The Cause of the Financial Crisis (dart)

[_Analytics]

To recap where we are, an interesting question is what caused the financial crisis. My position is that it was driven by several factors, the most important of which are:

1- the Federal Reserve keeping interest rates too low for too long

2- Investment banks creating sophisticated mortgage derivatives with defective credit enhancements

3- Rating agencies being fooled by the defective credit enhancements

4- Mortgage originators greedily pushing loans that their clients couldn’t repay

5- Individuals across a wide swath of economic backgrounds foolishly taking out the loans they couldn't afford to pay back without refinancing or selling.

Greed, an unregulated free market, leverage, and bad assumptions permeated every level of this. That’s my opinion.

In contrast, Kevin claims that virtually all economists, Bill Clinton, and the New York Times agree with his position. His position is that the underlying cause of this is democrats literally forcing banks to loan money to unqualified buyers.

Kevin is preparing a fiest of crow about how wrong I am. I figured this is worth a new thread, because it isn't even about Pallin.

[_Jason Bourne]

I think you summary is fair except I am not sure about item 1.

As for WHO created it? Well I think political leaders on both sides were asleep and some may have even been criminal in this but I blame both sides. I also think the current administration was asleep at the wheel. It seems since the administration is involved in the SEC and that is the regulatory agency for securities and Mortgage Backed Securities seem to be at the root of this then how can one conclude differently?


I think the dems over the banking committees in congress were in bed with Fannie Mae and Freddie Mac.

It is all a debcale and to lay it at the feet of either party directly is naïve.

[_cksalmon]

His position is that the underlying cause of this is democrats literally forcing banks to loan money to unqualified buyers.

What demographics are in view here?

cks

[_Bond James Bond]

Is there anyway this can be pinned on DCP?

;)

~Bond

[_Analytics]

I think you summary is fair except I am not sure about item 1.

The point there is that low interest rates over the course of so many years did many things:

1- Caused house prices to go higher than their real value.

2- Gave a big incentive to borrow since borrowing was so cheap.

3- Gave little incentive to save.

With the benefit of 20/20 hindsight, was propping up the Dow Jones via low interest rates really the best interest rate policy?

As for WHO created it? Well I think political leaders on both sides were asleep and some may have even been criminal in this but I blame both sides. I also think the current administration was asleep at the wheel. It seems since the administration is involved in the SEC and that is the regulatory agency for securities and Mortgage Backed Securities seem to be at the root of this then how can one conclude differently?

When you're dealing with sophisticated assets such as CMOs, the theory was that both parties are sophisticated and knew what they were doing. Regulators are out there protecting the "little guy", but since the little guy wasn't a party to the transaction, why get involved?

I think the dems over the banking committees in congress were in bed with Fannie Mae and Freddie Mac.

That's undoubtedly true. The irony is that while Fannie Mae and Freddie Mac may have helped increase the percentage of people who got into homes, I think their biggest impact was increasing the price of homes. Same thing with Sallie Mae--is their any doubt that guaranteed student loans as radically lead to very expensive college bills?

It is all a debcale and to lay it at the feet of either party directly is naïve.

Exactly.

[_dblagent007]

This video explains the financial crisis the best.

http://www.youtube.com/watch?v=NU6fuFrdCJY

[_Analytics]

This video explains the financial crisis the best.

http://www.youtube.com/watch?v=NU6fuFrdCJY

Talk about a series of non sequiturs!

[_beastie]

First, unless you follow Antishock's lead and find a way to connect this to Mormonism, it will be moved to off-topic forum. Perhaps you could add some bit about wondering if this will cause some elders of Israel to wonder if now is the time they should ride in to the rescue. ;)

This is much too complicated for me to feel comfortable even trying to assess, but I will say this - we should never underestimate the greed of human beings and our willingness to engage in very risky behavior to satisfy that greed. If we don't build in some way of checking that greed and risky behavior, sooner or later we will pay the price.

[_Analytics]

First, unless you follow Antishock's lead and find a way to connect this to Mormonism, it will be moved to off-topic forum. Perhaps you could add some bit about wondering if this will cause some elders of Israel to wonder if now is the time they should ride in to the rescue. ;)

This is much too complicated for me to feel comfortable even trying to assess, but I will say this - we should never underestimate the greed of human beings and our willingness to engage in very risky behavior to satisfy that greed. If we don't build in some way of checking that greed and risky behavior, sooner or later we will pay the price.

By the way, for the record I forgot to mention the rather obvious connection this thread has to Mormonism. The connection is that dart thinks the cause of the whole mess was the government forcing banks to give mortgages to minorities, which is exactly like the church forcing priesthood holders to give blacks the priesthood.

[_antishock8]

First, unless you follow Antishock's lead and find a way to connect this to Mormonism, it will be moved to off-topic forum. Perhaps you could add some bit about wondering if this will cause some elders of Israel to wonder if now is the time they should ride in to the rescue. ;)

This is much too complicated for me to feel comfortable even trying to assess, but I will say this - we should never underestimate the greed of human beings and our willingness to engage in very risky behavior to satisfy that greed. If we don't build in some way of checking that greed and risky behavior, sooner or later we will pay the price.

:)

Analytics,

I think you made some fair points. I wish you would get a little more pointed regarding who created the policy that forced or induced institutions into lending to unqualified buyers. I also would like you to lay out a timeline of warnings by various institutional voices, such as the Federal Reserve Chairman, who did what, and who blatatanly ignored or killed any bills brought to Congress and why.

I think that would give a clearer picture to the framework you've provided.

-AS8