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Should the "too big to fail" be nationalised?

Should the "too big to fail" be nationalised?

  • Total voters
    37
MoSurveyor said:
That system had been in place and working just fine for 30 years under three different presidents before GB and his "let the banks govern themselves" policy came on the scene. Let business run itself and it's like a stampede - this time right over a cliff.
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In addition we often forget what Reagan did in deregulating the savings and loan 'banks'. It was a big deal in the Phoenix area. The deregulation, done without congress agreement, resulted in many people loosing their money, but a few people made a bunch and were allowed to keep it.

addition: I have to note, given other posts, that the loans that S&Ls were making were to people with money, not the poor. And that money was going, via the home buyers, to the developers of things like reasonably fancy retirement communities that were never completed. There were close business relationships between the builders and the S&L.
 
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ttwtt78640 said:
Here is MORE of the "causes" section that you cleverly "cherry picked" your quote from the middle of:

In 1982, Congress passed the Alternative Mortgage Transactions Parity Act (AMTPA), which allowed non-federally chartered housing creditors to write adjustable-rate mortgages. Among the new mortgage loan types created and gaining in popularity in the early 1980s were adjustable-rate, option adjustable-rate, balloon-payment and interest-only mortgages. These new loan types are credited with replacing the long standing practice of banks making conventional fixed-rate, amortizing mortgages. Among the criticisms of banking industry deregulation that contributed to the savings and loan crisis was that Congress failed to enact regulations that would have prevented exploitations by these loan types. Subsequent widespread abuses of predatory lending occurred with the use of adjustable-rate mortgages.[44][120] Approximately 90% of subprime mortgages issued in 2006 were adjustable-rate mortgages.[3]

Although a number of politicians, pundits, and financial industry-funded think tanks have claimed that government policies designed to promote affordable housing were an important cause of the financial crisis, detailed analyses of mortgage data by the Financial Crisis Inquiry Commission, Federal Reserve Economists, and independent academic researchers suggest that this claim is probably not correct.[1] [121] Community Reinvestment Act loans outperformed other "subprime" mortgages, and GSE mortgages performed better than private label securitizations.

Increasing home ownership has been the goal of several presidents including Roosevelt, Reagan, Clinton and George W. Bush.[122] In 1995, the GSEs like Fannie Mae began receiving government tax incentives for purchasing mortgage backed securities which included loans to low income borrowers.[123] In 1996, HUD set a goal for Fannie Mae and Freddie Mac that at least 42% of the mortgages they purchase be issued to borrowers whose household income was below the median in their area. This target was increased to 50% in 2000 and 52% in 2005.[124]

From 2002 to 2006, as the U.S. subprime market grew 292% over previous years, Fannie Mae and Freddie Mac combined purchases of subprime securities rose from $38 billion to around $175 billion per year before dropping to $90 billion per year, which included $350 billion of Alt-A securities. Fannie Mae had stopped buying Alt-A products in the early 1990s because of the high risk of default. By 2008, the Fannie Mae and Freddie Mac owned, either directly or through mortgage pools they sponsored, $5.1 trillion in residential mortgages, about half the total U.S. mortgage market.[125]
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I don't disagree that AMTPA allowed the making of "creative loans", but would have little impact without the enactments of the following two laws that I posted about in post #99:

1. The Gramm–Leach–Bliley Act ------ Basically the law that stipped the Glass Steagall Act, which was enacted as a result of banking, market practices that led to the Great Depression

And another Bill Sponsored by Gramm

2. The Commodities and Futures Modernization Act of 2000 ------ This law virtually wiped out all regulations on the Derivatives markets. As of now its estimated to be somewhere in the neighborhood of $500 Trillion (world-wide) in shaky derivatives.

When banks (and other types of Financial, Market, and Insurance institutions) were allowed to package mortgages and turn them into securities to be traded in the market place...and then also have the ability to create derivatives to sell to anybody who wanted to bet that the securities and mortgages would fail...that's were the true probable came in.

Government and Subprime Loans said:
Prior to the passage of AMTPA, banks were barred from making anything but the conventional fixed-rate, amortizing mortgages. AMPTA lifted those restrictions, giving birth to all the new and exotic mortgages that have so many borrowers in hot water today. For instance:

Adjustable-rate mortgages, in which the interest rate becomes floating after a number of years.

Balloon-payment mortgages, which have an outsized payment when the loan comes due.

Interest-only mortgages, which require only repayment of interest (not principal too) during the first few years of the loan, only to hit borrowers with crushing monthly-payment resets once the new monthly payment kicks in.

And worst of all, the option-ARM, which allows borrowers to underpay by as much as they want during the first few years. The awful upshot is the unpaid monthly interest gets tacked onto the size of the loan. So your $300,000 mortgage can turn into a $350,000 loan in a hurry, destroying any equity you have in your home.

"One of the problems was that there were no substitute regulations to make sure these new mortgages didn't turn out to be exploitative," says McCoy.

How Congress set up the subprime mess - Jan. 31, 2008
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OhIsee.Then said:
In addition we often forget what Reagan did in deregulating the savings and loan 'banks'. It was a big deal in the Phoenix area. The deregulation, done without congress agreement, resulted in many people loosing their money, but a few people made a bunch and were allowed to keep it.

addition: I have to note, given other posts, that the loans that S&Ls were making were to people with money, not the poor. And that money was going, via the home buyers, to the developers of things like reasonably fancy retirement communities that were never completed. There were close business relationships between the builders and the S&L.
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S&Ls' weren't banks and should have never been allowed some of the abilities they were given. Not the same as the sub-prime catastrophe, though.
 
samsmart said:
The problem with the free market system is that the realization of failure is after the crisis. Rather, the government should have a regulatory role so they are proactive in protecting the investors in these banks.
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I'd have to argue against the current regulatory system as you have people from the industry in question, with connections to business in that industry, presiding over the institution that it supposed to regulate the industry. (Example: Tim Geithner and Ben Bernake both used to work at Goldman Sachs) Thus you have people who are essentially helping out their former employers and those who join with them rather than actually being a regulatory body.
 
ttwtt78640 said:
Your reading was rather selective then, since the paragraph IMMEDIATELY preceeding your quote gave you the answer. Here is MORE of the SAME "causes" section (from MY source) that you cleverly "cherry picked" your quote from the middle of:

[wiki quote for four paragraphs]
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None of which shows why twenty years after that fact this became a problem - and I'm just as sure you don't want to know why it became a problem then.
 
Removable Mind said:
I don't disagree that AMTPA allowed the making of "creative loans", but would have little impact without the enactments of the following two laws that I posted about in post #99:

1. The Gramm–Leach–Bliley Act ------ Basically the law that stipped the Glass Steagall Act, which was enacted as a result of banking, market practices that led to the Great Depression

And another Bill Sponsored by Gramm

2. The Commodities and Futures Modernization Act of 2000 ------ This law virtually wiped out all regulations on the Derivatives markets. As of now its estimated to be somewhere in the neighborhood of $500 Trillion (world-wide) in shaky derivatives.

When banks (and other types of Financial, Market, and Insurance institutions) were allowed to package mortgages and turn them into securities to be traded in the market place...and then also have the ability to create derivatives to sell to anybody who wanted to bet that the securities and mortgages would fail...that's were the true probable came in.
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I couldn't agree more. I didn't realize they were two separate Bills but I did know when and why they were passed - and I started screaming the day they did it. I stopped screaming in Oct 2008. At that point it wasn't opinion anymore but public knowledge. Apparently not everyone is in the loop even now.


To me the biggest change was letting the banks merge, though. Otherwise, the investment banks could have been left to rot on Wall St instead of US having to save their ass.
 
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MoSurveyor said:
I couldn't agree more. I didn't realize they were two separate Bills but I did know when and why they were passed - and I started screaming the day they did it. I stopped screaming in Oct 2008. At that point it wasn't opinion anymore but public knowledge. Apparently not everyone is in the loop even now.


To me the biggest change was letting the banks merge, though. Otherwise, the investment banks could have been left to rot on Wall St instead of US having to save their ass.
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Actually they were two of the last pieces of legislation signed by "Clinton". Now the bills were "Republican" sponsored, but was strongly supported by Clinton's Treasury heads, FED...etc...who actually sold him on the ideas that these bills would be good for the country. Well, so they say. The reality is...both parties in our government are corrupt as ****. Money talks and bull**** walks, as they say.

So the strange bedfellows of Dems and Republicans did another major fleecing of America and got away with it. In fact, they're still getting away with it. But...remember the recent JP Morgan multi-billion in losses. Yep - caused by the very same reasons of the 2000's crash. Oh well, why stop doing inappropriate things when its profitable and no consequences?
 
MoSurveyor said:
None of which shows why twenty years after that fact this became a problem - and I'm just as sure you don't want to know why it became a problem then.
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See the last paragraph of the post that we reference for a clue. The Fannie/Freddie crew backed 1/2 of the mortgages at the time of the bailouts. The taxpayers were on the hook EITHER way, by taking a bail-out hit or by allowing the banks to collect on the gov't backed mortgage insurance paper. The bail-out was actually far cheaper as many banks got far less than the REAL insured value that they could have taken. This allowed congress to better share the blame with the banks and cost the taxpayers far less as well. The bottom line is that congress loosened the lending rules far too much and many got burned by that gamble. All was well as long as a foreclosure got the bank at least their money back, by simply reselling the property, but when forclosure meant the bank was recovering a property worth far less than the note value, the jig was up, the paper was nearly worthless and the house of cards collapsed. Expect a very similar deal with all of that student loan paper out there soon, as much of it is backed by gov't insurance as well. Once interest rates are allowed to return to "normal" this will likely occur, since the taxpayers will soon tire of paying to keep them at 1/2 the real market rate.
 
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It came down to how derivatives and "special instruments" were allowed and then to run amok while the SEC sat on it's hands (through a couple administrations) and let it happen. It was a regulatory failure, partially the SEC and partially the fault of the administrations that ordered the SEC to stand down because, though there was an obvious problem, people were getting into houses and all was still peachy.

Of course, when you borrow from Peter to pay Paul, Peter eventually comes calling.
 
Removable Mind said:
Actually they were two of the last pieces of legislation signed by "Clinton". Now the bills were "Republican" sponsored, but was strongly supported by Clinton's Treasury heads, FED...etc...who actually sold him on the ideas that these bills would be good for the country. Well, so they say. The reality is...both parties in our government are corrupt as ****. Money talks and bull**** walks, as they say.

So the strange bedfellows of Dems and Republicans did another major fleecing of America and got away with it. In fact, they're still getting away with it. But...remember the recent JP Morgan multi-billion in losses. Yep - caused by the very same reasons of the 2000's crash. Oh well, why stop doing inappropriate things when its profitable and no consequences?
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Well, I'm sure what we can do about overseas actions, which is why we need to split off the investment and savings banks again. Shutting down dozens of local branches and doing who knows what to local businesses and people because the investment division was placing bets overseas isn't right. I say split them and let the investment banks fail if they're stupid again. Plus they won't have the local banks feeding them anymore.
 
ttwtt78640 said:
See the last paragraph of the post that we reference for a clue. The Fannie/Freddie crew backed 1/2 of the mortgages at the time of the bailouts. The taxpayers were on the hook EITHER way, by taking a bail-out hit or by allowing the banks to collect on the gov't backed mortgage insurance paper. The bail-out was actually far cheaper as many banks got far less than the REAL insured value that they could have taken. This allowed congress to better share the blame with the banks and cost the taxpayers far less as well. The bottom line is that congress loosened the lending rules far too much and many got burned by that gamble. All was well as long as a foreclosure got the bank at least their money back, by simply reselling the property, but when forclosure meant the bank was recovering a property worth far less than the note value, the jig was up, the paper was nearly worthless and the house of cards collapsed. Expect a very similar deal with all of that student loan paper out there soon, as much of it is backed by gov't insurance as well. Once interest rates are allowed to return to "normal" this will likely occur, since the taxpayers will soon tire of paying to keep them at 1/2 the real market rate.
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And who do you think told them to do that?!?

"Congress loosened the lending rules"? Which bill was that??? You said this once before and didn't back it up. That's getting old. Cite your source; which Bill(s) are you talking about? If you're talking about the ones that worked for 20+ years then that brick isn't going to fly.



Ed:
You can talk until you're blue in the face but none of this would have happened if the 2000 legislation wasn't enacted merging the banks. It all comes back to that, which is what I said four posts ago.
 
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MoSurveyor said:
And who do you think told them to do that?!?

"Congress loosened the lending rules"? Which bill was that??? You said this once before and didn't back it up. That's getting old. Cite your source, which Bill(s) are you talking about?
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That too is included in that first and last paragraph, first by congress (AMTPA) then by HUD exeuctive orders, or Clinton/Bush, that ordered that Freddie/Fannie "help". I suppose Bush was simply hoping to make it out the door before the big collapse happened (by increasing gov't guarantees), and he darn near made it. I am NOT trying to blame one party or one individual, it took a whole lot of gov't fools to make this mess. I am simply saying that "greedy bankers" acting illegally was not the cause, it was gov't bending to outside pressure (from banks AND social justice types) and wanting to "do good things" that made the mess. We give these morons in DC far too much power and credit them with imaginary magical powers to "do the right thing". They are mostly just greedy lying fools that happen to get to represent us, not the wise all knowing sages that some wish that they were. If we give them enough rope they will surely hang us with it. ;-)
 
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clownboy said:
It came down to how derivatives and "special instruments" were allowed and then to run amok while the SEC sat on it's hands (through a couple administrations) and let it happen. It was a regulatory failure, partially the SEC and partially the fault of the administrations that ordered the SEC to stand down because, though there was an obvious problem, people were getting into houses and all was still peachy.

Of course, when you borrow from Peter to pay Paul, Peter eventually comes calling.
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That was part of it, too.
 
ttwtt78640 said:
That too is included in that paragraph, it was by HUD exeuctive order, or Bush, that ordered that. I suppose Bush was simply hoping to make it out the door before the big collapse happened, and he darn near made it. I am NOT trying to blame one party or one individual, it took a whole lot of gov't fools to make this mess. I am simply saying that "greedy bankers" acting illegally was not the cause, it was gov't bending to outside pressure (from banks AND social justice types) and wanting to "do good things" that made the mess. We give these morons in DC far too much power and credit them with imaginary magical powers to "do the right thing". They are mostly just greedy lying fools that happen to get to represent us, not the wise all knowing sages that some wish that they were. If we give them enough rope they will surely hang us with it. ;-)
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There was no social justice in this at all. It was a scheme where the banks ended up with all the aces and face cards.
 
MoSurveyor said:
There was no social justice in this at all. It was a scheme where the banks ended up with all the aces and face cards.
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But the stated INTENT was to help "disadvantaged" (minority?) folks get into the housing market by making "sub-prime" loans that LOOKED affordable (based on rosy assumptions and good intentions) but turned out to not work at all once the actual time to pay any priciple rolled around. Many things came together to make it all collapse at once, but gov't sowed the seeds. Sure the bankers outsmarted the politicians in the end, but was that the fault of smart bankers or dumb politicians?
 
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Sig said:
Presumably, the government would take control long before the company began to fail, while it was still healthy and functional. This would be the point.
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Sort of like suggesting that government should arrest and jail “criminals” before there's any reason to believe that they are going to commit any actual crimes.

Anyway, the point is, government has no business ever, under any circumstances, taking over a private company. And if there ever was any justification for government to do such a thing, it would surely have to depend on there being an actual problem for which government control is claimed to be the solution, and not on speculation that a problem might occur in the future.
 
Bob Blaylock said:
Sort of like suggesting that government should arrest and jail “criminals” before there's any reason to believe that they are going to commit any actual crimes.

Anyway, the point is, government has no business ever, under any circumstances, taking over a private company. And if there ever was any justification for government to do such a thing, it would surely have to depend on there being an actual problem for which government control is claimed to be the solution, and not on speculation that a problem might occur in the future.
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Indeed!

They need to focus on what they're *suppose* to be doing.
 
Aunt Spiker said:
Indeed!

They need to focus on what they're *suppose* to be doing.
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If you mean stick to the constitutionally limitted powers granted to the federal gov't, then you are at least 50 years too late. It is now time to try to get that toothpaste back into the tube. ;-)
 
Some corporations that are now "too big to fail" became so through government-approved mergers and acquisitions of corporations that were formed 100-ish years ago when "too big" monopolies were broken up to begin with. We never learn, do we?
 
ttwtt78640 said:
But the stated INTENT was to help "disadvantaged" (minority?) folks get into the housing market by making "sub-prime" loans that LOOKED affordable (based on rosy assumtions and good intentions) but turned out to not work at all once the actual time to pay any priciple rolled around. Many things came together to make it all collapse at once, but gov't sowed the seeds. Sure the bankers outsmarted the politicians in the end, but was that the fault of smart bankers or dumb politicians?
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This sub-prime crime was not a racial giveaway scheme but a flipper-loan scam. The banks wanted temporary homeowners who would default. Taking advantage of the way the property-market bubble was expanding, the con artists plotted to pile up rat-trap properties in entire neighborhoods by intentionally creating bad risks, then tear down the neighborhoods after the inevitable defaults and replace them with high-priced upscale properties. Proof is that the government was under total control of the soft-on-bankers Republicans for 6 years. Those collaborators would have repealed the sub-prime crime immediately if it had really been a racial giveaway scheme putting bankers or taxpayers at risk. It was a greedhead gamble that paid off for a long time. There were probably many greedheads who saw the bubble about to burst and got out with their loot intact and in time.
 
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ttwtt78640 said:
But the stated INTENT was to help "disadvantaged" (minority?) folks get into the housing market by making "sub-prime" loans that LOOKED affordable (based on rosy assumptions and good intentions) but turned out to not work at all once the actual time to pay any priciple rolled around. Many things came together to make it all collapse at once, but gov't sowed the seeds. Sure the bankers outsmarted the politicians in the end, but was that the fault of smart bankers or dumb politicians?
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That wasn't the intent, that was the excuse. Big difference.
 
ttwtt78640 said:
But the stated INTENT was to help "disadvantaged" (minority?) folks get into the housing market by making "sub-prime" loans that LOOKED affordable (based on rosy assumtions and good intentions) but turned out to not work at all once the actual time to pay any priciple rolled around. Many things came together to make it all collapse at once, but gov't sowed the seeds. Sure the bankers outsmarted the politicians in the end, but was that the fault of smart bankers or dumb politicians?
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Absolutely, and that wasn't the end to the mistake, what really set us up for the fall was how the resulting bad debt was dealt with. They bundled it, sold it off as an asset and used it to generate an industry trading in debt instruments. When that crashed the housing market went with it.

The banks and investment houses that had taken advantage of the government's foolish implementation of the plan to get more folks into houses were now left holding a huge debt bag. They never hold that bag for long and immediately began passing it down to the consumer/the tax payer. Congress encouraged and helped them in this with the bailouts because those same banks and investment houses had already shifted a good deal of those bad investments and derivatives into the retirement investment accounts of many an average American.

My take is that we should have crafted legislation that made it impossible for them to pass that debt along. Most of the majors would not have gone out of business, but would have defaulted. The bankruptcy courts are and were less forgiving these days, and would have re-structured their debt rather than forgiving it. This would have caused some economic downturn, but the burden wouldn't have become the albatross around the neck of the average tax payer.
 
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clownboy said:
Absolutely, and that wasn't the end to the mistake, what really set us up for the fall was how the resulting bad debt was dealt with. They bundled it, sold it off as an asset and used it to generate an industry trading in debt instruments. When that crashed the housing market went with it.

The banks and investment houses that had taken advantage of the government's foolish implementation of the plan to get more folks into houses were now left holding a huge debt bag. They never hold that bag for long and immediately began passing it down to the consumer/the tax payer. Congress encouraged and helped them in this with the bailouts because those same banks and investment houses had already shifted a good deal of those bad investments and derivatives into the retirement investment accounts of many an average American.

My take is that we should have crafted legislation that made it impossible for them to pass that debt along. Most of the majors would not have gone out of business, but would have defaulted. The bankruptcy courts are and were less forgiving these days, and would have re-structured their debt rather than forgiving it. This would have caused some economic downturn, but the burden wouldn't have become the albatross around the neck of the average tax payer.
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That could largely have been avoided by simply never allowing the AMTPA scam to be born in 1982. Once anyone is permitted MUCH more flexability to leverage OPM then all sorts of bad things become possible, indeed likely.
 
ttwtt78640 said:
That could largely have been avoided by simply never allowing the AMTPA scam to be born in 1982. Once anyone is permitted MUCH more flexability to leverage OPM then all sorts of bad things become possible, indeed likely.
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But if investment banks are pruned down so they don't effect the local economies as much - if they are unhitched from the corner bank - then it doesn't matter if they fail. Eventually, if enough of them fail or screw their clients over, people will simply quit investing there.
 
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