MovieChat Forums > Inside Job (2010) Discussion > What is the real cause of the collapse?

What is the real cause of the collapse?


Right now, people are doing a lot of finger pointing about the cause of the economic collapse. The real cause of this calamity was government interference in the market. Don't believe me? Lets take a look:

1. Gov. creates FHA. It starts as a noble program that allows homeowners to borrow money to buy homes. Like all gov social programs, it starts out great and home ownership explodes. Like all gov social programs, smart people will eventually figure out how to make money off it (they will take advantage of the forthcoming credit bubble).
2. Fannie Mae, VA loan programs, Ginnie Mae, and Freddie Mac are created to induce more home ownership by creating a secondary market for primary lenders to borrow from. Like all gov social programs, it starts out great and primary lenders have some insurance against defaults. 30 year fixed rate mortgages are the gold standard. Like all gov social programs, smart people will eventually figure out how to make money off it (financial "innovations" will create jumbo mortgages and other crap the average consumer is too stupid to understand).
3. S&L crisis in the 80's caused by, you guessed it, gov intervention in the free market. S&L institutions make risky loans, knowing that the gov will intervene and bail them out. In the aftermath, gov regulations are enacted to prevent this from happening again. The enforcement of these regulations would, ironically, help to create the sub-prime crisis by expanding the influence of the secondary market.
4. The gov enacts a home ownership program to help poor people buy homes. Eventually, it turns out to be a program that gives poor people homes they can't afford. Smart people profit.
5. Sub-prime mortgage crisis hits. Poor, dumb people lose. Smart, rich people end up ok. Poor, dumb people angry. Smart, rich people still looking for next credit bubble (government sponsored school loans . . ?)

Every time the gov intervenes in the free market, even on the grounds of virtue, bad things will happen. We need to be wary when politicians try to do things on our behalf.

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so the american banker just did what every american would've? screwed everybody over for his own benefit because the gov allowed him to? go teabag yourself!

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No. You're just angry because you didn't get into the pyramid scheme in time. Don't pretend that the wall street guys were the only ones who profited. If you were smart enough, you could have made a hefty profit. And a lot of people did so.

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Far more people did not. The Wall Street crash was a negative sum game, in that far more lost than won. Lots of pensions disappeared and jobs vanished. The only stupid people are people who think that these guys won't *beep* them over once they finish with the rest. Dog eat dog world, after all.

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hahaha...

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Government is supposed to steady the economy (no radical changes), and indeed thats still the case, the bailouts were part of that process.
"Credit easing" was a huge mistake, quick changes lead to an unavoidable bubble!
Economics 101, you lend 25% more, and supply suffers while demand dramatically increased prices - butFALSELY.
False because it was not an economic gain but a sudden change of policy!

USA is a free market,the most free, but it does NOT allow monopolies. (think MS,GooG)
But big oil is an unmistakeable oligolopoly, blatantly illegal actually, but who makes the money people...
And the banks are in there too.

Government enabled the rich to get richer, and shortsightedly, ended up doing so dramatically and expeditiously.


The best time in life is somewhere between the second and third Martini,

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Hmm, interesting theory elimc184, but you're wrong. After the 1929 crash, government regulations kept the markets stable for about 50 years. When those regulations were eliminated, specifically the Glass-Steagall Act, then the door was wide open for financial speculation. Now who was doing all that risky speculation?? Government programs?? No...Wall Street.

Don't worry though, politicians won't do anything "on our behalf" to fix this....because they are all owned by Wall Street......Democrats, Republicans.....all of them.

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You miss my point. All of these programs (FHA, for example) start off as a noble, ideological cause and some will even help people for awhile. The FHA was a good program for most Americans, for a period of time.

But like all these programs, human nature gets involved. People start looking for a free lunch. You're telling me that government regulations kept the market stable. I'm telling you that the expiration of the regulations was inevitable, due to typical human operation.

If the government had never gotten involved in the free market, none of this would have happened.

No FHA, no crash
No Secondary Market, no crash
And etc . . .

Did Wall Street create the Secondary Market? No, the government did in order to help Americans. In fact, they needed Wall Street's help, to help Americans. Wall Street never speculated in sub prime mortgages until the government gave them permission to.

You are focused on the symptoms and not the root problem.

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Maybe you could apply this logic to the crisis in Iceland? How it went from a largely state run economy, to a private one and virtually collapsed? Oh, right, it only happened because Iceland at one time did have government programs.

C'mon, the cause of the financial crisis is pretty much black and white.

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Not sure what you're getting at. The debt of the average household was pretty massive before the crisis in Iceland. That's not good. Also the banks were way over-leveraged, which was a major factor in the crisis. Finally, the government made major mistakes in regard to inflation.

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Well, what I am getting at is, while what you say may have been a factor, the initial cause of the collapse of the financial system in Iceland was deregulated banks within Iceland were able to amass a debt load almost 10 times their GDP, and of course were eventually unable to carry this debt... leading to the collapse.

You could probably spend days sending out random things that led to financial crisis, but you obviously ignore the elephant in the room, the major causes. Deregulation coupled with greed.

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What regulations would you suggest? Who would determine proper regulations? How would you make sure they didn't get repealed? How do you regulate risk without risk just shifting to another sector of your economy?

The government imposed stricter regulations on S&Ls after the S&L crisis, and risk just shifted to the secondary market. Crafty people developed more complex math, for a more complex pyramid scheme. But it was still a pyramid scheme.

Honestly, I don't actually have a problem with the Glass–Steagall Act. But deregulation of the markets had no impact on the sub-prime mortgage crisis in America without government backing. It was a legal, government-backed, ponsi-scheme.

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elimc184 your post was very interesting. a good case can be made for it, big government enables big companies to be extremely corrupt. this is alluded to in EConned a little bit, where she discusses the 'strategic bankruptcy' that some companies do, in undeveloped countries.

where it all breaks down is here:

"But deregulation of the markets had no impact on the sub-prime mortgage crisis in America"

Even the 'free market uber alles' people who were involved in inventing credit derivatives in the first place say that more transparency is needed in the market. ie, Blythe Masters at JP Morgan. even alan greenspan (personal friend of ayn rand) has said that some of his assumptions about self regulation of markets were wrong. there are many books talking about how bankers and government people fought against regulations of, for example, credit default swaps, all through the 90s and 2000s, and against regulation of lending standards, etc etc. How the SEC ignored warning after warning after warning about what was happening. It would be interesting to examine how Fannie and Freddie fought against regulation.

the US economy in the 'good old days' (pick any good old days) had regulations. the only economy with no regulations is in somalia.

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Thank you for the kudos. However, you forgot to include the second part of my quote,

[quote]"But deregulation of the markets had no impact on the sub-prime mortgage crisis in America without government backing".[/bockquote]

ie, this was not a free market. The government guaranteed or insured the vast majority of home mortgages to "help the people". The guys on wall street found out how to take advantage of this non-free market economy and get a free lunch.

I'm not sure there ever were "good old days". Ever since the FHA was created, we've been riding an artificial credit bubble. However, the size of the bubble was constrained until the government started passing acts allowing the size of the market to increase. Also, technical and financial "innovations" helped to lead to a massive increase in the bubble. The bubble took a long time to pop, due to a number of reasons. But eventually, things had to come back to equilibrium.

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elimc128 / reignman:

but the government did not guarantee or insure the 'shadow banking system'... which is what collapsed first.

so how did the bankers know that this shadow system (which they depended on) would get bailed out?

the trouble seems to be that the shadow system was completely unregulated, even as the 'real' economy was in some ways more regulated with sarbanes-oxley, etc etc.

it would seem there are different types of regulation, and different things that get regulated.

there also appear to be different types of subsidies, and different things that get subsidized.

what i can say for sure, though, is that the ordinary taxpayer is the one who is getting hit the hardest. they might not understand CDOs but they understand when their taxes go up while services go down, while the very wealthy seem to be getting government handouts. the riots in Europe and the US tea party might only be the beginning of something much bigger.

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but the government did not guarantee or insure the 'shadow banking system'... which is what collapsed first.

so how did the bankers know that this shadow system (which they depended on) would get bailed out?


I'm not an expert on finance. But I do know how the real estate sector works. The banks were making huge sums of money by securitizing assets in real estate. These securities were, for the most part, either insured or guaranteed by the federal government. No one would have ever put so much money into the shadow banking system if the government wasn't involved. You probably wouldn't even know about the shadow banking system.

there also appear to be different types of subsidies, and different things that get subsidized.


A subsidy is when you take money from some people and give it to other people. It's a redistribution of wealth, and usually smart, rich people figure out how to get this money. It's the non-wealthy who are screwed. But don't take my word for it. Look at USSR, Cuba, Venezuela, etc . . .

what i can say for sure, though, is that the ordinary taxpayer is the one who is getting hit the hardest. they might not understand CDOs but they understand when their taxes go up while services go down, while the very wealthy seem to be getting government handouts. the riots in Europe and the US tea party might only be the beginning of something much bigger.


Absolutely. When the gov bailed out wall street and GM, it was effectively a form of corporate welfare. The events we have experienced over the last few years could just have been a small speed bump.

What the politicians aren't explaining is that someone will have to atone for the massive national US debt. That's the main certainty I have. No one knows who will have to atone for this debt, though. Will it be China? Will it be the US? If it is the US, will it be the elderly or the youth, or the poor that suffer? Or will the pain be spread throughout these groups?

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Great points!

Unlike some of the posters here, I think this financial collapse is just one aspect of a whole system of untenability largely created by those who are naive enough to believe you can put into place some smart people in government regulatory positions and trust them to eliminate all risk in life and also to trust them not to become corrupt. The film shows us that there were various regulations in place, even though the filmmakers show an obvious bias against "deregulation" in general. The Federal Reserve is one of the safe-guards. The ratings agencies being paid by the financial houses? What sort of a dunce ever thought this was a good idea? Where were our supposed "watchdogs" in the press? Do they have any brains or guts, not to mention, integrity? To have so many people actually believing in the objectivity of the ratings agencies shows that brains provide no protection from human tendency to behave like sheep and follow each other off a cliff! We have an entire legal system which is supposed to prosecute offenders, as well as a Congress who loves to "investigate" all sorts of trivialities. So where were these folks?

So many are culpable. Those who are seldom mentioned are the hordes of Americans who attempted to become millionaires overnight as "real estate investors". Many ordinary people bought to flip a property, driving up the price of homes for those who actually wanted to live in them. Alan Greenspan could easily have been criticized much more for giving us artificially low interest rates, insisting that inflation was under control, when it has been chronically understated, at least since the beginning of the 1990s. Low interest rates skew all sorts of financial behavior, inducing people to take equity out of homes to invest it, enticing people to purchase more real estate than optimal, and also, providing incentives to businesses to borrow money to invest in technology which then can reduce headcount, leading to an abundance of very high-tech jobs of short duration and an elimination of other jobs. That's partly where we are now. The only really open fields are in the technology sector, and colleges are not preparing students for these jobs by and large.

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I'm wondering who in their right mind would lend the bank of Iceland 10 times Iceland's GDP?

Clearly, what the current financial system is based on is that you don't have to be in your right mind. You can make any *beep* deal (ie. lending strawberry-pickers 750,000$ or lending Iceland's banks 10x the GDP) as long as you can find someone stupid enough to buy it off your hands. If there are people willing to pay for *beep* there's going to be a lot of people providing the *beep* But in the end there is some sorry bastard who bought the bad investment and who SURPRISE SURPRISE doesn't have the money to pay up when things go sour. Luckily we have the always trustworthy taxpayer to foot the bill. Maybe unregulated market economy would actually work if it were the players in the markets carrying the risk, but it is clearly the taxpayers (government) who carry the ultimate risk, so I think they should definitely look out for their own interests and REGULATE the risk taking of these people. And the clearest way to ensure this doesn't happen is that when somebody makes a bad investment they can actually pay for it.

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Well said...

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Barker, if you're going just on what the movie showed us of Iceland, then you don't really have a point. The film didn't explain what happened there at all, in my opinion, just attempted to connect some dots but without making its point. In fact, I was left wondering what on earth happened? It didn't make the slightest sense, so I'm unconvinced that the film's implied causation was any more true than the fact that its omitting all of the factors causing the collapse here means that nothing else was at fault. Here's my list of factors which should be added to the fault list. These are not listed in importance.

1. Community Reinvestment Act (see http://en.wikipedia.org/wiki/Community_Reinvestment_Act) This was a Jimmy Carter baby. It was used by different presidents to pressure banks into making risky loans. Its stated purpose was to prevent redlining. Typical government boondoggle: a noble intention followed by unintended devastating consequences.

2. Mark-to-Market Accounting Practice - dating only to the 1990s: http://en.wikipedia.org/wiki/Mark-to-market_accounting Gives inaccurate evaluations when there is no business activity happening. It exaggerated greatly the drop in housing prices, forcing banks to scramble around to obtain more assets, precipitating a panic.

3. A CORRUPT media. All of this trauma could have been avoided, had the press actually been the watchdogs they always call themselves, instead of the pep boosters for Democrats it has been for the past 30 years or so. They themselves could have forced Fannie & Freddie to be investigated, could have called for the resignation of various corrupt individuals, instead of spreading lies about Republican budget proposals, as they are now. They could have reported the appointment of Geithner as the outrage it was, had they not felt obligated to root for Team Obama regardless. The mainstream media has been giving cover to Democrats for years. They are a huge source of corruption. As a result, they have little credibility. Any time Democrats doing anything wrong, we're told it doesn't matter as long as they "get the job done". Instead, they should force Democrats to clean their own house, insist that regulations are followed, insist that ratings are fair, insist that academia not become the huge brothel that it is, etc. Also, instead of razzing conservatives or Republicans, they should come forward and praise those on the right who are calling for transparency and high ethical conduct. But then again....I'm dreaming! The media have created a world with a double standard of ethics, one for liberals, and a different one for conservatives. They SHOULD be helping each of us keep our party honest.

4. Campaign Finances - there should be no limit on what individuals give to political campaigns, but they should be transparent, and trackable. What should NOT be allowed is any donation NOT from an individual. That means, no PACs, no corporate donations, no donations from supposed non-profits such as the National Education Association, SEIU, Labor Unions, Planned Parenthood, etc. Instead, we have limited our own freedom of political speech in favor of large interest groups. And, despite the fact that no contributions are permitted from abroad, somehow, when Democrat candidates receive $ from outside the U.S., no one actually holds them accountable. Why is this? There is NO reason for any corporate entity to make political contributions. I challenge anyone to tell me why this does not simply blur the lines of influence and create a market for lobbying. Find me ONE Democrat who would agree to this, and I'll eat my hat.

5. Fannie & Freddie - they have played a huge role in the housing debacle. Why are they still around? What has Franklin Raines been given a pass here? Why have we allowed representatives like Barney Frank to continue to promote the safety and necessity of these institutions? Why is there no accountability here? Why should taxpayers be asked to prop up Fannie & Freddie?

6. Lazy and foolish Homebuyers - Having been in the mortgage origination business for several years, during the boom, and afterwards after the blow-up, I've had some first-hand contact with this. For the most part my clients were all very careful and sensible consumers, with low debt loads, great credit and interested mainly in 30 year fixed mortgages. My bad experiences came from people who want something for nothing, regardless of their creditworthiness, from builders who somehow avoid RESPA regulations and steer customers to their own friends' mortgage banks, and from subprime customers. As a licensed mortgage broker, there were plenty of safeguards in place to give customers full disclosure upfront. And I'm sick of having mortgage brokers take the hit for the banking industry, which operates under different regulations than we do, regulations which are much less stringent than ours. Government regulation of my industry has operated to steer customers to the big banks, and away from small private mortgage brokers. Why? The mortgage brokers were essentially small businesses, with very insignificant PACs or lobbying power, as opposed to the Bank of Americas, the Countrywides, the Wells Fargos, etc.
My experience was that if you operate very above-board, treat customers the way you would like to be treated, quote everything upfront, disclose all costs and profits, stick closely to your Good Faith Estimate, the honorable customer will work with you, since they understand you have to make a profit and appreciate the honesty about the amount. However.....I think many people aren't willing to pay for this level of honesty, and they fall over and over again for the notion that you can get something for nothing. That means they give their business to any quick-buck scam artist who is happy to promise them the something for nothing. If these people wind up out of their homes, I don't have a lot of sympathy. I can't tell you how many people with credit scores of 500, zero cash to put down, were out complaining about having to pay 7 or 8% interest rates on a 40 year mortgage mortgage while shopping for a home costing $500,000, 600,000, etc. Are we hearing about this? No, we don't, because the Left loves the narrative where the poor schlub is a "victim", instead of a perpetrator. I expect these are the same people who refuse to accept the government having to cut down any of its expenditures, despite the insufficient revenue.

7. Current corporation laws. Inside Job hinted at problems with the structure of corporations somehow producing incentives for inappropriate risk-taking with no actual risk to individuals. Since I have long suspected that corporate law actually needs some revision, I would welcome a much more involved and detailed exposition of just how current law fosters the short-term thinking, the inappropriate compensation of executives without any connection to rewards for excellence. Obviously, accountability is missing in current legal structure. I'd love to discuss this with an attorney who actually is knowledgeable about corporation laws. (However, not while his/her meter is running!) A long time ago, I remember hearing a Japanese executive criticizing corporate reporting requirements in the U.S., chiefly with respect to the requirement for quarterly reporting. His opinion was that we foster an approach to business which focusses excessively on short-term results rather than long-term success, we tend to set low goals so that they can be seen as having been accomplished for the shareholders, etc. And by the way, isn't the whole purpose of "incorporation" an attempt to remove risk from the individual?

The movie seems to dwell on the immense fortunes being paid to Wall Street executives. I'd just like to point out that the problem is not that they make a heck of a lot of money. The problem is that they made this money without delivering the value to the customers. So, in that sense, any amount of money was too much. If there were real accountability, executives could make a lot of money IF they did a REALLY GOOD job! They need to have their own skin in the game. Clearly, they did not.

I could go on with this post, but I've got a life, and so must attend to it. I do want to point out one more thing: I had the sneaking suspicion during this film, that none of the politicians, as well as most of the financial players, did not actually have a firm understanding of what they were doing---regardless of how greedy or dishonest they were. They are obviously all very proud people, an I'll bet they'd rather go to jail for fraud than admit that they created a monster they couldn't control. It shows us that you can have all the fancy schmancy degrees in the world, the approbation of millions, and still be a total dunce.

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wow this guy elimc184 is pure scum

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wow this guy elimc184 is pure scum


Really? I thought his knowledge was interesting. I kinda wish he would write a book (without using abbreviations and defining jargony terms like "asset liquidity" cause I don't know that stuff offhand).

And I came to this board after watching Charles Ferguson's No End In Sight about Iraq. He's obviously a talented director but I think elimc184 might have made something better on this topic.

I feel a collapse this sudden and severe is simply not symptomatic of a true free market. I don't see how you could have a bubble go on that long and get that big before it bursts. It's like that tall hotel tower in North Korea that was abandoned misconstruction and never finished. I feel like a huge miscalculation of that sort could only happen with severe central planning, not spontaneous order.

People say that there should have been better regulation. But I have a theory that is only true in the sense of our corporatist Federal Reserve regulated sector needing better regulation to counter the effect of not having true free market regulation.
The Soviet Union set the price of bread and this led to shortages. It might have done better by setting the price differently or put in place even more rules to mitigate long lines. But overall the initial regulation by government of bread prices caused the problem in the first place, which doesn't happen when you let markets regulate the price, instead of central planners.

www.youtube.com/user/Knightmessenger

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mintyrich YOU are wrong. Look at the inflation-adjusted Dow Jones value from 1929-now.

August '29-4,802
December '29-3,156
December '30-2,233
December '31-1,166
December '32-999
December '33-1,653---->FDR
December '34-1,696
December '35-2,281
December '36-2,807
December '37-1,833
December '38-2,415
December '39-2,344
December '40-2,031
December '41-1,564
December '42-1,543
December '43-1,706
December '44-1,869
December '45-2,315
December '46-1,800
December '47-1,691
December '48-1,607
December '49-1,856
December '50-2,057
December '51-2,219
December '52-2,388
December '53-2,281
December '54-3,308
December '55-3,981
December '56-3,929
December '57-3,351
December '58-4,411
December '59-5,048
December '60-4,515
December '61-5,324
December '62-4,686
December '63-5,393
December '64-6,120
December '65-6,658
December '66-5,217
December '67-5,832
December '68-5,807
December '69-4,637
December '70-4,604
December '71-4,731
December '72-5,243
December '73-4,023
December '74-2,624
December '75-3,355
December '76-3,771
December '77-2,924
December '78-2,597
December '79-2,389
December '80-2,440
December '81-2,033---->Reagan
December '82-2,342
December '83-2,714
December '84-2,515
December '85-3,091
December '86-3,748
December '87-3,670
December '88-3,931
December '89-4,769
December '90-4,300
December '91-5,020
December '92-5,082
December '93-5,624
December '94-5,595
December '95-7,282
December '96-8,881
December '97-10,710
December '98-12,237
December '99-14,922
December '00-13,543
December '01-12,389
December '02-10,073
December '03-12,391
December '04-12,377
December '05-11,896
December '06-13,491
December '07-13,796
December '08-9,119
December '09-10,548

When FDR began enacting regulations the market went up for a little while . . . but in the long run it did awful. The whole decade of the 1970's marked the deah of confidence in the government to run the economy. Since the 1980's and the era of deregulation (although the government should've put more restrictions on its own ability to bail out large parts of the economy so the self-interest aspect of the free market wouldn't be perversed), the stock market has done exponentially better than it ever has under extreme regulation. Regulations DID NOT keep the markets stable.

I can name every smurf from memory.

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You cannot look at immediate results, you have to look at the long term slow steady growth that the US experiences until this free market speculative BS started to take over at the time or Reagan. Putting in infrastructure and priming the pump for growth that was hollowed out by the financial speculators in the last 20 years is more what happened, and now we are weak as kittens because the whole economic, edcuational, health care, regulatory infrastructure has been trashed for the benefit of the financial class who engineered all of this.

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Actually, YOU'RE wrong, mintyrich! The markets have never been stable. Financial investment has always been risky speculation. People like you and the filmmakers who created Inside Job, who learn a little but think it sufficient to spew far-reaching conclusions are one of the reasons we're in this mess.

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The glass steagall act had no effect whatsoever on this crisis. Then the problem would have come up in the banks before the investment banks, it didn't.

And this is really the only deregulation I've heard of. What did happen was that regulation increased. The problem is that there is no market for money anymore, the government just hands it out, and cheaper to anyone who can get to the discount window. So people borrow and speculate with that money, then when they fail they get bailed out. This is the modern financial system and to blame the market for this is sorta like blaming a drug user for using drugs, when the government is actively pushing these drugs and punishing anyone who doesn't take it.

"Tu ne cede malis sed contra audentior ito"

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The banks should not have been bailed out. Americans apparently have short term memories and forgot all that's happened. We need to press charges against every executive and board member involved with any of these companies (banks/ratings agencies) and the organizations need to be shut down and dissolved immediately.

Unfortunately I don't see this happening.

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The real cause of this calamity was government interference in the market.
Precisely the opposite. The calamity happened because of deregulation since Reagan. Basically 'the market' (specifically the 'market makers') exploits every possible loophole to maximize short term profit no matter the cost of long term stability. Greenspan knew of the risks of not taking regulatory actions in his position, but he let his ideology guide his decisions that the "market knows best."

http://www.nytimes.com/2008/10/23/business/worldbusiness/23iht-gspan.4 .17206624.html
"In other words, you found that your view of the world, your ideology, was not right, it was not working," Waxman said.

"Absolutely, precisely," Greenspan replied. "You know, that's precisely the reason I was shocked, because I have been going for 40 years or more with very considerable evidence that it was working exceptionally well."

Waxman challenged Greenspan's approach to regulating the mortgage industry while he was Fed chairman, saying that the Fed "had the authority to stop the irresponsible lending practices that fueled the subprime mortgage market." But Greenspan, Waxman said, "rejected pleas that he intervene."


...Guess What S1m0ne! We have now entered an age where we can manufacture fraud faster than our ability to detect it

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Greenspan did not have a free-market ideology. He was the Chairman of the Federal Reserve . . . it would be a contradiction.

I can name every smurf from memory.

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Contradiction? where else would it best to control regulation than have an anti-regulation man in charge of the regulation?

...Guess What S1m0ne! We have now entered an age where we can manufacture fraud faster than our ability to detect it

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<blockquote>Precisely the opposite. The calamity happened because of deregulation since Reagan. Basically 'the market' (specifically the 'market makers') exploits every possible loophole to maximize short term profit no matter the cost of long term stability. Greenspan knew of the risks of not taking regulatory actions in his position, but he let his ideology guide his decisions that the "market knows best." </blockquote>

Who subsidized this market? And how can subsidies exist with "free market"?

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Except you are totally wrong, and probably should not be posting here because you did not see the movie. It was pointed out that it was not the NINJA loans that caused the collapse it was speculation and fraud.

I'd like to see what happened to a country that lived by the BS principles that you set up to justify all this criminality, it would collapse immediately. Your ideas are as bankrupt as they cause the world economy to be.

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You should not post in this thread unless you have read it.

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Grow up....WHAT does it take to make you see that it was DE-REGULATION (thank you Reagan) that enabled this to happen? The S&L fiascos were a direct result of deregulation, Enron, WorldCom, all deregulation...not government intervention.




LAUGHING AT TROLLS......PRICELESS!

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Grow up....WHAT does it take to make you see that it was DE-REGULATION (thank you Reagan) that enabled this to happen? The S&L fiascos were a direct result of deregulation, Enron, WorldCom, all deregulation...not government intervention.


If you can tell me how the housing bubble could have gotten so big without the US government guaranteeing or insuring loans, I'm all ears.

Money flows to where it garners the greatest return. In a capitalistic democracy, this is an economic law that is stronger than any judicial law. If you think regulations on banks and finance will stop any future fraud and wild speculation, you will find yourself disappointed.

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Your thesis isn't supported by the evidence that has been compiled and reported on in numerous books including "Too Big To Fail", "The Big Short", "The Sellout", "13 Bankers", and "House of Cards" and a documentary produced by CNBC, narrated by David Faber. It was the lack of intervention in markets that caused the problem, such as the ineptness of the SEC, the elimination of Glass-Steagal, the inaction of the Federal Reserve until after the fact, and some really bad judgement by banks and Wall Street traders. The issues you discuss had a role in the collapse but it all could have been avoided by tighter regulation.

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Your thesis isn't supported by the evidence that has been compiled and reported on in numerous books including "Too Big To Fail", "The Big Short", "The Sellout", "13 Bankers", and "House of Cards" and a documentary produced by CNBC, narrated by David Faber. It was the lack of intervention in markets that caused the problem, such as the ineptness of the SEC, the elimination of Glass-Steagal, the inaction of the Federal Reserve until after the fact, and some really bad judgment by banks and Wall Street traders. The issues you discuss had a role in the collapse but it all could have been avoided by tighter regulation.


I'm looking at the root cause of the problem. How do you solve the root cause?

If you say, "well, if we had more/better regulations and more/better government, then this wouldn't have happened" you are falling into a trap that many people before you have fallen into. Arguments like this go back many years. The argument sounds good on paper, and, in fact, this particular one is technically correct. If government had not eliminated Glass-Steagal and the SEC wasn't inept and the Fed had better judgment and banks hadn't over-leveraged, then the housing bubble wouldn't have gotten so far out of equilibrium.

Unfortunately, we don't live on paper. We live in the real world where it is impossible to foresee how the economy will shift the thousands of variables in its zero-sum math equation. We live in a world where humans are faulty and often greedy. And the those in charge of looking after the humans are also humans. There are many opportunities for bubbles because humans are constantly looking for a free-lunch. If you want to predict and stop future bubbles, then you have to look at the source of the problem. When the government shifts risk onto the public sector, bubbles will form.

If you want to stop the exact occurrence of the 2008 sub-prime mortgage crisis, do everything you suggested.

If you want to stop the 2008 sub-prime mortgage crisis and the *insert date* *insert name* crisis of the future, then dig up the root of the problem: stop shifting risk from the private sector to the public sector.

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I'm no expert, but rather than try and make vauge correlations between regulation vs. degreuglation periods of market operations, why not compare the modus operandi of the United States to other countries who have remained relativly stable during the economic crisis? Say Canada and other countries?

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I couldn't agree with you more, and I think the root of the problem is really what you're saying in your last sentence "stop shifting risk from the private sector to the public sector".

How exactly do you propose to do this?

I was thinking along the lines to regulate banks / insurance companies from taking risks that they can't handle ie. control their leverage by regulation seems the best way to me.

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That's a tough question. At this point in my life, I suspect that the government needs some regulations on itself. Let the private sector take risk and fall on its sword if it fails.

The regulations would be a set of a few simple constitutional laws that prevent congress from spending on stuff besides transportation, energy, and defense.

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The problem with the banks taking all the risks is that its a global economy and their actions have repercussions on the rest of the world.

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you are so dead on that it will completely fly around other people's heads because they themselves are off target.

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