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On March 09 2011 16:22 Froadac wrote:+ Show Spoiler +On March 09 2011 16:20 maahes wrote:Show nested quote +On March 09 2011 16:12 Froadac wrote:+ Show Spoiler +On March 09 2011 16:05 maahes wrote:Show nested quote +On March 09 2011 16:03 Milkis wrote:+ Show Spoiler +On March 09 2011 15:58 maahes wrote:Show nested quote +On March 09 2011 13:36 Milkis wrote:+ Show Spoiler +Lol.. How ignorant are you, by the way? You say that innovation comes with risks, that should be well above obvious. What you fail to understand is that these highly intellectual and well educated 'wallstreets' take the risk with no risk for themselves, and all the risk on the public people; in other words they are corporate psychopaths. This is the cause for the 'bubble' and the 2008 market collapse. If you don't read enough, maybe tackle something easier, and try watching the documentary 'Inside Job.' By the sounds of it, you'll think its a conspiracy film, but that's up for your closed-minded brain to decide.. Please don't act like I failed to understand anything. My point was a more general one pointing out the fact that the risks came from a financial innovations, which is what caused the crisis. It did not matter in the end if the government bailed them out (which does create twisted incentives, but that is hardly besides the point). It's obvious that liberal hacks like you who like to paint this utterly biased picture of the world who like to twist things around to bring support to their story. I guess that isn't hard, considering that most people aren't actually educated enough to understand economics. But it's utterly hilarious how you believe you know what caused the bubble (hint: there was no guarantee that the banks would be bailed out -- in fact, many banks did fail at this point). The world isn't as simple as you think it is, but calling someone "closed minded" is utterly hilarious especially when you're buying into the entire michael moore bullshit anyway. Then again, I don't expect too much from brainwashed hypocritical liberals anyway. How is it not their fair share? Well, interestingly enough, it deals with innovation and the financial system (although gov't too). See, the rich on wallstreet often aren't paying for those risks, at least, not their full extent. They know that bailouts are inevitable, therefore they take in more risk than they should, negative externalities in other words. Of course, when those risks pay off, they take the money. When they don't, they pay some, but when they REALLY screw up, the gov't(tax payers, not just rich) pays. Again, that wasn't even my point when I said things about innovation. My point is completely unrelated to people with twisted incentives or else I would have mentioned it. My point is that while Michael Moore charades about how innovations are important in the Economy he fails to realize that it is the same type of innovations that come with risks and at times blow up the economy. It didn't matter that yes, there were perverse incentives, but perverse incentives is hardly the entire picture -- it was more closer to the fact that people didn't understand how much at risk they were since they did not fully understand the innovations they were using. Do not act as if these "inevitable bailouts" were the cause of the financial system's downfall -- there were much deeper issues than that. While I agree with what you said fundamentally I don't think creating money out of thin air then gambling on fake money using the pocket of the middle class as your bankroll is a good form of innovation. That is to say, it's been a while since we had a really good example - I might cite the rise of Google as the last 'good' example of innovation. Banking and mathematics/engineering students are a bad mix, though. That shit has to stop. I don't think you understand what the financial system is nor do you understand what it does and what kind of innovations occur in there :| Then educate me. o: Are you aware of derivatives, packaging of debt, etc? Pretty fluent, I suppose. I'm an econ student at a top 30 business school and before that I was in the Industrial Engineering program in that school which was top 3 when I enrolled in 2008. I spent a semester last spring in a five-person class learning why the meltdown happened and what systems perpetrated it, so I'm curious what I'm missing but completely open minded. I don't know what milkis is getting at: just was asking a question that a majority of the people on these forums cant' answer >.> What business school are you going to? (and what program was industrial engineering...)
Oh, shit. Sorry for my tone, man.
I'm in Smeal at Penn State. Industrial Engineering was there, too, but the only reason that was so highly ranked is that PSU was the first school to pioneer it in the U.S.
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5003 Posts
On March 09 2011 16:05 maahes wrote:Show nested quote +On March 09 2011 16:03 Milkis wrote:+ Show Spoiler +On March 09 2011 15:58 maahes wrote:Show nested quote +On March 09 2011 13:36 Milkis wrote:+ Show Spoiler +Lol.. How ignorant are you, by the way? You say that innovation comes with risks, that should be well above obvious. What you fail to understand is that these highly intellectual and well educated 'wallstreets' take the risk with no risk for themselves, and all the risk on the public people; in other words they are corporate psychopaths. This is the cause for the 'bubble' and the 2008 market collapse. If you don't read enough, maybe tackle something easier, and try watching the documentary 'Inside Job.' By the sounds of it, you'll think its a conspiracy film, but that's up for your closed-minded brain to decide.. Please don't act like I failed to understand anything. My point was a more general one pointing out the fact that the risks came from a financial innovations, which is what caused the crisis. It did not matter in the end if the government bailed them out (which does create twisted incentives, but that is hardly besides the point). It's obvious that liberal hacks like you who like to paint this utterly biased picture of the world who like to twist things around to bring support to their story. I guess that isn't hard, considering that most people aren't actually educated enough to understand economics. But it's utterly hilarious how you believe you know what caused the bubble (hint: there was no guarantee that the banks would be bailed out -- in fact, many banks did fail at this point). The world isn't as simple as you think it is, but calling someone "closed minded" is utterly hilarious especially when you're buying into the entire michael moore bullshit anyway. Then again, I don't expect too much from brainwashed hypocritical liberals anyway. How is it not their fair share? Well, interestingly enough, it deals with innovation and the financial system (although gov't too). See, the rich on wallstreet often aren't paying for those risks, at least, not their full extent. They know that bailouts are inevitable, therefore they take in more risk than they should, negative externalities in other words. Of course, when those risks pay off, they take the money. When they don't, they pay some, but when they REALLY screw up, the gov't(tax payers, not just rich) pays. Again, that wasn't even my point when I said things about innovation. My point is completely unrelated to people with twisted incentives or else I would have mentioned it. My point is that while Michael Moore charades about how innovations are important in the Economy he fails to realize that it is the same type of innovations that come with risks and at times blow up the economy. It didn't matter that yes, there were perverse incentives, but perverse incentives is hardly the entire picture -- it was more closer to the fact that people didn't understand how much at risk they were since they did not fully understand the innovations they were using. Do not act as if these "inevitable bailouts" were the cause of the financial system's downfall -- there were much deeper issues than that. While I agree with what you said fundamentally I don't think creating money out of thin air then gambling on fake money using the pocket of the middle class as your bankroll is a good form of innovation. That is to say, it's been a while since we had a really good example - I might cite the rise of Google as the last 'good' example of innovation. Banking and mathematics/engineering students are a bad mix, though. That shit has to stop. I don't think you understand what the financial system is nor do you understand what it does and what kind of innovations occur in there :| Then educate me. o:
Simply put the financial system is something that is designed to spread the risk that comes from everyday actions involving credit. Whenever you lend to someone the lender is taking some sort of a risk on whether they will get it back or not. Innovations in the financial sector involves new ways of dealing with these risks, packaging and repacking these things. Understanding these risks was pretty much the primary motivation behind these things.
One of the innovations is securitization, a process where you package many of the loans in a certain way and repackage it. The risk is effectively normalized when you do this, but the thing was that when you normalize it (with improper assumptions) you miss out on some of the correlated risks that go on.
So what happened was that when people started lending to the "subprime" (ie, more risky) individuals this was effectively clouded by the process and in the end people just didn't know how much these packages were really worth but they thought they did. There was a lot of bad incentives going on within this securitization process since it wasn't really transparent so yeah.
So what happened was that many of these loans started going busts and people began to see that there was a correlated risk (ie, when everyone starts selling, prices of the houses go down, meaning more people walk away on their loans) so suddenly you have no idea what these securities are actually worth. Since MBS were the hot item in those days nearly every bank had them so basically banks started collapsing due to their effects.
Basically when people thought they were normalizing risks they missed a lot of things that could/actually go on and missed much of the correlated risks. The idea is that people failed to value the risks and the actual value of the securities properly due to this oversight.
One more thing to note is that some of the banks who received bailouts did not actually need the bailouts -- this was done so bankruns dont happen (ie: people who receive bailouts are perceived to be weaker so people flock away from these banks and shutting them down). Note that letting these banks fail isn't so hot since they did actually try letting lehman brothers just fail and that created a whole shockwave on the economy and made the whole shit worse since the financial system is very very intertwined since it's people competing for the tiniest profits.
Also yes, it's true that many of these investment banks did gamble big (they leveraged) which literally magnified the effects of this fall. But this has less to do with them knowing "they're too big to fail" and more has to do with principal agent problems of many of these corporations, which is what happens when incentives of the CEO and the company holders are quite different. This is why people did not give a damn that there was a bubble since even if it's a bubble no one knows when they pop so they just tried to maximize short run profits by riding the bubble since CEOs are very well compensated even if they're fired for fucking up.
So yes, innovations like these are dangerous since people tend to misvalue them (especially since it's kinda new cause everything takes time). But remember that these innovations also did a lot of positive things (before people fucked it up anyway) like got a lot of people houses and such. Basically innovation is a double edge sword in all kinds of systems and they can go horribly horribly wrong.
Also note that I talked a lot about incentives and you are probably wondering "why didn't they fix these incentive systems then" but the answer is that often times people don't know things can be a problem until they actually become big enough problem.s
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On March 09 2011 16:27 Milkis wrote:Show nested quote +On March 09 2011 16:05 maahes wrote:On March 09 2011 16:03 Milkis wrote:+ Show Spoiler +On March 09 2011 15:58 maahes wrote:Show nested quote +On March 09 2011 13:36 Milkis wrote:+ Show Spoiler +Lol.. How ignorant are you, by the way? You say that innovation comes with risks, that should be well above obvious. What you fail to understand is that these highly intellectual and well educated 'wallstreets' take the risk with no risk for themselves, and all the risk on the public people; in other words they are corporate psychopaths. This is the cause for the 'bubble' and the 2008 market collapse. If you don't read enough, maybe tackle something easier, and try watching the documentary 'Inside Job.' By the sounds of it, you'll think its a conspiracy film, but that's up for your closed-minded brain to decide.. Please don't act like I failed to understand anything. My point was a more general one pointing out the fact that the risks came from a financial innovations, which is what caused the crisis. It did not matter in the end if the government bailed them out (which does create twisted incentives, but that is hardly besides the point). It's obvious that liberal hacks like you who like to paint this utterly biased picture of the world who like to twist things around to bring support to their story. I guess that isn't hard, considering that most people aren't actually educated enough to understand economics. But it's utterly hilarious how you believe you know what caused the bubble (hint: there was no guarantee that the banks would be bailed out -- in fact, many banks did fail at this point). The world isn't as simple as you think it is, but calling someone "closed minded" is utterly hilarious especially when you're buying into the entire michael moore bullshit anyway. Then again, I don't expect too much from brainwashed hypocritical liberals anyway. How is it not their fair share? Well, interestingly enough, it deals with innovation and the financial system (although gov't too). See, the rich on wallstreet often aren't paying for those risks, at least, not their full extent. They know that bailouts are inevitable, therefore they take in more risk than they should, negative externalities in other words. Of course, when those risks pay off, they take the money. When they don't, they pay some, but when they REALLY screw up, the gov't(tax payers, not just rich) pays. Again, that wasn't even my point when I said things about innovation. My point is completely unrelated to people with twisted incentives or else I would have mentioned it. My point is that while Michael Moore charades about how innovations are important in the Economy he fails to realize that it is the same type of innovations that come with risks and at times blow up the economy. It didn't matter that yes, there were perverse incentives, but perverse incentives is hardly the entire picture -- it was more closer to the fact that people didn't understand how much at risk they were since they did not fully understand the innovations they were using. Do not act as if these "inevitable bailouts" were the cause of the financial system's downfall -- there were much deeper issues than that. While I agree with what you said fundamentally I don't think creating money out of thin air then gambling on fake money using the pocket of the middle class as your bankroll is a good form of innovation. That is to say, it's been a while since we had a really good example - I might cite the rise of Google as the last 'good' example of innovation. Banking and mathematics/engineering students are a bad mix, though. That shit has to stop. I don't think you understand what the financial system is nor do you understand what it does and what kind of innovations occur in there :| Then educate me. o: Simply put the financial system is something that is designed to spread the risk that comes from everyday actions involving credit. Whenever you lend to someone the lender is taking some sort of a risk on whether they will get it back or not. Innovations in the financial sector involves new ways of dealing with these risks, packaging and repacking these things. Understanding these risks was pretty much the primary motivation behind these things. One of the innovations is securitization, a process where you package many of the loans in a certain way and repackage it. The risk is effectively normalized when you do this, but the thing was that when you normalize it (with improper assumptions) you miss out on some of the correlated risks that go on. So what happened was that when people started lending to the "subprime" (ie, more risky) individuals this was effectively clouded by the process and in the end people just didn't know how much these packages were really worth but they thought they did. There was a lot of bad incentives going on within this securitization process since it wasn't really transparent so yeah. So what happened was that many of these loans started going busts and people began to see that there was a correlated risk (ie, when everyone starts selling, prices of the houses go down, meaning more people walk away on their loans) so suddenly you have no idea what these securities are actually worth. Since MBS were the hot item in those days nearly every bank had them so basically banks started collapsing due to their effects. Basically when people thought they were normalizing risks they missed a lot of things that could/actually go on and missed much of the correlated risks. The idea is that people failed to value the risks and the actual value of the securities properly due to this oversight. One more thing to note is that some of the banks who received bailouts did not actually need the bailouts -- this was done so bankruns dont happen (ie: people who receive bailouts are perceived to be weaker so people flock away from these banks and shutting them down). Note that letting these banks fail isn't so hot since they did actually try letting lehman brothers just fail and that created a whole shockwave on the economy and made the whole shit worse since the financial system is very very intertwined since it's people competing for the tiniest profits. Also yes, it's true that many of these investment banks did gamble big (they leveraged) which literally magnified the effects of this fall. But this has less to do with them knowing "they're too big to fail" and more has to do with principal agent problems of many of these corporations, which is what happens when incentives of the CEO and the company holders are quite different. This is why people did not give a damn that there was a bubble since even if it's a bubble no one knows when they pop so they just tried to maximize short run profits by riding the bubble since CEOs are very well compensated even if they're fired for fucking up. So yes, innovations like these are dangerous since people tend to misvalue them (especially since it's kinda new cause everything takes time). But remember that these innovations also did a lot of positive things (before people fucked it up anyway) like got a lot of people houses and such. Basically innovation is a double edge sword in all kinds of systems and they can go horribly horribly wrong. Also note that I talked a lot about incentives and you are probably wondering "why didn't they fix these incentive systems then" but the answer is that often times people don't know things can be a problem until they actually become big enough problem.s
Pretty much all of what you say is true and I still think we agree on everything.
Something worth adding to your analysis of the situation is that a lot of the smaller banks failed because they were sold derivatives based off of subprime loans and packaged together with math invented by Goldman Sachs in particular. So a lot of these smaller institutions, eager to get in on the big investment bank money, were using subprime mortgages to invest in dangerous loans hidden by a curtain of equations and a AAA stamp. That all falls back to the upper 1% and is one of the few spots Moore's tirade has credit, because the 'financial products' market has long-been unregulated and 'unregulatable' according to the people that deal in it.
The point I was trying to make, and I see now I could have made more clearly, is there is 'good' and 'bad' innovation. Bad innovation is taking the securities market and adding more layers of complexity (imo). Good innovation would be looking at a company like Google who monetized a search engine and in becoming a superpower not only provided a wealth of free services but also helps the average guy monetize a blog or small website or whatever (again, imo).
edit: and people who nuke the country's middle class and take all their money should be thrown in jail or punished in some other way than getting a few million less in bonuses on Christmas. goddamn crooks.
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The thing I disagree with is how you try to paint everything as if they knew what they were doing. There is a very few who actually knew what was going on and I don't think it was exactly on purpose. I also disagree that the financial system creates money out of "thin air" -- that's not exactly the fault of the financial system, but more of the effect of bubbles. The point is that the world is a lot more complex than what a lot of people perceive it to be so in the end it's hard to exactly know what happened until you have complete hindsight after everything blows up.
Basically I don't think there is a good way of determining what is a "Bad" innovation and a "Good" innovation until they are put in practice -- unless of course, you can prove that banks such as GS did everything they did on purpose with the knowledge in mind (which I don't know since I don't follow the ibanking dramas), then it's fraud, not an innovation.
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On March 09 2011 16:58 Milkis wrote:
The thing I disagree with is how you try to paint everything as if they knew what they were doing. There is a very few who actually knew what was going on and I don't think it was exactly on purpose. I also disagree that the financial system creates money out of "thin air" -- that's not exactly the fault of the financial system, but more of the effect of bubbles. The point is that the world is a lot more complex than what a lot of people perceive it to be so in the end it's hard to exactly know what happened until you have complete hindsight after everything blows up.
Basically I don't think there is a good way of determining what is a "Bad" innovation and a "Good" innovation until they are put in practice -- unless of course, you can prove that banks such as GS did everything they did on purpose with the knowledge in mind (which I don't know since I don't follow the ibanking dramas), then it's fraud, not an innovation.
Okay, that's cool. I'll say my peace but beyond that I'm down with agreeing to disagree.
The evidence that points toward malicious intent and is sufficient enough for me was the credit rating bureaus like Moody's and Standard & Poor's giving things like credit default swaps a AAA credit rating - meaning, these were certified as one of the safest investments possible. However, anyone with even menial knowledge of their structure would have known they were far, far more risky because a CDS was a package of bits and pieces of incredibly volatile mortgages.
Also super-suspicious is the unregulated nature of the derivatives market. Even after the meltdown, excessive lobbying has kept derivatives from the magnifying glass of government regulation agencies and the repeated sentiment is that they are 'too complex' to be regulated.
I know that's somewhat vague but I lost all my references for this particular topic, it's been almost a year since I researched/wrote up a term paper for it. o_o
Even more nebulous, but influencing my position, is the more I learn about monetary systems and banking, the more impossible it is to believe that what occurred was a naive mistake.
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The biggest banks can take the riskiest risks they want , if they get it wrong they just get a bailout from the taxpayer.
Whilst those biggest banks have been bailed out something like 2-300 smaller banks have gone bust or been bought out (with the money they got from the taxpayer) by the bigger banks since the start of the GFC in the US.
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Well you are only broke once you start paying what you owe. Is America paying for it yet? I don't know. I think if a small pacific or African country had even a fraction of what America owes they would of sank by now but America still seems ok, As shit as the country looks now I dont think America has ever really been THAT great for the last decade or so.
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On March 09 2011 00:18 Hawk wrote:
If you can't be bothered to do your own, independent research on mortgages prior to agreeing on a purchase of several hundred thousands of dollars, yes, you are an idiot. Plain and simple, it is a lack of accountability.
How is that any different than going car shopping and being like 'oh well the salesman told me this car is way under value and it's totally fine, let me skip all inspection, research and screw shopping to compare prices'
People buying things they can't afford is a tradition in this country, as is passing the blame.
What's even more wonderful is that the people who did live within their means and don't carry insane, unpayable debt don't get the government to help them out.
e; if you don't understand the logic that goes into a $500,000 transaction, you shouldn't be buying a house until you figure out the process. The whole thing can be summed up as a bunch of dumbasses buying on a whim instead of doing research.
The banks traditionally acted in a way where they worked for their customers though, and actually wanted their money back eventually. I don't see how you can justify banks deliberately giving out loans they knew would never be paid back, solely so they could sell the debt onto investment banks to make totally ridiculous gambles with.
Yes people were irresponsible. But there was ridiculous situations where banks were acting as loan sharks pretty much and you heard stories of people buying 5 houses on mortgages on the advisement of banks that it was a good investment. Even despite all this, even if you did blame the homebuyers, you really just cannot ignore what the investment banks and ratings companies did with the loans turned into CDOs. It was basically fraud. Well not basically, it just was obfuscated fraud. If they weren't taking insane risks with the bonds made then it would never have got to the extreme situation it did. I believe previously before the 1980's and looser regulations, lenders had to actually have the funds to cover every loan given out, meaning it could never have affected more than the lender and homebuyer. Once that changed it was open season.
I have no idea how the ratings companies and Goldman Sachs got away with it all, from what i've read it seems like they were the prime culprits as to why it spiraled out of control (I suppose AIG as well for their nonsensical moves). Goldman Sachs by 2008 were even betting AGAINST the CDOs they created in the first place by buying insurance on them, which cause the downfall even quicker. Some people definitely knew what was going on imo.
Edit: I forgot to mention another blatant problem not involving the homebuyers; The possibility of loan fraud was basically completely ignored. You had loans inside supposedly AAA rated investments, the highest possible, wherein some loanees didn't even have documents/proof of earnings. So they were giving money out without even checking if the people were legitimate, selling these loans to investment banks on simply the promise of money in the future. Not to mention you had Goldman Sachs repackaging up BBB rated CDOs into yet another CDO, and somehow getting an AAA rating on them. The idea that no of these people could see what was happening is far-fetched the way i see it.
I see people mentioned a few of these things though.
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