[marvin]

Quote:

Originally Posted by F107plus5 /img/forum/go_quote.gif We need to somehow get the Mass Media to demand the reinstatement of the safeguards of the Glass-Stegall Act(Banking Act of 1933), and to further protect our Banks by repealing the Gramm-Leach-Bliley Act

The other two primary safeguards of Glass-Steagall, the FDIC and interest rate regulations never stopped.

The third safeguard, Glass-Steagall Act’s Commerical/Investment firewall, was already a dead letter by the time the Gramm-Leach-Bliley Act was passed due to lack of enforcement and waivers. Either way, it never addressed the proximate causes of the crisis, nor would it have stopped banks from failing. As far as proximate causes go, it wouldn’t have done anything to tighten up lending standards at commercial banks, decrease leverage at investment banks, or stop the use of derivatives based on barely understood risks.

As for banking failures, the big commercial bank failures (Wamu, Countrywide) have minimal investment banking assets and failed due to their commercial banking activities. Glass-Steagall wouldn't have changed this. The big investment bank failures (Bear, Lehmans, Merrill) had minimal commercial banking assets and all failed on the investment banking side. Glass-Steagall wouldn't have changed this either.

Wachovia was one of the creatures that would have never come into existence under the Glass-Steagall act, but it never technically failed and its buyout was done by Citigroup, whose existence would have also been prohibited by Glass-Steagall. And of course, it died due to activity on its supposedly low risk commercial banking side. Glass-Steagall would have also prevented BofA from buying out Merrill Lynch and the conversion of the surviving I-banks into holding companies, something that may end up saving them from bankruptcy.

Any way you look at it though, Glass Steagall’s banking firewall wouldn’t have had much of an effect on the current crisis.

 

[F107plus5]

Quote:

Originally Posted by marvin /img/forum/go_quote.gif The other two primary safeguards of Glass-Steagall, the FDIC and interest rate regulations never stopped. The third safeguard, Glass-Steagall Act’s Commerical/Investment firewall, was already a dead letter by the time the Gramm-Leach-Bliley Act was passed due to lack of enforcement and waivers. Either way, it never addressed the proximate causes of the crisis, nor would it have stopped banks from failing. As far as proximate causes go, it wouldn’t have done anything to tighten up lending standards at commercial banks, decrease leverage at investment banks, or stop the use of derivatives based on barely understood risks. As for banking failures, the big commercial bank failures (Wamu, Countrywide) have minimal investment banking assets and failed due to their commercial banking activities. Glass-Steagall wouldn't have changed this. The big investment bank failures (Bear, Lehmans, Merrill) had minimal commercial banking assets and all failed on the investment banking side. Glass-Steagall wouldn't have changed this either. Wachovia was one of the creatures that would have never come into existence under the Glass-Steagall act, but it never technically failed and its buyout was done by Citigroup, whose existence would have also been prohibited by Glass-Steagall. And of course, it died due to activity on its supposedly low risk commercial banking side. Glass-Steagall would have also prevented BofA from buying out Merrill Lynch and the conversion of the surviving I-banks into holding companies, something that may end up saving them from bankruptcy. Any way you look at it though, Glass Steagall’s banking firewall wouldn’t have had much of an effect on the current crisis.

Cool; then what DID make the biggest change in policy that allowed the majority of the damage to happen? Something allowed the Banks and Investment firms and Insurance Companies to crawl into bed together on a major scale and start their part of the mess, and what allowed Derivatives and Credit Swaps to suddenly take hold so drastically? I'm afraid I'm just getting into this subject and although it's turning out be a lot of fun; in a macabre sort of way; there's still a lot of the finer details I'm still learning about.

 

[marvin]

Quote:

Originally Posted by F107plus5 /img/forum/go_quote.gif Cool; then what DID make the biggest change in policy that allowed the majority of the damage to happen? Something allowed the Banks and Investment firms and Insurance Companies to crawl into bed together on a major scale and start their part of the mess, and what allowed Derivatives and Credit Swaps to suddenly take hold so drastically? I'm afraid I'm just getting into this subject and although it's turning out be a lot of fun; in a macabre sort of way; there's still a lot of the finer details I'm still learning about.

Nothing was needed to allow them to do that since there wasn't anything stopping them in the first place. The market conditions in the 2000 timeframe were just right for it to happen. Interest rates were at an all time low, the government had effectively mandated relaxed lending standards, and the stock market was stagnant. The housing market was heating up, and well, everyone in financial services wanted a piece of the action and a cut of the profits.

Due to the rapid change in the risk levels of the MBSs and CDOs from lowered lending standards, ratings agencies weren't able to correctly gauge market risk and lot of companies made some really bad bets. Derivatives that make small chunks of money at the risk of losing tons are nice when the risk is minimal, but they have a tendency of blowing up when risk is misjudged. And well, that's what happened. Throw in mark to market accounting, the fact that even good assets have very low market values if no one's buying, and the need for banks to maintain a certain capitalization level...

Oh yeah, I forgot one major factor: an absurd level of consumer stupidity. Sub-prime, alt-A, and exotic mortgages exist for a reason. "I wanna house I can't afford" ain't one of them.

 

[F107plus5]

Quote:

Originally Posted by marvin /img/forum/go_quote.gif Nothing was needed to allow them to do that since there wasn't anything stopping them in the first place. The market conditions in the 2000 timeframe were just right for it to happen. Interest rates were at an all time low, the government had effectively mandated relaxed lending standards, and the stock market was stagnant. The housing market was heating up, and well, everyone in financial services wanted a piece of the action and a cut of the profits. Due to the rapid change in the risk levels of the MBSs and CDOs from lowered lending standards, ratings agencies weren't able to correctly gauge market risk and lot of companies made some really bad bets. Derivatives that make small chunks of money at the risk of losing tons are nice when the risk is minimal, but they have a tendency of blowing up when risk is misjudged. And well, that's what happened. Throw in mark to market accounting, the fact that even good assets have very low market values if no one's buying, and the need for banks to maintain a certain capitalization level... Oh yeah, I forgot one major factor: an absurd level of consumer stupidity. Sub-prime, alt-A, and exotic mortgages exist for a reason. "I wanna house I can't afford" ain't one of them.

Hmmmmm....interesting arguments indeed! Thanx!

Fascinating subject worthy of lotsa study!

 

[Uncle Erik]

Quote:

Originally Posted by marvin /img/forum/go_quote.gif Nothing was needed to allow them to do that since there wasn't anything stopping them in the first place. The market conditions in the 2000 timeframe were just right for it to happen. Interest rates were at an all time low, the government had effectively mandated relaxed lending standards, and the stock market was stagnant. The housing market was heating up, and well, everyone in financial services wanted a piece of the action and a cut of the profits. Due to the rapid change in the risk levels of the MBSs and CDOs from lowered lending standards, ratings agencies weren't able to correctly gauge market risk and lot of companies made some really bad bets. Derivatives that make small chunks of money at the risk of losing tons are nice when the risk is minimal, but they have a tendency of blowing up when risk is misjudged. And well, that's what happened. Throw in mark to market accounting, the fact that even good assets have very low market values if no one's buying, and the need for banks to maintain a certain capitalization level... Oh yeah, I forgot one major factor: an absurd level of consumer stupidity. Sub-prime, alt-A, and exotic mortgages exist for a reason. "I wanna house I can't afford" ain't one of them.

I mostly agree, but I think a lot of money was dumped into real estate around 2000-2001 because that's when the Internet Bubble was popping. The smart money cashed out before the crash and went into real estate. Lots of people followed suit.

I don't entirely blame the financial system for the crash. There was a reason people were lined up when new developments opened to make offers above asking. People got greedy when they could flip a house for $20k or more six months down the line. When that kind of money is effortlessly being made, people don't much care about exotic mortgages. They thought they could sell for more before the mortgage reset. It wasn't just homebuyers buying above their means, there were an equal amount of speculators in the market.

My beef with the bailout is that it sorta seeks to keep prices artificially high. Keeping them above market is not the solution. Bankruptcy and write-downs are the way to go. Especially with the oversupply in housing. Let prices seek the market rate, people will start buying again and everything will settle down.

Though I don't know if the government will let that happen. Problem is that the city and county level raked in a lot of money from soaring property taxes. They don't want to take that pay cut - schools, police, fire, city services, etc. would have to be chopped if real property went back to market levels.

 

[roxxor]

In case ya'll missed it, THE subprimer primer. It's worksafe, don't worry.

PS. I was under the impression that none of the banks that have gone under (or were or are at risk of going under) were hybrid depository-investment banks, which deregulation of the GLB actually allowed. Every single one of them were either exclusive investment institutions (Lehman Brothers, Bear Stearns, Merrill Lynch, AIG) or retail depositories (IndyMac, Washington Mutual). So the argument that it was deregulation of GLB that caused this mess is tenuous at best. In fact, just about the only thing that is (partially) contributing to stabilisation at the moment are the buyouts - the sort of thing preGLB wouldn't have allowed.

 

[Hi-Finthen]

Easy to see that 500billion to a Trillion or more, was gained by the well positioned, and that is now setting on the sidelines awaiting this bail out to buy up that discounted paper from the U.S. treasury, protecting the 50% drop in real property values along with a depression. The game was rigged by the financial elites buying policy changes influanced by lobbyist and Wall Streets creative vehicles of investment!

I vote to let the housing pricing fall by 50% and Nationalize the Banks!

 

[F107plus5]

I've pretty much stopped trying to fix blame in the past, and started looking more to how to avoid more damage in the future.

It's kinda corny to say; but I spent many, many years trying to ensure the survival of, and the advancing of Capitalism, but now I feel completely betrayed.

The dams and levies protecting our financial rivers and livelihoods have been torn down and we find that most of us live in a flood plain where some few gain benefit from the floods, but the majority of us are being swept away down stream.

I'm beginning to think that "Socialism" is not the four letter word we've been lead to believe that it is.

I would rather that the taxpayer have some vote on the caretakers of the Financial System rather than the Financial System voting for our leaders instead of us.

....my apologies; I know I'm ranting, but I'm mad, and scared.

 

[VicAjax]

Quote:

Originally Posted by Hi-Finthen /img/forum/go_quote.gif Easy to see that 500billion to a Trillion or more, was gained by the well positioned, and that is now setting on the sidelines awaiting this bail out to buy up that discounted paper from the U.S. treasury, protecting the 50% drop in real property values along with a depression. The game was rigged by the financial elites buying policy changes influanced by lobbyist and Wall Streets creative vehicles of investment! I vote to let the housing pricing fall by 50% and Nationalize the Banks!

i don't know about nationalize... but at least re-privatized.

once upon a time, they were all privately held. going public generated a lot of capital for them, but once they did they became beholden to shareholders, who require a certain amount of revenue growth year-to-year to justify their continued investment.

this leads to riskier and riskier investments on the part of the banks, which puts their stability, liquidity and credability at risk. finally, it all came crashing down.

 

[uhcmos1]

well,I agree with you

 

[dfkt]

.

 

[frozenice]

My concern would be for homeowners who are at the break even point (ie their mortgage amount owing is equal to the price the home could sell for), where if the bank foreclosed on them the bank would recoup the whole amount of the loan.

I know up in Canada the farmers that were way under were left to float underwater for a decade or more while the ones that were just at the break even point were foreclosed on pronto.

Why this is so because it really helps the bank's balance sheet to bring in all that cash in while in the other case writing things off is bad for the balance sheet. It will be interesting to see if the same thing happens in America.

 

[Seaside]

Dow Jones plunged down to 10000 points mark today. They said, what causes this is the fear that comes from the incertainly of this bailout plan, when it actually start work. Well... looks like people do not believe in ability or willingness of this government to makes things better.

The other issue is wachovia. Citi and wells fargo is doing mud wrestling to accquire wachovia, court got involved. I just saw CNN, the guy in the screen said the Fed may seizure wachovia if wachovia does not make decision to sell itself to citi. Now, that's crazy.

Wells Fargo will grow big enought to compete BOA and JP morgan when they accquire wachovia. That's huge potential. Citi may not able to survive if it lose wachovia deal. If this happens, FDIC which already is in bad shape is in danger. I think that why Fed and FDIC insists on citi deal that cost their insured money, even if wells fargo deal is better.

Normal housing market is ******** up. But in some part of this nation, agents are busier than ever because of this foreclosure thing. Rich people lined up to buy foreclosured properties, even before the properties go on the market database. In fact, buying foreclosured properties at cheap price would be a good investment if you can afford to wait till the market gets better. Those peole can go ahead of ordinary peole sinne they have money and info. Rich people go richer, while poors can go nowhere. Well... I guess that's how things work.

 

[AlanY]

Anyone willing to venture that we'll see the Dow at 8500 by the end of next week?

 

[subtle]

Quote:

Originally Posted by AlanY /img/forum/go_quote.gif Anyone willing to venture that we'll see the Dow at 8500 by the end of next week?

I'm hoping for a sub-8000 number.

Listening to this Lehman Brothers CEO right now try and justify his excess properties, numerous million dollar plus pieces of art in his and his wife's collection, and salary of over $250 million last year, all the while trying to make us feel sorry for him because his stock options aren't worth what they were last year just makes me sick.