Anarchy in the US leads to the worst global recession in 70 years

We all know basically how the recession started. A lot of banks lent money to people who cannot repay them and eventually went bankrupt.

But what really happened inside this poisonous cloud of misinformation. In a few words, the rich and powerful CEO's did as they pleased. Devising a master plan, knowing but not caring about the consequences. They made their millions, why should they care about the rest of the people? Even the US government crumbled beneath their heel.

It all started during the boom of 1998 to 2006 when banks were generous and giving for no apparent reason. People never questioned that, they were happy that the bank was lending them money and they felt rich and powerful. They all believed that more money, means more spending which means good and strong economic growth for the country. All too well, but that cannot go on forever. What actually was happening behind closed doors, had a completely different aim. Bank owners and managers have found a way to become even richer by bending the law and even getting away with it. They started lending more and more loans to people who cannot repay them. They knew they were lending out risky loans but that did not matter, they had a bigger plan. They combined those 'acidic loans' with other possibly safer bonds, mixed them up a little bit and created collateral debt obligations (CDOs) out of them. They gave them over to the big 3 rating agencies at the time Standard&Poor, Moody's and Fitch Group, who gave the the top AAA rating, even though these CDO's would inevitably go bad. Then the banks sold these highly credited CDOs on the stock market and made millions.

Once the CDO's went bad, the investors demanded a refund from the banks. Unfortunately, the banks had no money left due to the excessive amount of loans they had given out and the very low leverage ratio. They could not repay the investors and had to declare themselves bankrupt. The rich bankers bailed early and went somewhere nice to spend their fortune. Afterwards, the house market collapsed devaluing the assets of many people and making people from 'hero to zero' over night.

I ask, why should billionaires rule the world and do as they please? Where did all the human morals go?

I'd like to hear what you think about the recession and the things that have been going on around the world lately and hopefully share my opinion.
 
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sidicks

Banned
We all know basically how the recession started. A lot of banks lent money to people who cannot repay them and eventually went bankrupt.

But what really happened inside this poisonous cloud of misinformation. In a few words, the rich and powerful CEO's did as they pleased. Devising a master plan, knowing but not caring about the consequences. They made their millions, why should they care about the rest of the people? Even the US government crumbled beneath their heel.

It all started during the boom of 1998 to 2006 when banks were generous and giving for no apparent reason. People never questioned that, they were happy that the bank was lending them money and they felt rich and powerful. They all believed that more money, means more spending which means good and strong economic growth for the country. All too well, but that cannot go on forever. What actually was happening behind closed doors, had a completely different aim. Bank owners and managers have found a way to become even richer by bending the law and even getting away with it. They started lending more and more loans to people who cannot repay them. They knew they were lending out risky loans but that did not matter, they had a bigger plan. They combined those 'acidic loans' with other possibly safer bonds, mixed them up a little bit and created collateral debt obligations (CDOs) out of them.

They gave them over to the big 3 rating agencies at the time Standard&Poor, Moody's and Fitch Group, who gave the the top AAA rating, even though these CDO's would inevitably go bad.
Not really true - the key thing is that some CDO tranches were AAA - it is the tranching process that changes the risk and hence justifiably allows certain tranches of assets to be rated accordingly.

Certainly the statement 'these CDOs would inevitably go bad' is demonstrably false.

Then the banks sold these highly credited CDOs on the stock market and made millions.
CDOs were not sold on the stock market

Investors were not forced to buy any risks that they did not want or understand.

Once the CDO's went bad, the investors demanded a refund from the banks.
Why should the banks have provided refunds unless they had misrepresented what they were selling (which may have happened in isolated cases).

Unfortunately, the banks had no money left due to the excessive amount of loans they had given out and the very low leverage ratio.
You mean high leverage, not low.

They could not repay the investors and had to declare themselves bankrupt. The rich bankers bailed early and went somewhere nice to spend their fortune. Afterwards, the house market collapsed devaluing the assets of many people and making people from 'hero to zero' over night.
In the UK at least, property prices haven't fallen that much.

I ask, why should billionaires rule the world and do as they please? Where did all the human morals go?
What about the morals of people borrowing what they could not pay back?
 
The CDO's were deemed as a 'safe investment', however that was untrue, they went bad soon after. You cannot deny the fact that there has been something fishy going on here. If you were one of the people who make their living off buying and selling assets such as AIG who unfortunately went bankrupt because of it, you would be singing a different song. The trust factor is very important and when an asset is ranked as high as triple A rating, which by the way is the highest and is deemed as the safest investment possible, those type of people, who have had enough experience with stocks will obviously buy!

After these acidic CDO's were sold to AIG, people from that company started selling them off through the stock market. :)

You misunderstand the concept of people not being able to pay back! The way it works is, people show up at the bank with business papers and statements, the bank managers or the person who decides whether to give out the loan, sees his business as not a safe investment, however still gives the person the loan. The entrepreneur then goes on to invest into his business and fails, losing everything. He doesn't know that he won't be able to repay the loan as he would believe that if the bank has given him the loan, that means they believe its a viable business with a good idea etc.

Yes i mean high leverage I appologize :)
 

sidicks

Banned
The CDO's were deemed as a 'safe investment', however that was untrue, they went bad soon after.
No, I repeat some tranches of some CDOs lost money. Many of those recovered those losses.

CDOs come in all shapes and sizes with all different ratings based on the tranching and the underlying exposures.

Your simplistic understanding is not sufficient to allow you really understand the issues.

You cannot deny the fact that there has been something fishy going on here. If you were one of the people who make their living off buying and selling assets such as AIG who unfortunately went bankrupt because of it, you would be singing a different song.
If I made my living by buying and selling something, I'd make sure I understood what I was buying and selling!!

But that wasn't the issue - it was the risks they were running that caused the issues for AIG. No excuses for AIG.

In any case, much of AIG's problems was to do with selling credit default swaps (CDS) not CDOs.

The trust factor is very important and when an asset is ranked as high as triple A rating, which by the way is the highest and is deemed as the safest investment possible, those type of people, who have had enough experience with stocks will obviously buy!
A AAA rating (at issue) denotes a certain probability of loss (admittedly low and therefore (relatively) the safest investment), but with no guarantees.

People that buy "stocks" don't generally buy CDOs!

After these acidic CDO's were sold to AIG, people from that company started selling them off through the stock market. :)
CDOs are not sold on the stock market. Stocks are!

You misunderstand the concept of people not being able to pay back!
No, it's quite straight forward. You work out how much you can afford and what might happen in adverse circumstances etc

The way it works is, people show up at the bank with business papers and statements, the bank managers or the person who decides whether to give out the loan, sees his business as not a safe investment, however still gives the person the loan. The entrepreneur then goes on to invest into his business and fails, losing everything. He doesn't know that he won't be able to repay the loan as he would believe that if the bank has given him the loan, that means they believe its a viable business with a good idea etc.
You seem confused between business loans and mortgages.

Yes i mean high leverage I appologize :)
:smashin:
 

MikeTV

Well-known Member
We all know basically how the recession started. A lot of banks lent money to people who cannot repay them and eventually went bankrupt.

But what really happened inside this poisonous cloud of misinformation. In a few words, the rich and powerful CEO's did as they pleased. Devising a master plan, knowing but not caring about the consequences. They made their millions, why should they care about the rest of the people? Even the US government crumbled beneath their heel.

It all started during the boom of 1998 to 2006 when banks were generous and giving for no apparent reason. People never questioned that, they were happy that the bank was lending them money and they felt rich and powerful. They all believed that more money, means more spending which means good and strong economic growth for the country. All too well, but that cannot go on forever. What actually was happening behind closed doors, had a completely different aim. Bank owners and managers have found a way to become even richer by bending the law and even getting away with it. They started lending more and more loans to people who cannot repay them. They knew they were lending out risky loans but that did not matter, they had a bigger plan. They combined those 'acidic loans' with other possibly safer bonds, mixed them up a little bit and created collateral debt obligations (CDOs) out of them. They gave them over to the big 3 rating agencies at the time Standard&Poor, Moody's and Fitch Group, who gave the the top AAA rating, even though these CDO's would inevitably go bad. Then the banks sold these highly credited CDOs on the stock market and made millions.

Once the CDO's went bad, the investors demanded a refund from the banks. Unfortunately, the banks had no money left due to the excessive amount of loans they had given out and the very low leverage ratio. They could not repay the investors and had to declare themselves bankrupt. The rich bankers bailed early and went somewhere nice to spend their fortune. Afterwards, the house market collapsed devaluing the assets of many people and making people from 'hero to zero' over night.

I ask, why should billionaires rule the world and do as they please? Where did all the human morals go?

I'd like to hear what you think about the recession and the things that have been going on around the world lately and hopefully share my opinion.
I can't help feeling this is just spam - a promotion for an investment website, mixed in with a popularist narrative about the financial crisis. Even though I do agree with many of the elements of the narrative.

Tranching was used to conceal risk, and allowed banks to extend ever more subprime credit, leading to ever more toxic assets. They were making so much money they couldn't help themselves. Whether it was a premeditated conspiracy involving collusion is arguable. It's apparent that the most senior decision makers were incapable of evaluating risk and/or chose to ignore it. Undoubtedly the knowledge of being too big to be allowed to fail was a factor, but how much is difficult to say without the aid of psychic powers into the minds of executives. Undoubtedly, some simply didn't know what they were doing.

But the link was about private investor scams. The financial crisis wasn't about private investor scams. It was about reckless lending by major international banks, overseas. The victims were those with (mainly subprime) mortgages, the taxpayer, and of course, everyone who has had to endure the consequences of having their economies brought down by the actions of greedy bankers, and the subsequent basket-case banking system that we have been left with.
 
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IronGiant

Moderator
Thanks Mike :thumbsup:

The promotional link has been removed.
 

DPinBucks

Distinguished Member
I can't help feeling this is just spam - a promotion for an investment website, mixed in with a popularist narrative about the financial crisis....
That's definitely my impression. Essentially the usual emotive rant, which I'm not saying is wholly wrong; but it is old stuff and hopelessly single-issue.

I'm not sure I see the website promotion angle, though.
 

karkus30

Banned
The CDO's were deemed as a 'safe investment', however that was untrue, they went bad soon after. You cannot deny the fact that there has been something fishy going on here. If you were one of the people who make their living off buying and selling assets such as AIG who unfortunately went bankrupt because of it, you would be singing a different song. The trust factor is very important and when an asset is ranked as high as triple A rating, which by the way is the highest and is deemed as the safest investment possible, those type of people, who have had enough experience with stocks will obviously buy!

After these acidic CDO's were sold to AIG, people from that company started selling them off through the stock market. :)

You misunderstand the concept of people not being able to pay back! The way it works is, people show up at the bank with business papers and statements, the bank managers or the person who decides whether to give out the loan, sees his business as not a safe investment, however still gives the person the loan. The entrepreneur then goes on to invest into his business and fails, losing everything. He doesn't know that he won't be able to repay the loan as he would believe that if the bank has given him the loan, that means they believe its a viable business with a good idea etc.

Yes i mean high leverage I appologize :)
Who allowed the high leveraging of debt through fractional reserve banking ?
Who was it that set up the guarantee for sub prime lending ?
Who was it that guaranteed bank depositors money.
Who was it that used tax payer funding to bail out the high street banks and subsequently semi-nationalised some ?
Who was it that coined the phrase 'too big to fail' ?
Who instigated the TARP programme ?
Who allowed the printing of money and called it QE ?
Who was the biggest borrower bar none and remains the biggest borrower ?

Lending money is what banks do, that's their business. If they lend unwisely then the result should be bankruptcy. If you create a banking model that is not allowed to fail and ultimately socialises losses, then the result of encouraging loans through home guarantee schemes and removing the need for holding sufficient funding to remain liquid is the current mess.

Cheap money results in bad investments. It gives the market the wrong signals and makes everyone act foolishly. The biggest fools being the Governments who were addicted to bribing the electorate by spending on increased state provision. In the end the rest of us mugs are expected to pay for this mismanagement of the public service provision.

Some got rich, some took big hits. The only conspiracy was Governments addicted to cheap money and the belief that an expanding economy could be sustained indefinitely. To that end they took out all the safety features that prevented banks from becoming reckless in order to make the good times get even better. When the true picture began to be revealed it created a monetary squeeze that exposed all the bad investments made during the last 20 years, top of the pile were the Governments that presided over this failed Keynesian experiment.
 

IronGiant

Moderator
That's definitely my impression. Essentially the usual emotive rant, which I'm not saying is wholly wrong; but it is old stuff and hopelessly single-issue.

I'm not sure I see the website promotion angle, though.
That's because it's no longer there :smashin:
 

karkus30

Banned
Oh yes, the old Karkus "it's the government's fault" curve-ball again? I didn't get any further in reading your post.
I think you will find that the previous chancellor has admitted it. What's more I think you should read his following statement which is far more revealing. The upshot being that banks cannot be regulated. If that is true then the answer is to move them out of Government protectionism which inevitably means they will no longer be the instruments of the Government.

Brown was pessimistic about the progress made by regulators across the globe in preventing future crises.

Identifying what he called a “race to the bottom” by countries competing over capital strength requirements, he said: “It is no longer possible to imagine we are going to get a great global agreement in financial standards. The good are going to get undercut by the bad, and the bad are going to be undercut by the worst.”
 

MikeTV

Well-known Member
Brown was pessimistic about the progress made by regulators across the globe in preventing future crises.
He also said he didn't understand what they were doing, and that "That was our mistake but I'm afraid it was a mistake made by just about everybody who was in the regulatory business.".

Regarding: "The good are going to get undercut by the bad, and the bad are going to be undercut by the worst."

- I sadly agree. But that's why international agreements are so important. And that starts with the EU - something you're steadfastly opposed to.
 

karkus30

Banned
He also said he didn't understand what they were doing, and that "That was our mistake but I’m afraid it was a mistake made by just about everybody who was in the regulatory business.".

Regarding: "The good are going to get undercut by the bad, and the bad are going to be undercut by the worst."

- I sadly agree. But that's why international agreements are so important. And that starts with the EU - something you're steadfastly opposed to.
It will never happen. That's what Brown was alluding to. In uncharacterised honesty he has revealed the plot. Governments need banks as much as banks need Governments. Its that alliance is the problem. Until we resolve it by separating state and banking the problems will persist because banks will always promise the Government an improved economy in return for relaxing regulation. Governments are powerless to resist.

The EU is just another Government that will/has usurped the governments of its individual members. It has spectacularly failed to provide stability and its banks and its members have fallen under the same spell as Brown did. Any country relying heavily on the banking sector is in a precarious position and that global wave will always wreak havoc.

The simple thing to do is realise it is an insurmountable task and make banks into independent businesses with self responsibility. Take away the cartels and guarantees. Split up the big banks and promote competition. Get rid of the asset buying power of the central banks and put money printing back into the commercial banks hands. It makes the state less reliant on cheap money and heavy lobbying. Carried out unilaterally it would reduce our dependence on the financial sector and make other options for production seem more attractive.
 

MikeTV

Well-known Member
It will never happen. That's what Brown was alluding to. In uncharacterised honesty he has revealed the plot. Governments need banks as much as banks need Governments. Its that alliance is the problem. Until we resolve it by separating state and banking the problems will persist because banks will always promise the Government an improved economy in return for relaxing regulation.
I don't think today governments are under too many allusions as to what an unregulated banking industry does to economies. Separation is easy. Break up the banks and enable more players to enter the industry. Easier to say, than to do, perhaps. But that's the answer. It just takes governments with balls.
 

sidicks

Banned
I don't think today governments are under too many allusions as to what an unregulated banking industry does to economies. Separation is easy. Break up the banks and enable more players to enter the industry. Easier to say, than to do, perhaps. But that's the answer. It just takes governments with balls.
Given we've never had an unregulated banking industry, on what could governments base that opinion?
:confused:
 

DPinBucks

Distinguished Member
...The upshot being that banks cannot be regulated. If that is true then the answer is to move them out of Government protectionism which inevitably means they will no longer be the instruments of the Government....
Logical inconsistency. If the banks cannot be regulated, then they can't be an instrument of anything.

You're advocating laissez faire fiscal policy of a kind not seen since the South Sea Bubble. Who will control the newly-broken-up banks? What will stop them going back to their bad old ways? It can't be legislation, because that is exactly what you're advocating against.
 

karkus30

Banned
Logical inconsistency. If the banks cannot be regulated, then they can't be an instrument of anything.

You're advocating laissez faire fiscal policy of a kind not seen since the South Sea Bubble. Who will control the newly-broken-up banks? What will stop them going back to their bad old ways? It can't be legislation, because that is exactly what you're advocating against.
I'm advocation a free market banking system divorced from the state completely. It is the creation of the Central Banks that has been the cause of the bubbles such as South Sea and the Tulip Crisis. The mechanism of money expansion to fund state debt creates plentiful cheap money and bad investments.

The regulation must be inherent to the business as direct risk and competition must be open.

Worth a read if you have the time, the author gives a good historical account from an Austrian perspective of the origins of the South Sea Bubble, amongst several others.

http://library.mises.org/books/Doug...bles and Increases in the Supply of Money.pdf
 

la gran siete

Distinguished Member
We all know basically how the recession started. A lot of banks lent money to people who cannot repay them and eventually went bankrupt.

But what really happened inside this poisonous cloud of misinformation. In a few words, the rich and powerful CEO's did as they pleased. Devising a master plan, knowing but not caring about the consequences. They made their millions, why should they care about the rest of the people? Even the US government crumbled beneath their heel.

It all started during the boom of 1998 to 2006 when banks were generous and giving for no apparent reason. People never questioned that, they were happy that the bank was lending them money and they felt rich and powerful. They all believed that more money, means more spending which means good and strong economic growth for the country. All too well, but that cannot go on forever. What actually was happening behind closed doors, had a completely different aim. Bank owners and managers have found a way to become even richer by bending the law and even getting away with it. They started lending more and more loans to people who cannot repay them. They knew they were lending out risky loans but that did not matter, they had a bigger plan. They combined those 'acidic loans' with other possibly safer bonds, mixed them up a little bit and created collateral debt obligations (CDOs) out of them. They gave them over to the big 3 rating agencies at the time Standard&Poor, Moody's and Fitch Group, who gave the the top AAA rating, even though these CDO's would inevitably go bad. Then the banks sold these highly credited CDOs on the stock market and made millions.

Once the CDO's went bad, the investors demanded a refund from the banks. Unfortunately, the banks had no money left due to the excessive amount of loans they had given out and the very low leverage ratio. They could not repay the investors and had to declare themselves bankrupt. The rich bankers bailed early and went somewhere nice to spend their fortune. Afterwards, the house market collapsed devaluing the assets of many people and making people from 'hero to zero' over night.

I ask, why should billionaires rule the world and do as they please? Where did all the human morals go?

I'd like to hear what you think about the recession and the things that have been going on around the world lately and hopefully share my opinion.

yup,pretty much as i have being saying all along,If you want to pint the finger of blame then look no further than the investment bank sector and the culture of shortemist greed which has existed over rhe last 30 years.Most people accept that to be the case but it needs to be repeated over and over again until reform is put in place.Hopefully a new Wall street/The City protest movement will start because we sure as heck need it
 

sidicks

Banned
yup,pretty much as i have being saying all along,If you want to pint the finger of blame then look no further than the investment bank sector and the culture of shortemist greed which has existed over rhe last 30 years.Most people accept that to be the case but it needs to be repeated over and over again until reform is put in place.Hopefully a new Wall street/The City protest movement will start because we sure as heck need it
Apart from Lehmans, which investment banks went just?

What about retail banks??

Who was regulating those banks?

Who changed the regulator for those banks??

Who was borrowing money they couldn't repay?

Etc
:hiya:
 

karkus30

Banned
yup,pretty much as i have being saying all along,If you want to pint the finger of blame then look no further than the investment bank sector and the culture of shortemist greed which has existed over rhe last 30 years.Most people accept that to be the case but it needs to be repeated over and over again until reform is put in place.Hopefully a new Wall street/The City protest movement will start because we sure as heck need it
Oh not the investment bank bogey men. You have been fed a load of tripe if you think its anything to do with investment banks. Its a good excuse trotted out by Governments to cover up for the commercial and high street banks failures o their watch. Investment banks are entrepreneur markets where you can win or lose depending on the information available, clever reasoning and a degree of chance are the key to success.

Northern Rock and RBS were not investment banks, they were plain grade money lenders. It was these banks, amongst others that had to be bailed out. Investment banks like Lehman's were allowed to go to the wall. The one exception being Goldman Sachs who were able to flip flop from investment to commercial and also received a bail out.

I'm not sure what reform you are suggesting, or where that reform can be applied ? We already have tough new regulations for the high street banks and now there are two regulators instead of one. Unfortunately there is no money left to lend except to the Government, so regulation is equivalent to giving pain killers to a dead man.

What might be helpful to you is the knowledge that when you give your money to the bank for safe keeping, it then becomes the banks money. You have voluntarily given it up and they are entitled to use it in whichever way they see fit in return for interest or banking services. What's more they are only ever expected to pay the money back as fiat currency. That means that the central bank can legally print it, expanding the money supply and devaluing your nest egg as a result.
 
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la gran siete

Distinguished Member
Oh not the investment bank bogey men. You have been fed a load of tripe if you think its anything to do with investment banks. Its a good excuse trotted out by Governments to cover up for the commercial and high street banks failures o their watch. Investment banks are entrepreneur markets where you can win or lose depending on the information available, clever reasoning and a degree of chance are the key to success.

Northern Rock and RBS were not investment banks, they were plain grade money lenders. It was these banks, amongst others that had to be bailed out. Investment banks like Lehman's were allowed to go to the wall. The one exception being Goldman Sachs who were able to flip flop from investment to commercial and also received a bail out.

I'm not sure what reform you are suggesting, or where that reform can be applied ? We already have tough new regulations for the high street banks and now there are two regulators instead of one. Unfortunately there is no money left to lend except to the Government, so regulation is equivalent to giving pain killers to a dead man.

What might be helpful to you is the knowledge that when you give your money to the bank for safe keeping, it then becomes the banks money. You have voluntarily given it up and they are entitled to use it in whichever way they see fit in return for interest or banking services. What's more they are only ever expected to pay the money back as fiat currency. That means that the central bank can legally print it, expanding the money supply and devaluing your nest egg as a result.
you may see it that way ,I dont. Bring on Occupy movement once again
 

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