favorites" with banks. However there were enough people in high places of decision making that felt the need to stabilize the banks was paramount to your feelings of fairness. In all honesty, if you put a run on the banks, then a cash shortage, disolve money market accounts (were not protected under FDIC to the crisis), close banks, have have debit and credit cards all of a sudden stop working as banks stopped transactions... What do you imagine the cost if the FDIC went bankrupt? Would you still hold the same convictions?

The media portrayed too big to fail about the banks/auto industry. Make no mistake about it, it was about our currency.
 
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