Objectively intelligent.

[sebastian_dangerfield]

Originally Posted by Adder

Which they did, but doesn't stop some people from going on about how much money was "given" to the banks.



1/3 of the ARRA was tax cuts. I'm struggling to remember exactly what form those took, but this site (no idea what it is) says that there were withholding tax cuts and some other stuff, in addition to unemployment benefit expansion and additional SSI payments. There was actually money spent - not loaned - to give to the little guy.

Should it have been more? In my view, preferably more actual spending rather than more cash, but that's primarily because when you build a bridge or a wind farm you both get to pay the workers and wind up with a bridge or wind farm.

I’m not one of those saying the banks were gifted money. I fully realize that they were merely failed businesses which deserved to collapse which were given lifelines thousands of other businesses failing at the same time were not.

That’s really the rub with 2008, isn’t it? Those who are supposed to die and be eaten by their betters were instead given a do over on terms which allowed them to steal even more assets at crazy low prices, watch them reinflate due to lax monetary supply, and then make new fortunes on the appreciation. The little guy, even the mid sized to large businessman, was only invited to this party via the stock market, where he often wound up buying shares in the same would-have-failed-entities. That’s a dry assfucking for Main St. is what that is.

It’s always been a somewhat rigged game. But it was so naked this time around, no one could refute it.

This shit, the drug war, institutional racism, Citizens United, all of this crony capitalism... It’s not a theory. It’s no longer something we can credibly dispute. This country’s got no legitimate authority on which to demand respect except for force. It’s “wise” to assert populism peaks volcanically and quickly fades. This round of it started in the fallout from the housing collapse, became overt in 2009 with Santelli’s “tea party” rant, and has now culminated in Donald Trump and Bernie Sanders raising the highest levels of campaign cash on the backs of this message: The Establishment is weak and corrupt and needs to go.

And where the media could unify to stanch that sort of message in the past, today’s media is atomized.

I’d put Geithner next to Gingrich in the list of People Responsible for the Freakshow. And I don’t see this Freakshow ending any time soon. This appears to be Populism 3.0 in a 10 stage cycle.

ETA: And what was Geithner’s genius after 2008? Continue policies that encouraged bank consolidation. And regulate the little banks just like big ones. A better recipe for an even more extreme TBTF mess, and a dearth of lending on Main St, couldn’t be conceived. But it can’t happen again, right? A madman in the Oval and a crazy spike in oil prices similar to 2005 could never create another 2008...

[Adder]

Originally Posted by sebastian_dangerfield

I’m not one of those saying the banks were gifted money. I fully realize that they were merely failed businesses which deserved to collapse which were given lifelines thousands of other businesses failing at the same time were not.

Yes, the failure in your analysis is in appreciating that banks are different from other businesses.

And, in fact, the fact that they paid all that money back with interest at least somewhat undermines the argument that they were all failed businesses. Turns out those assets weren't all completely worthless after all.

Those who are supposed to die and be eaten by their betters

But they were eaten by their betters. There's no more Wachovia, Washington Mutual and a bunch of others. Much more so than other industries, failed banks get literally taken over by other banks that aren't failing.

[sebastian_dangerfield]

Originally Posted by Adder

Yes, the failure in your analysis is in appreciating that banks are different from other businesses.

And, in fact, the fact that they paid all that money back with interest at least somewhat undermines the argument that they were all failed businesses. Turns out those assets weren't all completely worthless after all.



But they were eaten by their betters. There's no more Wachovia, Washington Mutual and a bunch of others. Much more so than other industries, failed banks get literally taken over by other banks that aren't failing.

1. Banks are not different than other businesses. We protected GM and AIG for the same reason we did banks. TBTF.

2. The assets only recovered value because we propped them up with accommodating monetary policy and direct purchases of MBS.

3. Businesses can have all the assets in the world, but if they can’t liquidate them to cover operations and no one will lend to them, They Go Under. Bear Stearns and Lehman were also holding assets which eventually recovered value later (somewhat). But they got caught in a cash crunch.

If you can’t fund operations and the market deems you untrustworthy and thinks it’s preferable to watch you die, you are failed. Those are failed banks. Almost all of them. They exist by grace of the taxpayer. They are, in the deepest Trump accent, truly (unlike most of his targets for the insult), Losers.

Wachovia, WAMU, Bear, and Lehman are at least honorable losers. They went down. Goldman begged Uncle Henry for an 80 cents on the dollar payout using AIG as the stealth delivery method. That’s crony capitalism at its worst. I’d have done the same, as would you, but I’d like think we’d both admit to our skullduggery. Not Goldman. They’re entitled and unashamed, the ultimate “welfare mothers” of Wall Street.

[Tyrone Slothrop]

Originally Posted by sebastian_dangerfield

1. Banks are not different than other businesses. We protected GM and AIG for the same reason we did banks. TBTF.

2. The assets only recovered value because we propped them up with accommodating monetary policy and direct purchases of MBS.

3. Businesses can have all the assets in the world, but if they can’t liquidate them to cover operations and no one will lend to them, They Go Under. Bear Stearns and Lehman were also holding assets which eventually recovered value later (somewhat). But they got caught in a cash crunch.

If you can’t fund operations and the market deems you untrustworthy and thinks it’s preferable to watch you die, you are failed. Those are failed banks. Almost all of them. They exist by grace of the taxpayer. They are, in the deepest Trump accent, truly (unlike most of his targets for the insult), Losers.

Wachovia, WAMU, Bear, and Lehman are at least honorable losers. They went down. Goldman begged Uncle Henry for an 80 cents on the dollar payout using AIG as the stealth delivery method. That’s crony capitalism at its worst. I’d have done the same, as would you, but I’d like think we’d both admit to our skullduggery. Not Goldman. They’re entitled and unashamed, the ultimate “welfare mothers” of Wall Street.

Dude. I agree with you on the politics of this, but banks are quite different from other businesses, for important reasons. No one makes a run on a bookstore. And when a bookstore fails, it doesn't jeopardize a lot of other businesses. We have a regulatory apparatus designed to avoid repeating mistakes of the Great Depression. It was tested in 2007-08 and it basically worked. When Lehman and others failed, it was managed. Things could have been a lot worse.

[sebastian_dangerfield]

Originally Posted by Tyrone Slothrop

Dude. I agree with you on the politics of this, but banks are quite different from other businesses, for important reasons. No one makes a run on a bookstore. And when a bookstore fails, it doesn't jeopardize a lot of other businesses. We have a regulatory apparatus designed to avoid repeating mistakes of the Great Depression. It was tested in 2007-08 and it basically worked. When Lehman and others failed, it was managed. Things could have been a lot worse.

You're mixing two issues. Banks are unique in terms of risk. But in terms of judging how banks are run, you judge them just like any other business. If a bank is well run, it is a success. If it is poorly run and requires a bailout, it has been run to some extent by losers, fools, incompetents. It is a failed business.

But you are correct that there is a justified "heads I win, tails you lose" element to banking. The Feds (or state if so chartered) will have to run in and save any bank going under. So unlike the guy who owns a business and can't make payroll, a bank will never crash and burn. At worst, it'll be forced to sell itself to some other bank or in an extreme situation it will be run off through a receivership. The same applies to insurers.

Adder was arguing that the banks in 2008 weren't failed businesses. That they were holding assets which actually had value. He's wrong. If the assets had value, the banks could have received loans in exchange for collateral positions, or even received unsecured loans based on balance sheet strength. But we know that wasn't true. We know that the banks in 2008 were loaded up with overvalued securities and collateral. They suffered a cash crunch. Just like a business that has tons of receivables which become delinquent, cash flow to these banks was outstripped by their obligations. And in that moment where a business doesn't have enough cash to keep going, that business has failed.

[Adder]

Originally Posted by sebastian_dangerfield

You're mixing two issues. Banks are unique in terms of risk. But in terms of judging how banks are run, you judge them just like any other business. If a bank is well run, it is a success. If it is poorly run and requires a bailout, it has been run to some extent by losers, fools, incompetents. It is a failed business.

But you are correct that there is a justified "heads I win, tails you lose" element to banking. The Feds (or state if so chartered) will have to run in and save any bank going under. So unlike the guy who owns a business and can't make payroll, a bank will never crash and burn. At worst, it'll be forced to sell itself to some other bank or in an extreme situation it will be run off through a receivership. The same applies to insurers.

Adder was arguing that the banks in 2008 weren't failed businesses. That they were holding assets which actually had value. He's wrong. If the assets had value, the banks could have received loans in exchange for collateral positions, or even received unsecured loans based on balance sheet strength. But we know that wasn't true. We know that the banks in 2008 were loaded up with overvalued securities and collateral. They suffered a cash crunch. Just like a business that has tons of receivables which become delinquent, cash flow to these banks was outstripped by their obligations. And in that moment where a business doesn't have enough cash to keep going, that business has failed.

What is a bank run, even??

[Tyrone Slothrop]

Originally Posted by sebastian_dangerfield

You're mixing two issues. Banks are unique in terms of risk. But in terms of judging how banks are run, you judge them just like any other business. If a bank is well run, it is a success. If it is poorly run and requires a bailout, it has been run to some extent by losers, fools, incompetents. It is a failed business.

If a bank is poorly run and requires a bailout, it has been run poorly and it is a failed business. BUT: If a bank is not poorly run and is caught up in a banking run and requires a bailout, that does not mean it has been run poorly and is a failed business. It means there has been a banking run.

But you are correct that there is a justified "heads I win, tails you lose" element to banking. The Feds (or state if so chartered) will have to run in and save any bank going under. So unlike the guy who owns a business and can't make payroll, a bank will never crash and burn. At worst, it'll be forced to sell itself to some other bank or in an extreme situation it will be run off through a receivership. The same applies to insurers.

Adder was arguing that the banks in 2008 weren't failed businesses. That they were holding assets which actually had value. He's wrong. If the assets had value, the banks could have received loans in exchange for collateral positions, or even received unsecured loans based on balance sheet strength. But we know that wasn't true. We know that the banks in 2008 were loaded up with overvalued securities and collateral. They suffered a cash crunch. Just like a business that has tons of receivables which become delinquent, cash flow to these banks was outstripped by their obligations. And in that moment where a business doesn't have enough cash to keep going, that business has failed.

Some of the banks had good assets but could not get loans because there was a liquidity crisis. Or the shadow banks, if you will, since much of what had happened in the preceding years was that banks figured out how to take exposure in ways that evaded the regulatory regime. Here is how Wikipedia explains a liquidity crisis:

In financial economics, a liquidity crisis refers to an acute shortage (or "drying up") of liquidity. Liquidity may refer to market liquidity (the ease with which an asset can be converted into a liquid medium, e.g. cash), funding liquidity (the ease with which borrowers can obtain external funding), or accounting liquidity (the health of an institution's balance sheet measured in terms of its cash-like assets). Additionally, some economists define a market to be liquid if it can absorb "liquidity trades" (sale of securities by investors to meet sudden needs for cash) without large changes in price. This shortage of liquidity could reflect a fall in asset prices below their long run fundamental price, deterioration in external financing conditions, reduction in the number of market participants, or simply difficulty in trading assets.

The above-mentioned forces mutually reinforce each other during a liquidity crisis. Market participants in need of cash find it hard to locate potential trading partners to sell their assets. This may result either due to limited market participation or because of a decrease in cash held by financial market participants. Thus asset holders may be forced to sell their assets at a price below the long term fundamental price. Borrowers typically face higher loan costs and collateral requirements, compared to periods of ample liquidity, and unsecured debt is nearly impossible to obtain. Typically, during a liquidity crisis, the interbank lending market does not function smoothly either.

Several mechanisms operating through the mutual reinforcement of asset market liquidity and funding liquidity can amplify the effects of a small negative shock to the economy and result in lack of liquidity and eventually a full blown financial crisis....

One of the mechanisms, that can work to amplify the effects of a small negative shock to the economy, is the Balance Sheet Mechanism. Under this mechanism, a negative shock in the financial market lowers asset prices and erodes the financial institution's capital thus worsening its balance sheet. Consequently, two liquidity spirals come into effect, which amplify the impact of the initial negative shock. In an attempt to maintain its leverage ratio, the financial institution must sell its assets, precisely at a time when their price is low. Thus, assuming that asset prices depend on the health of investors' balance sheet, erosion of investors' net worth further reduces asset prices, which feeds back into their balance sheet and so on. This is what Brunnermeier and Pedersen (2008) term as the "loss spiral". At the same time, lending standards and margins tighten, leading to the "margin spiral". Both these effects cause the borrowers to engage in a fire sale, lowering prices and deteriorating external financing conditions.

Apart from the "Balance Sheet Mechanism" described above, the lending channel can also dry up for reasons exogenous to the borrower's credit worthiness. For instance, banks may become concerned about their future access to capital markets in the event of a negative shock and may engage in precautionary hoarding of funds. This would result in reduction of funds available in the economy and a slowdown in economic activity. Additionally, the fact that most financial institutions are simultaneously engaged in lending and borrowing can give rise to a Network effect. In a setting that involves multiple parties, a gridlock can occur when concerns about counterparty credit risk result in failure to cancel out offsetting positions. Each party then has to hold additional funds to protect itself against the risks that are not netted out, reducing liquidity in the market. These mechanisms may explain the 'gridlock' observed in the interbank lending market during the recent subprime crisis, when banks were unwilling to lend to each other and instead hoarded their reserves.

You are right that part of the problem was that some of the bank's assets were overvalued. If that were the only problem, all of this would be much simpler. But banks are not bookstores.

[Tyrone Slothrop]

Pelosi should hold on to the articles of impeachment and let Schiff subpoena Bolton, Mulvaney and the others. Since the Senate isn't going to hear witnesses, the House should give it a shot.

[sebastian_dangerfield]

If a bank is poorly run and requires a bailout, it has been run poorly and it is a failed business. BUT: If a bank is not poorly run and is caught up in a banking run and requires a bailout, that does not mean it has been run poorly and is a failed business. It means there has been a banking run.

None of the banks - particularly the investment banks - were adequately prepared for the risk of a housing bubble bursting. And they all knew it was a bubble. They believed, quite wrongly, that they could flip the loans rather than keep them in portfolio, and blend the garbage loans with good loans in securities, to pass off risk. They knew that even a small uptick in delinquencies would set off a disastrous chain reaction.

And they knew the fundamentals behind the loans were lousy. A majority of the bubble was people replacing jobs they could no longer find or hold with income from flipping. People were sucking equity out of homes to survive. It was a fucking joke even the least astute watcher of r/e and economics could plainly see. Built to collapse.

And yet almost all of the big banks played along with the charade: Housing will never go down.

So yeah, I have sympathy for those who faced a run for no fault of their own. But in 2008, those banks were about 10% of banks. And 0% of investment banks.

Oh, and the shmucks who bought that credit default coverage from Cassano? They deserve to eat it the most. They all knew he was writing that which he couldn't possibly cover. Reporting on the crisis included multiple interviews with people who wondered how he could write so much.

You are right that part of the problem was that some of the bank's assets were overvalued. If that were the only problem, all of this would be much simpler. But banks are not bookstores.

The banks were so leveraged, and skepticism about the stability of the residential r/e market so high below the surface (despite the financial media's attempt to paint a rosy picture), a small loss was a big loss. I think it was a mere 3% increase in defaults on loans one tier above subprime that started the whole mess.

The banks knew they'd created a bubble and it'd burst, badly. Among the things that happens when bubbles burst? Bank runs. They should have planned for that given the size and fragility of the bubble they'd been knowingly creating.

[Adder]

Originally Posted by sebastian_dangerfield

1. Banks are not different than other businesses. We protected GM and AIG for the same reason we did banks. TBTF.

No, we didn't. Where we protected AIG (and it wasn't everywhere) it was because (1) it was involved in lines of businesses like the banks, and (2) it was financially intertwined with the banks (i.e., it had written "insurance" on the questionable assets on the banks' books). We bailed out the banks and AIG so that we could maintain functioning financial and payment systems and avoid a depression.

We bailed out GM and Chrysler (don't recall whether Ford got help) because of the direct loss of jobs in the auto industry associated with their failure. That would have been bad, but that's not the stuff of total economic collapse.

2. The assets only recovered value because we propped them up with accommodating monetary policy

This is one of the crazy/stupid things you say a lot. The assets recovered their value because the underlying mortgages performed better than people feared during the bank run height of the crisis. There's nothing to recover if people aren't paying their mortgages.

Yes, accommodating monetary policy helps people keep paying their mortgage in a number of different ways, but that doesn't seem to fit with your implied conspiracy.

and direct purchases of MBS.

That gets the banks/investors paid, but it does nothing for the performance of the MBS going forward.

[Tyrone Slothrop]

Interesting news about Bolton, but there's an error in the paragraph below:

Mr. Bolton declined to say on Monday precisely what he would be willing to tell Congress. But his lawyer, Charles J. Cooper, told the House’s top lawyer in November that Mr. Bolton knew about “many relevant meetings and conversations” connected to the Ukraine matter that had not been shared with House impeachment investigators. And former White House officials and people close to Mr. Bolton have indicated that his testimony would likely be damning to Mr. Trump and put additional pressure on moderate Republicans to consider convicting him.

The last three express words should be "expressing concern."

But seriously, this.

[Hank Chinaski]

Originally Posted by Tyrone Slothrop

Interesting news about Bolton, but there's an error in the paragraph below:



The last three express words should be "expressing concern."

But seriously, this.

I'd have to pay to read it.

[Tyrone Slothrop]

Originally Posted by Hank Chinaski

I'd have to pay to read it.

The gist is, focus on the GOP Senators who face a serious challenge this fall, and what they are saying (or not saying):

There are roughly half a dozen vulnerable Senate Republicans: Cory Gardner (R-CO), Martha McSally (R-AZ), Thom Tillis (R-NC), Susan Collins (R-ME), Joni Ernst (R-IA) and David Perdue (R-GA). ...

There are half a dozen Senators who have real races in November. Because impeachment and Trump divide their home state electorates they are trying to avoid the question in public, seek safety in numbers, so they can tell a story of their own choosing in November. Allowing them that unearned privilege is a terrible, terrible mistake. Conventional wisdom about what “Republicans” will do is vaguery that is a direct attack on individual accountability. All will likely fall in line behind Trump to hold a rigged trial. But we don’t know that. Locking them in now creates accountability and will yield dividends in November.

[Icky Thump]

Originally Posted by Tyrone Slothrop

Interesting news about Bolton, but there's an error in the paragraph below:



The last three express words should be "expressing concern."

But seriously, this.

Members Only. Like your jacket.

[sebastian_dangerfield]

No, we didn't. Where we protected AIG (and it wasn't everywhere) it was because (1) it was involved in lines of businesses like the banks, and (2) it was financially intertwined with the banks (i.e., it had written "insurance" on the questionable assets on the banks' books). We bailed out the banks and AIG so that we could maintain functioning financial and payment systems and avoid a depression.

I'm well versed in the Cassano debacle.

We bailed out GM and Chrysler (don't recall whether Ford got help) because of the direct loss of jobs in the auto industry associated with their failure. That would have been bad, but that's not the stuff of total economic collapse.

Paying Goldman and the rest of the banks out of AIG at 25 cents on the dollar would have been more than adequate. Goldman itself claimed at first that it would have been just fine if AIG had gone under and paid out nothing. https://www.cbsnews.com/news/new-doc...-aig-collapse/

Of course, as the article notes, Goldman soon changed that tune.

This is one of the crazy/stupid things you say a lot. The assets recovered their value because the underlying mortgages performed better than people feared during the bank run height of the crisis. There's nothing to recover if people aren't paying their mortgages.

Yes, accommodating monetary policy helps people keep paying their mortgage in a number of different ways, but that doesn't seem to fit with your implied conspiracy.

The assets held value because we came in and saved the market in securities backed by them. I believe the Fed was making the market in MBS.

The underlying residential mortgages continued to perform like shit for a long period of time.

That gets the banks/investors paid, but it does nothing for the performance of the MBS going forward.

It bought time for the economy to recover a bit so some of the mortgages underlying the MBS could start performing again. If the Fed had not bought all those securities, the market for them would have frozen. As it should have. Which is why I call all of the people who bet on that market remaining robust "losers." They were. They are. They are failed business people.

And no, it's no defense that they were victims of a financial crisis. Charles Prince at Citi explained exactly what these people were doing: "When the music's playing, you've got to dance." They were knowingly taking risks in a market that even people like Bill Gross said as early as 2007 looked like a fraud, a house of cards.

All of these failed business people knew or should have known housing was going down. People had been chattering about it for three years prior to Bear Stearns' issues. Fuck... I represented subprime credit card and auto lenders in 2000-2003 and recall thinking "subprime mortgage" sounded like "lead zeppelin."

But hey... I'll be gone, you'll be gone. I know one mortgage broker who made so much in the housing bubble that he retired at 35. So maybe "loser" doesn't fit. Maybe "knowing participant in massive suspension of disbelief/fraud" is a better descriptive. Either way, these people should all have lost their jobs. But 9 out of 10 of them didn't. We bailed them out, they stayed in place, and they've enjoyed a grand run up in the stock market ever since.