9 ms·
How the banks ignored the lessons of the crash
- duncan_bayne 11y agoIgnored? The lesson was pretty clear: fuck up on a grand scale, and we'll soak the tax slaves to bail you out. I'd say they learned that lesson well.
- calebgilbert 11y agoYou beat me to posting exactly the same comment...
- joe_the_user 11y agoIt's fairly humorous at this point. Angry, ineffectual parent: You haven't learned your lesson son. You remember last time you messed up and got away with a bunch of stuff (stuff you made lot of money off of)? Kid: (Smirking) yeah Parent: You remember I almost punished you real bad? Kid: (Smirking) yeah Parent: Well, you fuck up again. I might almost punish you even worse. I might almost make you really sore. You understand? Kid: (Smirking even more) yeah, I understand.
- n4r9 11y agoI know it's a long read, but the last paragraph is literally this same point.
- gutnor 11y agoThe article was calling for that kind of comment. However, there is still a good point in there. Since last time the general public have taken the brunt of the crisis, what kind of lesson did we want the bank to remember ? The article should really be titled, "7 years after the crisis, how the public and politicians ignored the lesson of the crash".
- joe_the_user 11y agoIt's like an Onion headline: "Banks ignore lessons politicians tell voters that the banks should have learned, while remembering the lessons the politicians actually taught them"
- duncan_bayne 11y agoOr at a meta level: "Politicians ignore lessons citizens tell politicians that they should learn, while observing that the citizens continue to vote for them."
- rhino369 11y agoIt's a mistake to treat banks like a monolith. The banks making the worst choices really did pay the price. Three of the five biggest investment banks in the USA either went bankrupt or were sold off for pennies on their previous value. Fannie and Freddie were essentially bankrupted. These companies share holders were wiped out. That's exactly what happens with other businesses in bankruptcy. Well, other than Bear and Merrill stockholders getting a small percent instead of zero. That was a necessity because an investment bank really can't operate through a traditional Chaper 11 bankruptcy. So if you own a bank, you can't be confident that you'll get bailed out when you fuck up on a grand scale. But there is an issue of industry wide fuck ups and their effect on everyone else. Banks have a very unique feature in that when their competitors falter, they falter with them. In 2008, you have banks with no exposure to the toxic assets having huge issues with liquidity. The bail outs may cause moral hazard for that sort of counter-party risk. For example, if you are Goldman Sachs maybe you don't ask too many questions about AIG insurance because you figure the government will make good on it either way. This is a very complicated issue.
- nosuchthing 11y agoSeemed like a net win for the surviving banks with all the reduced competition, cheap real estate in default, and near 0% Fed rate. https://www.fdic.gov/bank/individual/failed/banklist.html https://www.fdic.gov/bank/individual/failed/banklist.html
- mikeyouse 11y agoThe banks loathe low rates.. They make most of their profits on interest margin which is greatly compressed in ZIRP environments.. Their margin is literally the lowest it's been since at least the early 1980's. [1] It's no surprise then that bankers are the ones clamoring loudest for interest rate hikes. Bill Gross, Lloyd Blankfein, Robert Shiller, insurance & pension execs are all begging Yellen to raise rates while the people in charge of companies that actually sell physical goods are telling her to hold off. [1] - https://research.stlouisfed.org/fred2/series/USNIM https://research.stlouisfed.org/fred2/series/USNIM
- clay_to_n 11y agoThe last sentence of the article: "The big banks have surely drawn a lesson from the crash and its aftermath: that in the end there is very little they will not get away with."
- PythonicAlpha 11y agoThe last sentence practically says it all: > The big banks have surely drawn a lesson from the crash and its aftermath: that in the end there is very little they will not get away with. and it tells the story of our societies failure and the total failure of our political systems. Maybe in the history books of the future, it will be written as the beginning of the downfall of our societies. But one thing is sure, the next crash will not leave us behind with a blue eye only, because the western countries have nothing left, to back-up the gambling losses of the banks. The wealth of our nations already have been wasted to those, which did not earn it and either a total crash will follow, or revolution or they (those that we let gamble with our money) will be the new aristocrats (or "oligarchs") of a new era of slavery.
- WalterBright 11y agoMuch of what our government does is protect us against the consequences of our poor choices.
- PythonicAlpha 11y agoMaybe, but who protects us from the consequences of the poor choices of the governments?
- retrogradeorbit 11y agoAnd when the big crash comes, there will be enough time between the 2008 crisis and the next one for the general public to have no understanding of the context and causes. They will be unable to connect the dots. And in their confusion they will give the politicians carte blanche to solve it. The politicians will turn to those who gave them the most money, the banks and their lobbyists, the very people who are behind the crisis, and give them complete power. Then these people will squeeze even more wealth from the system to line their pockets. Rinse and repeat.
- PythonicAlpha 11y agoExactly. After the 2ndWW the system had a chance to reboot and the previous governments have turned the rudder to more equality for all people -- thus we had two or three decades of wealth. But than the problems came and the politicians turned to the same old solutions and to the big money for advice. Today, the money has the power and the politicians are mere puppets of the money. And we are all busy to survive ourselves and don't see how humanity and the whole planet is killed by greed.
- liamconnell 11y agoGreat article. At the risk of fear mongering, the point about supermarkets was very powerful. "Greed is good" is fine until the money controls the entire infrastructure of society. I live in Argentina, where so many factories were abandoned in our 2001 crisis that workers decided to re-open many of them. Would American workers have it in them if there were a serious liquidity crisis?
- olewhalehunter 11y ago>Would American workers have it in them if there were a serious liquidity crisis? Asian real estate tycoons would own the area before the workers could pronounce "transpacific capital monitoring". much less before they were told factory was being shut down.
- wavefunction 11y agoAll I have to say to that sort of apocalyptic scenario is that possession is nine tenths of the law. Hard for 'Asian Tycoons' to be absentee landlords, were they to try.
- anigbrowl 11y agoThe problem with this is that a factory making stuff is useless if people don't want or can't afford the product. The Marxist labor theory of value asserts that value s created when something is made rather than sold, but 1000 pairs of shoes sitting in a warehouse miles away from any consumers who might want to wear them aren't making anyone better off.
- digi_owl 11y agoMore accurately its that the value is set by the labor required. Beyond that for most people in a capitalist system, the basic process was one of commodity > money > commodity. Meaning that people made stuff to earn money, to buy more stuff. But for the capitalists instead it was money > commodity > money+. Putting money into the production of stuff so as to earn even more money on sales. Now where Marx went off the rails was with factory machines. He was sadly working under the preconception that workers were being exploited, and so ended up badly muddling the impact machinery has on the value definition.
- jellicle 11y agoThe lessons of the crash were: absolutely no one went to jail, and every banker involved made nearly as much money during the worst years of the crash as during any other year. So, what's the problem?
- cjf4 11y agoUltimately so did the taxpayer. Those bailout loans everyone likes to complain about were some of the best investments the federal government has ever made.
- rorykoehler 11y agoYou tell that to all the people who lost their jobs and homes. I'm sure they'll be delighted.
- thrownaway2424 11y agoI doubt those loans had anywhere near the ROI of, say, the land grants for the transcontinental railroad, the Louisiana Purchase, or the Alaska Purchase.
- sswaner 11y agoActually, the government did very well considering that the loans (especially the AIG loan) were short term and fully repaid. The government made $5.6 billion on $67.8 billion loaned, the Federal Reserve made a profit of $17.7 billion. http://projects.propublica.org/bailout/entities/8-aig http://projects.propublica.org/bailout/entities/8-aig The Louisiana and Alaska purchases didn't turn a profit for years, and took a substantial amount of additional capital. AIG is back to relative stability and pays taxes.
- liamconnell 11y agoSomeone correct me if I'm way off, but I've been thinking that leveraged markets and margin trading have more of a negative effect than just creating risk of a domino effect. They also resist change (change that is sometimes needed). If tons of huge banks have tons of money on the line in leveraged crude oil futures, then there would be resistance to global movement away from fossil fuels. Larger financial markets should in theory provide oil to the gears of the economy, but I think that if the industry becomes so bloated it will actually cause additional friction. Please point me in the right direction if there is anything written on this topic.
- HighPlainsDrftr 11y agoI've thought for a long time - it doesn't matter if these banks broke the law - they tried to fly to high and broke a lot of citizens. I'm not a fan of government bailouts. But if it happens, they should split the bank up into smaller pieces; ban the management from working in the industry as management again, and give the new remaining company a bit of support to get going again. Bailouts shouldn't come without a price to pay to the people involved.
- crdoconnor 11y agoThat's basically how Sweden responded to their banking crisis.
- knight17 11y ago"This Scandinavian nation of 9 million people has accomplished what the United States, Britain and Japan can only dream of: Growing rapidly, creating jobs and gaining a competitive edge. The banks are lending, the housing market booming. The budget is balanced." http://www.washingtonpost.com/business/economy/five-economic-lessons-from-sweden-the-rock-star-of-the-recovery/2011/06/21/AGyuJ3iH_story.html http://www.washingtonpost.com/business/economy/five-economic... Do you have any other suggested reading on how Sweden go about doing this?
- knight17 11y agoYes; like the article says it is justified for the same heads that get bonuses to get the penalties too when things go bust.
- Animats 11y agoFrom the article: "The problem with today’s banks is that those who accept the risks are no longer those who get stuck with the bill." Much of the trouble comes from financial deregulation. There used to be laws in the US which forced considerable isolation between different parts of the financial system. There was the Glass-Stegall Act (1933-1999), which kept banks and brokerages separate. There used to be a separation between savings and loan companies and commercial banks. Savings and loan companies used to have to lend locally, and actually send people to building sites to see how construction was coming along before advancing more money. There was the Utility Holding Company Act, which limited public utilities to a tree depth of 3 in stock ownership, just so they could be regulated more easily. With all that separation, parts of the economy could get into trouble without cascading. A stock market crash didn't affect banks much. The savings and loan mess of the 1980s didn't clobber the stock market. 2008 might have played out very differently if the former head of Goldman Sachs, Henry Paulson, hadn't been Secretary of the Treasury. President Bush was prepared to let banks and brokerages go bust, in keeping with his conservative principles of letting the market decide. Paulson was the one who pushed for a bailout. At the point Lehman went bust, Goldman Sachs was about a month from going bust, too.
- cm2187 11y agoThe article doesn't mention a single time the word bail-in, which is the single most important change in banking regulation and what is likely to make bail out (i.e. tax payers recapitalizing a bank) unlikely. A bail in is the power of the regulator to declare a bank non viable and to force losses on debt holders over a week end. This effectively auto-recapitalizes a bank without having the messy consequences of a bankruptcy, by forcing losses on creditors in the same fashion as a bankruptcy. The article doesn't mention either that banks have more twice the amount of capital they held before the crisis and are required to hold massive amounts of liquid assets.
- msravi 11y agoThis is an excellent article that gets to the crux of the issue: other people’s money. And, I can't help but delve one level deeper. Who's money were the banks playing with? Pension funds, mutual funds... in other words, funds in which the ordinary taxpayer had his/her money. Whom did the taxpayer bail out? His/her own money - which they "invested" in these funds/banks for safekeeping without sufficient knowledge of the risks. Unfortunately, we haven't learned our lesson either. We still like to allow others to manage our money and risks for us.
- _pmf_ 11y agoIt's not so much that they ignored it. It has been positive reinforcement for them that no matter what they do, they will never be held accountable.