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The Fed may have triggered the '08 crash by accident

WCH

WCH

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The gut-wrenching slide of the 2008 stock market crash is unforgettable for those caught in it. In the six weeks from the Lehman Brothers bankruptcy on Sep. 17, the stock market lost over 40 percent of its value.

A quarter of trading days had plunges of 4 percent or more. Investors saw life’s savings dissipate. Traders saw a year’s work and bonus compensation vaporize.

The Federal Reserve and U.S. Treasury, which had been scrambling to cope with the developing financial crisis, accelerated their efforts to a frenetic pace, developing program after program to stem the panic. A chart of the Fed’s balance sheet during this time looks like an EKG gone haywire:...

snip...

http://thehill.com/opinion/finance/406536-the-fed-may-have-triggered-the-08-crash-by-accident


Personally, I don't believe it at all. I like to think of it as the "Great Theft of 2008"

Opinions?
 
Rewriting history seems to be mainstream now... sigh.
 
WCH said:
The gut-wrenching slide of the 2008 stock market crash is unforgettable for those caught in it. In the six weeks from the Lehman Brothers bankruptcy on Sep. 17, the stock market lost over 40 percent of its value.

A quarter of trading days had plunges of 4 percent or more. Investors saw life’s savings dissipate. Traders saw a year’s work and bonus compensation vaporize.

The Federal Reserve and U.S. Treasury, which had been scrambling to cope with the developing financial crisis, accelerated their efforts to a frenetic pace, developing program after program to stem the panic. A chart of the Fed’s balance sheet during this time looks like an EKG gone haywire:...

snip...

http://thehill.com/opinion/finance/406536-the-fed-may-have-triggered-the-08-crash-by-accident


Personally, I don't believe it at all. I like to think of it as the "Great Theft of 2008"

Opinions?
Click to expand...

Unregulated derivatives and the incestuous nature of the investment banking industry were the main causes of the crash
 
If anyone here hasn't seen The Big Short, you should check it out.
 
.”In the United States we have, in effect, two governments….We have the duly constituted Government….Then we have an independent, uncontrolled and uncoordinated government in the Federal Reserve System, operating the money powers which are reserved to Congress by the Constitution.” [Congressman Wright Patman, Chairman of the House Banking & Currency Committee, speech on the House floor, 1967]
 
Crovax said:
Unregulated derivatives and the incestuous nature of the investment banking industry were the main causes of the crash
Click to expand...

The reason why those derivative were created is important. And the reason why the spiral started is also important. And that lies squarely on unqualified people defaulting.
 
Crovax said:
Unregulated derivatives and the incestuous nature of the investment banking industry were the main causes of the crash
Click to expand...

Indeed;

“The job of the Federal Reserve is “to know when to remove the punch bowl at the party.” Under Alan Greenspan’s leadership its motto became “let’s all get drunk and see what happens.” It is now the morning after and the world will be dealing with Greenspan’s hangover for the next several decades.”
― Said Elias Dawlabani, MEMEnomics: The Next-Generation Economic System
 
WCH said:
The gut-wrenching slide of the 2008 stock market crash is unforgettable for those caught in it. In the six weeks from the Lehman Brothers bankruptcy on Sep. 17, the stock market lost over 40 percent of its value.

A quarter of trading days had plunges of 4 percent or more. Investors saw life’s savings dissipate. Traders saw a year’s work and bonus compensation vaporize.

The Federal Reserve and U.S. Treasury, which had been scrambling to cope with the developing financial crisis, accelerated their efforts to a frenetic pace, developing program after program to stem the panic. A chart of the Fed’s balance sheet during this time looks like an EKG gone haywire:...

snip...

http://thehill.com/opinion/finance/406536-the-fed-may-have-triggered-the-08-crash-by-accident


Personally, I don't believe it at all. I like to think of it as the "Great Theft of 2008"

Opinions?
Click to expand...

By the time the Fed started to act, it was too late. The cause of the crash was over 10 years in the making.
 
WCH said:
Indeed;

“The job of the Federal Reserve is “to know when to remove the punch bowl at the party.” Under Alan Greenspan’s leadership its motto became “let’s all get drunk and see what happens.” It is now the morning after and the world will be dealing with Greenspan’s hangover for the next several decades.”
― Said Elias Dawlabani, MEMEnomics: The Next-Generation Economic System
Click to expand...

The Central Bank is not responsible for the deregulation of those derivatives or the banking industry that would be Congress and the Bush/Clinton adminsitrations.
 
Carjosse said:
The Central Bank is not responsible for the deregulation of those derivatives or the banking industry that would be Congress and the Bush/Clinton adminsitrations.
Click to expand...

Both of those failed to stop the loans to the unqualified even though, IIRC, Bush tried. It still falls on the bankers who made those loans, IMO. They were charging excessive rates.
 
WCH said:
Both of those failed to stop the loans to the unqualified even though, IIRC, Bush tried. It still falls on the bankers who made those loans, IMO.
Click to expand...

Which is why you don't trust bankers to follow the rules, you regulate and punish them.
 
WCH said:
Both of those failed to stop the loans to the unqualified even though, IIRC, Bush tried. It still falls on the bankers who made those loans, IMO.
Click to expand...

Bankers...if left alone...wouldn't give loans to unqualified people. They know better than that.

No, the bankers were forced to make those loans. Everything went downhill from there.
 
Mycroft said:
Bankers...if left alone...wouldn't give loans to unqualified people. They know better than that.

No, the bankers were forced to make those loans. Everything went downhill from there.
Click to expand...

Home loans weren't the only facet of derivative trading. It was like Vegas on steroids. Probably still is.
 
WCH said:
Home loans weren't the only facet of derivative trading. It was like Vegas on steroids. Probably still is.
Click to expand...

I didn't say they were, but those crappy home loans are what started the ball rolling. As I said, it all went downhill from there.
 
Mycroft said:
Bankers...if left alone...wouldn't give loans to unqualified people. They know better than that.

No, the bankers were forced to make those loans. Everything went downhill from there.
Click to expand...

They would, as it happened in other countries, just to a lesser degree. It presents a lot of short-term profit for shareholders so of course they are going to do it, that is what prioritizing shareholders and profits above all else does as you cannot give shareholders dividends of future stability, no one ever thinks of the long-term effects in the banking world.
 
Crovax said:
Unregulated derivatives and the incestuous nature of the investment banking industry were the main causes of the crash
Click to expand...

It all started with the "community reinvestment act" under Carter. Look it up and follow the trail which lead to it all. Banks were forced into making bad loans based on the government mandate...they moved those risky loans around in order to not absorbing all of the risk. The free market is much smarter than government bureaucrats.
 
Aberration said:
The reason why those derivative were created is important. And the reason why the spiral started is also important. And that lies squarely on unqualified people defaulting.
Click to expand...


All true. However there is one very important bit you left out, that is the derivatives have become iterative. You have with all the derivatives several claims on one piece of collateral. When one part of the chain breaks then that starts a chain reaction. There needs to be either a regulation limiting the level of derivatives to one or two pieces of paper away from the original collateral or there needs to be a mandatory disclosure of how far the down the line the original collateral is. It must be made clear how much paper is in-between the paper an investor is purchasing and the original physical collateral. Secondly it should be made absolutely plain that the government will NOT cover ANY loses from derivatives markets.
 
Mycroft said:
I didn't say they were, but those crappy home loans are what started the ball rolling. As I said, it all went downhill from there.
Click to expand...

Given the history of the FED, I believe they used that as an excuse to recover their own losses. JMO
 
itsforthekids said:
It all started with the "community reinvestment act" under Carter. Look it up and follow the trail which lead to it all. Banks were forced into making bad loans based on the government mandate...they moved those risky loans around in order to not absorbing all of the risk. The free market is much smarter than government bureaucrats.
Click to expand...

Then it became a game of chance to which they quickly succumbed.
 
PirateMk1 said:
All true. However there is one very important bit you left out, that is the derivatives have become iterative. You have with all the derivatives several claims on one piece of collateral. When one part of the chain breaks then that starts a chain reaction. There needs to be either a regulation limiting the level of derivatives to one or two pieces of paper away from the original collateral or there needs to be a mandatory disclosure of how far the down the line the original collateral is. It must be made clear how much paper is in-between the paper an investor is purchasing and the original physical collateral. Secondly it should be made absolutely plain that the government will NOT cover ANY loses from derivatives markets.
Click to expand...

Trouble is, they own us and Congress.

I wonder what the Pols traded for giving up the power to control the money?
 
WCH said:
Indeed;

“The job of the Federal Reserve is “to know when to remove the punch bowl at the party.” Under Alan Greenspan’s leadership its motto became “let’s all get drunk and see what happens.” It is now the morning after and the world will be dealing with Greenspan’s hangover for the next several decades.”
― Said Elias Dawlabani, MEMEnomics: The Next-Generation Economic System
Click to expand...

Greenspan is certainly partly to blame. Depending how you count them, Greenie was running the Fed while 2 or 3 bubbles inflated and popped. He helped enable, and was then blindsided by all of them.
 
Aberration said:
The reason why those derivative were created is important. And the reason why the spiral started is also important. And that lies squarely on unqualified people defaulting.
Click to expand...

Yes, it's the powerless little people's fault, as always, not the banks who begged the unqualified to borrow money, and gave them the loans, and paid themselves like kings all along the way until the crash.
 
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