12 ms·

Causing financial crisis wasn't illegal. Unethical but not a crime. Except for some cases of misselling products, banks playing against the customer etc. Bailou

Causing financial crisis wasn't illegal. Unethical but not a crime. Except for some cases of misselling products, banks playing against the customer etc. Bailout was. For $3 trillion less than bailout, we could have paid off every U.S. mortgage! http://www.jameslavin.com/articles/2009/04/16/for-3-trillion-less-than-bailout-we-could-have-paid-off-every-u-s-mortgage/ http://www.jameslavin.com/articles/2009/04/16/for-3-trillion... [need better source??] Without bank bailout we'd buy banks for pennies. Market forces would work and banking sector would be incentivised to behave properly.

pjc50 9y ago
The bailout was loan rather than gift though, and I believe eventually made a small profit?
- paulus_magnus2 9y ago
  The same way if someone steals your car, you buy a new one and the economy as whole (GDP) is in profit. What bailout did (also via QE + ZIRP/NIRP) is prop-up property & asset prices effectively legitimising the prior speculation. This prevented resetting of prices to the levels where people would start buying again for non speculative reasons. Effect is young generation sees houses at 10x earnings whereas the average is 3-3.5x. Boomers sit on tons of unearned house equity that is only there because land prices are inflating like crazy. For capitalism to work well there needs to be a mechanism for wealth destruction, at least for the "unrealised wealth".
  - pjc50 9y ago
    > mechanism for wealth destruction Well, that's never going to be popular, to the extent that all lobbying is going to be diverted to making sure that it's not your wealth that gets destroyed. Have you seen how unpopular even tiny amounts of inflation are? Getting wealth redistribution would be a start.
    - ric2b 9y ago
      inflation isn't wealth destruction, it's wealth redistribution from everyone into the financial industry.
  - andrewmutz 9y ago
    He means that the government literally made a profit off of the bailout loans. One Source: https://www.washingtonpost.com/business/economy/bailout-highly-profitable-for-taxpayers-when-you-look-at-the-right-numbers/2015/01/01/dc2a05a6-8fa5-11e4-a412-4b735edc7175_story.html https://www.washingtonpost.com/business/economy/bailout-high...
  - ataturk 9y ago
    That's some pretty faulty reasoning there. If an economy was better off because cars get stolen or property gets destroyed and must be replaced, then we should just all go around breaking everyone else's shit all the time and we would all be billionaires. But we know the real world doesn't work that way--if insurance pays for a new car, insurance rates rise for everyone and prices go up, which leads to fewer choices for those who have to buy and maintain insurance. Similarly, if someone came by and broke your windows every day, the glass guy would become rich, but you might not have any money for groceries after awhile and you certainly wouldn't have money for new renovations or other improvements to your property. You would just be treading water. I do think that Keynsianism requires a sink for all the durable goods that are produced, be it obsolescence or outright destruction (think war materials).
- bradleyjg 9y ago
  Depends on exactly what you mean by "the bailout". In dollar terms the fed's actions were much much larger than TARP.
ryankupyn 9y ago
The source is a bit misleading - the 12.8 trillion includes money the fed spent to buy assets, driving interest rates down. They've been slowly unwinding that position, and it's not as if they were giving the money away.
- uiri 9y ago
  It doesn't have to literally be equivalent to paying off people's mortgages for them. It could have been in the form of buying up housing that was in default or foreclosed upon. The government was in the perfect position to profit off of the crisis while allowing people to keep living in their homes. I realize this is simplistic because of the unemployment associated with the crisis, but a 12 or 18 month lease with discounted rent would have been one potential solution. The government would be unloading the housing stock 3-5 years later, depending on when it looked like the market was starting to recover but not all at once so as not to flood the market.
  - mempko 9y ago
    why would the government need to profit ? they could evem do it in a loss
    - uiri 9y ago
      Any alternative scheme to the bailout ought to cost less than the bailout. I am under the impression that they profited from the bailout but if that's not the case, then they could do it at a loss so long as the loss is smaller than the bailout loss. And both of these profit/loss comparisons would be based off of projections rather than what actually happened.
- analyst74 9y ago
  I used to think this way, you see, the fed actually made money in the process, how is this a bad thing? What actually happened was that major banks were facing a mix of liquidity and solvency crisis, meaning that they were going to go under, but not only they got a cash bailout to deal with liquidity crisis. They also got a QE policy that prop up asset prices they hold, which is equivalent of giving them money and not getting it back. It's financial wizardry that both the banks and fed made money, where does their profit come from? There are 2 possible scenarios: 1, as fed unwind its balance sheet, the market is going to correct and eventually the fed ends up losing money (to the banks who cashed out first) 2, fed successfully controls the pace of unwinding, so instead of crashing the market it keeps market at a subdued level, absorbing economic growth in the next few years. In this scenario, the profit fed and the banks made are coming from today's and future investors.
marricks 9y ago
Saying "there's no legal way to go after them!" I find kind of upsetting when bankers can hire great lobbyists to ensure they set up the law favorably for themselves. Definitely agree we should have paid off mortgages instead though.
- bradleyjg 9y ago
  > Definitely agree we should have paid off mortgages instead though. So if Donald Trump has a mortgage on a penthouse apartment worth $25 million the government should have paid that off, but some family making $15,000/year that can't get a mortgage in the first place should get nothing? Pay off all the mortgages is a terrible idea.
  - paulus_magnus2 9y ago
    Thanks to zero interst rates for 10y his apartment is now worth $50 so effectively we paid of his mortgage.
  - mrec 9y ago
    Agreed. The more sensible forms of debt jubilee I've seen proposed would give money to everyone equally, but with the proviso that if you have debt you have to use the money to pay that off first.
  - isoskeles 9y ago
    It's a terrible idea mainly in that it is unfair to everyone who didn't drink the kool-aid and buy a house because the value was supposed to always go up. Not just because wealthy people might profit. If there's ever another bailout, they should heavily regulate the people who gain something from it. Not as a punitive measure, but more like a statement of good faith. "If you bought these homes, surely that meant you intended to live in them. So as a condition of the bailout you can't sell them for more than X or rent them for more than Y." It seems drastic, but I can't see many other ways to approach fairness in that situation. But I don't think we've learned because people are still arguing over whether we should have just thrown the bankers in prison, like the system wouldn't just replace them with more bankers.
VHRanger 9y ago
The bailout was a loan and the US taxpayers actually made money from the bailout loan itself.
- paulus_magnus2 9y ago
  Surely we lost money if you include how much we overpaid for assets, land / housing and services of bailed out industries. And then how much was lost in pensions / savings due to zero interest rates.
- guywaffle 9y ago
  So the banks make shady moves and need a bail out because of their bs. They get the money, and since they just got caught, and actually use it the way it should have been the whole time. From that they made a profit. Technically, wouldn’t they have made more profit if they had been behaving the whole time? So technically they did lose money.
- vkou 9y ago
  How much money would US taxpayers had made on the bailout loan if that money were used to buy the failed banks? Or invested into equities? Or used to buy up the underwater assets directly? "Making" 1% interest in a world where inflation is at 2% is not a good use of taxpayer money.
bradleyjg 9y ago
> Causing financial crisis wasn't illegal. Unethical but not a crime. Except for some cases of misselling products, banks playing against the customer etc. The exception there swallows the rule. Prosecutors could have, and in previous financial crises did, prosecute top executives under the laws against, for example, wire fraud. They didn't this time for reasons outlined in the excellent book: Chickenshit Club (https://www.amazon.com/Chickenshit-Club-Department-Prosecute-Executives/dp/1501121367 https://www.amazon.com/Chickenshit-Club-Department-Prosecute...)
- sytelus 9y ago
  I think the top review of this book summarizes it all pretty well: With George W. Bush, Justice deteriorated under Secretary Alberto Gonzalez, who was forced to resign, and the SEC deteriorated under Christopher Cox, whose intent appeared to be to simply let it collapse from inactivity. Budgets were slashed and staffs reduced at the same time as demand for action increased. This is standard procedure for discrediting an institution. The stories of confusion, conflict, lack of direction, leadership or policy are all detailed here. The frustration of the prosecutors is palpable. In the current administration, you can see it real-time at Education, State, and the EPA for example. The answer to the question is that everything changed. Prosecutors today are actually afraid to file suit, fearing they might lose and have black marks on their CVs. (James Comey famously called them chickenshits.) They have little or even no trial experience any more. Everything is a negotiated fine (never paid by the perpetrators). They have been battered by the collapse of Arthur Andersen, which put a lot of employees on the street, and has given us ridiculous arguments over “too big to fail” and markets that “self-regulate”. They no longer work for the “public good”. They work to get better jobs in big law firms. They want to take their faultless experience in government to make themselves millions from the other side. The revolving door makes this one huge club. This is so far removed from their predecessors as to be unrecognizable. And Eisinger makes this shockingly clear as he proceeds from decade to decade. Considering people like Preet Bharara are now out, I'd say deterioration is only further accelerating.
endorphone 9y ago
Causing financial crisis wasn't illegal Risks were grossly and knowingly understated, which was against the law. People were betting with other people's money, with all of the upside but very little of the downside, so it isn't surprising that the market as a whole completely twisted the risk profile, as a largely corrupt industry.
mikeash 9y ago
Except for all the illegal stuff they did to cause the crisis, it wasn’t illegal? No, you couldn’t prosecute people just for causing the crisis. But there was plenty of crisis-causing illegal activity that could have been prosecuted.
- rayiner 9y ago
  Like? The most obvious would be falsifying documentation in connection with mortgages ultimately sold to Fannie/Freddie. But that’s just capture a bunch of loan agents, not satisfy anyone’s blood lust.
  - pjc50 9y ago
    Robo-signing definitely was illegal, and everyone involved in it (especially the supervisors) should have been jailed for fraud. The Quinn family who blew up Anglo-Irish bank eventually did get short jail sentences in addition to their personal bankruptcy: http://www.bbc.co.uk/news/uk-northern-ireland-20167760 http://www.bbc.co.uk/news/uk-northern-ireland-20167760
  - mikeash 9y ago
    All those loan agents were falsifying loan documents with zero direction or knowledge from above?
  - Klinky 9y ago
    Multiple fraud violations[1][2]? It's interesting how Martha Stewart was put in prison for insider trading, but the financial industry's Culture of Fraud lead to practically no one going to prison. There really needs to be a way to hold top executives accountable for the culture they've created, such as at Well Fargo where millions of fraudulent accounts were opened due to the intense pressure created by executive growth targets. This is similar to financial firms bundling shitty loans, paying off a ratings agency to call it gold while knowing full well it's full of shit, and then passing those loans off golden investment opportunities. Yet the people who get caught are those at the bottom. If you create a culture that encourages bad things(fraud) and do not have checks and balances in place to catch bad behavior(fraud), then you should be held accountable. Typically the executives state they had "no knowledge of what was going on" in the company/department they were supposed to be running and were paid handsomely to do. 1. http://www.nytimes.com/2011/11/08/business/in-sec-fraud-cases-banks-make-and-break-promises.html http://www.nytimes.com/2011/11/08/business/in-sec-fraud-case... 2. https://www.sec.gov/spotlight/enf-actions-fc.shtml https://www.sec.gov/spotlight/enf-actions-fc.shtml
wavefunction 9y ago
In the US it's easy to build charges off of nothing. Not committing a crime is no barrier to arrest, deprivation of property and punitive actions outside the normal scope of settled statute. There's nothing stopping bankers from being locked up for their social crimes other than a lack of will or politesse on the parts of the people.
- skookumchuck 9y ago
  The French tried that around 1800, and while it likely was very satisfying to guillotine the rich, ultimately it didn't do anyone any good. The Russians tried it again in 1917, didn't work out well for the lower class then, either. Pol Pot did it too, with similar results.
  - jessaustin 9y ago
    Wow that's impressive. GP suggested that rich people with access to great lawyers are subject to a different legal process than poor folks without that access... You went straight to the Killing Fields! Bravo!
- bradleyjg 9y ago
  It's funny how everyone is deeply concerned about due process of law when it comes to celebrities, the very wealthy, and cops. I'd like to see some of these people getting on their high horse go to down to their local criminal part and see how they justice system they are so proud of actually works for people that aren't in one of those categories. It is better that everyone be subject to the same system, even if that system is unjust, than for there to be two justice systems. Otherwise how the worse one ever going to get better?
cm2187 9y ago
Agree, it’s like asking why techies aren’t in prison for causing the 1999 .com bubble and subsequent crash. But bank bail out didn’t cost 13, let alone 3 trillions.
- sumedh 9y ago
  Wasnt it the bankers who were publicly saying that the company going for an IPO is going to change the world but privately saying its full of shit.
eeZah7Ux 9y ago
The questions stands regardless of the legality of causing a crisis.
vostok 9y ago
> Unethical but not a crime. Except for some cases of misselling products, banks playing against the customer etc. Bailout was. I've never understood the argument that betting against your customers should be illegal. If you're buying something from me then I think that selling it is better than buying it and you think that buying it is better than selling it.
- Super_Jambo 9y ago
  Depends on the relationship with your client. If you're giving advice from one department whilst other departments are betting against it then somethings gone weird.
  - vostok 9y ago
    It seems even less controversial when two different departments do it. I assume you're talking about something like your ECM doing a follow on and your ER putting out a positive report? I'd argue that it means your compliance department is doing a great job. You generally don't want the two to talk to each other...
- barrkel 9y ago
  Sure: for things like securities, it seems like every transaction is a bet each way: the seller is betting that the customer will be worse off, and the customer is betting that the seller will be worse off. But sellers and buyers are different entities, and the fact that they're different means they can value things differently. If I'm a cobbler and you're a tailor, it's natural that we'd want to trade; I have a surplus of shoes and scarcity of suits, and you vice versa. We value our relative products differently, so when we exchange them, we're both better off. This doesn't justify me knowingly selling you crap shoes. In fact it's even worse than that: because I know more about shoes than you do, if I sell you faulty shoes, I'm even more of an asshole. Or I'm incompetent. There are slightly more subtle arguments as to why different entities would value securities differently: different appetites for volatility, different time horizons, different liquidity, and sometimes, yes, different information. If the buyer has better information than the seller, people don't complain as loudly as the opposite. To me, the whole thing was a mixture of assholes and incompetence. I subscribe to the idea that taking someone's money because you're smarter than them is just as morally wrong as taking it because you're stronger than them. So some clever people took money off some not-so-clever people, and all along the chain a bunch of incompetent people were left holding the bag, and had to be helped out.
branchless 9y ago
Exactly. We should have said to the banks "oh you need our help, let's see - what do you guys do when that happens? That's right, we are going to take you for everything you have". We should own all the banks, all the land. We are renting our own countries back off these guys after bailing them out.
throwaway613834 9y ago
> For $3 trillion less than bailout, we could have paid off every U.S. mortgage! I seem to recall the "bailout" was a purchase of bank assets (including stocks, etc.) which was subsequently repaid as the market healed. Which sounds more like lending money rather than giving it away. Is that correct? And if so, how is that similar to paying off mortgages?
rando444 9y ago
It pangs me to see this sort of garbage logic on a site like HN. This whole "it wasn't illegal" mindset is just so far removed from reality. Do people honestly think that Goldman Sachs paid 5 billion dollars in settlement money because they did nothing legally wrong? No, they agreed to pay such a large settlement to avoid criminal convictions, because what they did was a crime. This is a whole other topic of conversation regarding Eric Holder's justice department techniques of going after settlements instead of convictions, and sadly the end result is that after all of the settlements are done, and the companies profit off their crimes, somehow people get the idea in their head that the actions were never crimes to begin with.. which is not even remotely true.
- cgmg 9y ago
  > Do people honestly think that Goldman Sachs paid 5 billion dollars in settlement money because they did nothing legally wrong? No, they agreed to pay such a large settlement to avoid criminal convictions, because what they did was a crime. Not saying your facts are wrong, but it is very hypocritical of you to accuse others of "garbage logic" with such a terrible argument. Due to incentives in the U.S. justice system, particularly with regard to prosecution, many, many innocent actors settle or plead guilty even if they're innocent. This problem is well-known and documented.
  - rando444 9y ago
    The garbage logic is nobody is in jail == nothing was illegal. I agree that someone asserting that a plea deal equals undeniable guilt is also faulty logic, but that was not the argument presented. My only point is that it's not possible to say that because nobody was convicted that nothing was illegal.. and should be not stated as such.
  - r00fus 9y ago
    The term you used "actors" is disingenuous. Please don't equate a poor person with no resources to a company with billions of dollars and massive political clout. The asymmetry in power makes all the difference. GS didn't throw away $5B because they were innocent.
GeekyBear 9y ago
Fraud is a felony offense. It's simply not possible to sell subprime loans as AAA investments without a liberal sprinkling of fraud. https://www.huffingtonpost.com/william-k-black/the-two-documents-everyon_b_169813.html https://www.huffingtonpost.com/william-k-black/the-two-docum... Some other reading on the subject: >the Financial Crisis Inquiry Commission, in its final report, uses variants of the word “fraud” no fewer than 157 times in describing what led to the crisis, concluding that there was a “systemic breakdown,” not just in accountability, but also in ethical behavior. >As the commission found, the signs of fraud were everywhere to be seen, with the number of reports of suspected mortgage fraud rising twenty-fold between 1996 and 2005 and then doubling again in the next four years. >As early as 2004, FBI Assistant Director Chris Swecker was publicly warning of the “pervasive problem” of mortgage fraud, driven by the voracious demand for mortgage-backed securities. http://www.nybooks.com/articles/2014/01/09/financial-crisis-why-no-executive-prosecutions/ http://www.nybooks.com/articles/2014/01/09/financial-crisis-...
- gozur88 9y ago
  There's no question the ratings agencies played a huge part in the collapse. Part of the problem, politically, is these agencies were set up by the government.
mtgx 9y ago
> Causing financial crisis wasn't illegal. Unethical but not a crime. I don't know why people keep repeating this. It feels like brainwashing of some sort. Why do people repeat this? Did Obama repeat it a lot at the time, and because many people liked Obama, they just bought that excuse? It just feels so strange to see people argue against their best interest. Do you want another financial crisis to happen because of the bankers once again? Because that's how you're going to get one - by ensuring nobody gets punished for the last one. Also, in his final years, Eric Holder admitted that the main reason he didn't go after bankers wasn't because "they did nothing illegal" but because he (and Obama) "thought" (or got paid to think) that jailing the bankers would "hurt the economy". I've never seen a more bullshit excuse. Also, Holder, but only after he quit the administration, had some "regrets" that he didn't go after the bankers. https://www.huffingtonpost.com/2013/03/06/eric-holder-banks-too-big_n_2821741.html https://www.huffingtonpost.com/2013/03/06/eric-holder-banks-... https://www.theguardian.com/money/us-money-blog/2014/sep/25/eric-holder-resign-mortgage-abuses-americans https://www.theguardian.com/money/us-money-blog/2014/sep/25/... https://theintercept.com/2016/07/12/eric-holders-longtime-excuse-for-not-prosecuting-banks-just-crashed-and-burned/ https://theintercept.com/2016/07/12/eric-holders-longtime-ex... The entire government system in the U.S. is corrupt from top to bottom. Everyone in an legislative or executive position seems to either only ever do the bidding of their rich donors or ensure that whatever actions they take while in government doesn't hurt their private employment after working in the government (especially when they intend to work in the industries they regulate).
deleted 9y ago
[deleted]
volgo 9y ago
>For $3 trillion less than bailout, we could have paid off every U.S. mortgage That comparison makes no sense. We didnt pay off the bank's debt. It was a temporary loan from the government and every penny was paid back. In addition the government, and tax payers, benefited enormously from the interest accrued.
- riku_iki 9y ago
  How is that? As part of stabilization program government bought toxic assets from banks. Is there any evidence that those assets paid back?
  - deleted 9y ago
    [deleted]
- poof131 9y ago
  I think that is entirely disingenuous. The banks have been borrowing from the Fed and lending to the Treasury for a profit.[1] The taxpayers have essentially recapitalized the banks. Now we are in a trap of low interest rates trying to edge our way out. We’ll see how it goes. Free markets would have let the banks fail. Instead we’ve created a world with champions for free markets for trade, free markets for labor, but protected markets for capital. Absolute self-serving hypocrisy. FDIC was designed to protect the little guy. The bailouts protected the richest americans and excellerrated the growing inequality in this country. I believe in capitalism, but 2008 was the crony variety. It still angers me thinking about watching the crying pundits talk about risk on monitors next to Americans taking real risks in Iraq. The bailouts were bipartisan fraud at a grand scale and epitomize the corruption of establishment politics and the revolving door between government and the private sector. But sure, “americans got paid back with interest.” Believe it if you want to. [1] https://www.pbs.org/newshour/economy/are-banks-borrowing-from-the-f https://www.pbs.org/newshour/economy/are-banks-borrowing-fro...
  - gozur88 9y ago
    >Free markets would have let the banks fail. Instead we’ve created a world with champions for free markets for trade, free markets for labor, but protected markets for capital. Because the government was afraid failing banks would take everything else with them. The problem was banks were allowed to become too large and to sell risk to each other. If I were running things I'd break them all up into regional entities and separate them financially.
manigandham 9y ago
> For $3 trillion less than bailout, we could have paid off every U.S. mortgage No thanks, I prefer people pay their own debts. The bailout was a loan and the banks paid it back with interest, which means the government actually made money while stemming further chaos. Regardless of whether that was the right solution, mass forgiveness of housing debt certainly isn't.
gigatexal 9y ago
I had those same thoughts. Bailout the people and let the banks burn and then buy them up for pennies since that’s how an efficient market would have worked. Well an efficient market would have done so sans any bailout but still.
mathattack 9y ago
Tremendous amount of fraud. Not just unethical behavior, but fraud. Lying on financial documents, fraudulently altering loan documents are two starts.
caseysoftware 9y ago
Paying off the mortgages would have been another bailout, just more diffuse from what we saw. And while the existing bailouts incentivized banks to misbehave, paying off mortgages would have incentivized a generation (or two?) to misbehave.. and also further screwed the people who did play by the rules. Of those two scenarios, I prefer the bank bailout.
- roenxi 9y ago
  If the economic system could speak, which it cannot, a crisis would be it saying 'hold on! we're giving scarce resources to people who are not using productively'. Now there are really only two ways this can play out: 1) Organically, whoever was making the (economically) poor decisions is removed from the system by virtue of going broke. 2) The government steps in and the taxpayer settles debts. Once you enter (2) territory, which is what the US did in the '07 crisis, it really doesn't matter who you give the money to. You are still going to have economic mismanagement. It will continue unless it somehow gets so catastrophic that not even the government can settle it. Now, the US government is pretty powerful, so maybe that day will never come. But if they are going to get involved at all, why into give the money directly to the little people? They are already throwing out the principles of good economic management.
  - caseysoftware 9y ago
    It sounds like your reasoning is "if you're going to have your leg broken, better your left than your right!" I would have gone for the more short term painful but long term better option of letting them fail. What would have replaced it would not have been as fragile in this regard. (The replacement would have had other weaknesses.. but not these.)
heedlessly2 9y ago
Fraud is illegal. Banks willingly hired workers to change records

pjc50 9y ago

The bailout was loan rather than gift though, and I believe eventually made a small profit?

paulus_magnus2 9y ago
The same way if someone steals your car, you buy a new one and the economy as whole (GDP) is in profit. What bailout did (also via QE + ZIRP/NIRP) is prop-up property & asset prices effectively legitimising the prior speculation. This prevented resetting of prices to the levels where people would start buying again for non speculative reasons. Effect is young generation sees houses at 10x earnings whereas the average is 3-3.5x. Boomers sit on tons of unearned house equity that is only there because land prices are inflating like crazy. For capitalism to work well there needs to be a mechanism for wealth destruction, at least for the "unrealised wealth".
- pjc50 9y ago
  > mechanism for wealth destruction Well, that's never going to be popular, to the extent that all lobbying is going to be diverted to making sure that it's not your wealth that gets destroyed. Have you seen how unpopular even tiny amounts of inflation are? Getting wealth redistribution would be a start.
  - ric2b 9y ago
    inflation isn't wealth destruction, it's wealth redistribution from everyone into the financial industry.
- andrewmutz 9y ago
  He means that the government literally made a profit off of the bailout loans. One Source: https://www.washingtonpost.com/business/economy/bailout-highly-profitable-for-taxpayers-when-you-look-at-the-right-numbers/2015/01/01/dc2a05a6-8fa5-11e4-a412-4b735edc7175_story.html https://www.washingtonpost.com/business/economy/bailout-high...
- ataturk 9y ago
  That's some pretty faulty reasoning there. If an economy was better off because cars get stolen or property gets destroyed and must be replaced, then we should just all go around breaking everyone else's shit all the time and we would all be billionaires. But we know the real world doesn't work that way--if insurance pays for a new car, insurance rates rise for everyone and prices go up, which leads to fewer choices for those who have to buy and maintain insurance. Similarly, if someone came by and broke your windows every day, the glass guy would become rich, but you might not have any money for groceries after awhile and you certainly wouldn't have money for new renovations or other improvements to your property. You would just be treading water. I do think that Keynsianism requires a sink for all the durable goods that are produced, be it obsolescence or outright destruction (think war materials).
bradleyjg 9y ago
Depends on exactly what you mean by "the bailout". In dollar terms the fed's actions were much much larger than TARP.

ryankupyn 9y ago

The source is a bit misleading - the 12.8 trillion includes money the fed spent to buy assets, driving interest rates down. They've been slowly unwinding that position, and it's not as if they were giving the money away.

uiri 9y ago
It doesn't have to literally be equivalent to paying off people's mortgages for them. It could have been in the form of buying up housing that was in default or foreclosed upon. The government was in the perfect position to profit off of the crisis while allowing people to keep living in their homes. I realize this is simplistic because of the unemployment associated with the crisis, but a 12 or 18 month lease with discounted rent would have been one potential solution. The government would be unloading the housing stock 3-5 years later, depending on when it looked like the market was starting to recover but not all at once so as not to flood the market.
- mempko 9y ago
  why would the government need to profit ? they could evem do it in a loss
  - uiri 9y ago
    Any alternative scheme to the bailout ought to cost less than the bailout. I am under the impression that they profited from the bailout but if that's not the case, then they could do it at a loss so long as the loss is smaller than the bailout loss. And both of these profit/loss comparisons would be based off of projections rather than what actually happened.
analyst74 9y ago
I used to think this way, you see, the fed actually made money in the process, how is this a bad thing? What actually happened was that major banks were facing a mix of liquidity and solvency crisis, meaning that they were going to go under, but not only they got a cash bailout to deal with liquidity crisis. They also got a QE policy that prop up asset prices they hold, which is equivalent of giving them money and not getting it back. It's financial wizardry that both the banks and fed made money, where does their profit come from? There are 2 possible scenarios: 1, as fed unwind its balance sheet, the market is going to correct and eventually the fed ends up losing money (to the banks who cashed out first) 2, fed successfully controls the pace of unwinding, so instead of crashing the market it keeps market at a subdued level, absorbing economic growth in the next few years. In this scenario, the profit fed and the banks made are coming from today's and future investors.

marricks 9y ago

Saying "there's no legal way to go after them!" I find kind of upsetting when bankers can hire great lobbyists to ensure they set up the law favorably for themselves. Definitely agree we should have paid off mortgages instead though.

bradleyjg 9y ago
> Definitely agree we should have paid off mortgages instead though. So if Donald Trump has a mortgage on a penthouse apartment worth $25 million the government should have paid that off, but some family making $15,000/year that can't get a mortgage in the first place should get nothing? Pay off all the mortgages is a terrible idea.
- paulus_magnus2 9y ago
  Thanks to zero interst rates for 10y his apartment is now worth $50 so effectively we paid of his mortgage.
- mrec 9y ago
  Agreed. The more sensible forms of debt jubilee I've seen proposed would give money to everyone equally, but with the proviso that if you have debt you have to use the money to pay that off first.
- isoskeles 9y ago
  It's a terrible idea mainly in that it is unfair to everyone who didn't drink the kool-aid and buy a house because the value was supposed to always go up. Not just because wealthy people might profit. If there's ever another bailout, they should heavily regulate the people who gain something from it. Not as a punitive measure, but more like a statement of good faith. "If you bought these homes, surely that meant you intended to live in them. So as a condition of the bailout you can't sell them for more than X or rent them for more than Y." It seems drastic, but I can't see many other ways to approach fairness in that situation. But I don't think we've learned because people are still arguing over whether we should have just thrown the bankers in prison, like the system wouldn't just replace them with more bankers.

VHRanger 9y ago

The bailout was a loan and the US taxpayers actually made money from the bailout loan itself.

paulus_magnus2 9y ago
Surely we lost money if you include how much we overpaid for assets, land / housing and services of bailed out industries. And then how much was lost in pensions / savings due to zero interest rates.
guywaffle 9y ago
So the banks make shady moves and need a bail out because of their bs. They get the money, and since they just got caught, and actually use it the way it should have been the whole time. From that they made a profit. Technically, wouldn’t they have made more profit if they had been behaving the whole time? So technically they did lose money.
vkou 9y ago
How much money would US taxpayers had made on the bailout loan if that money were used to buy the failed banks? Or invested into equities? Or used to buy up the underwater assets directly? "Making" 1% interest in a world where inflation is at 2% is not a good use of taxpayer money.

bradleyjg 9y ago

> Causing financial crisis wasn't illegal. Unethical but not a crime. Except for some cases of misselling products, banks playing against the customer etc. The exception there swallows the rule. Prosecutors could have, and in previous financial crises did, prosecute top executives under the laws against, for example, wire fraud. They didn't this time for reasons outlined in the excellent book: Chickenshit Club (https://www.amazon.com/Chickenshit-Club-Department-Prosecute-Executives/dp/1501121367 https://www.amazon.com/Chickenshit-Club-Department-Prosecute...)

sytelus 9y ago
I think the top review of this book summarizes it all pretty well: With George W. Bush, Justice deteriorated under Secretary Alberto Gonzalez, who was forced to resign, and the SEC deteriorated under Christopher Cox, whose intent appeared to be to simply let it collapse from inactivity. Budgets were slashed and staffs reduced at the same time as demand for action increased. This is standard procedure for discrediting an institution. The stories of confusion, conflict, lack of direction, leadership or policy are all detailed here. The frustration of the prosecutors is palpable. In the current administration, you can see it real-time at Education, State, and the EPA for example. The answer to the question is that everything changed. Prosecutors today are actually afraid to file suit, fearing they might lose and have black marks on their CVs. (James Comey famously called them chickenshits.) They have little or even no trial experience any more. Everything is a negotiated fine (never paid by the perpetrators). They have been battered by the collapse of Arthur Andersen, which put a lot of employees on the street, and has given us ridiculous arguments over “too big to fail” and markets that “self-regulate”. They no longer work for the “public good”. They work to get better jobs in big law firms. They want to take their faultless experience in government to make themselves millions from the other side. The revolving door makes this one huge club. This is so far removed from their predecessors as to be unrecognizable. And Eisinger makes this shockingly clear as he proceeds from decade to decade. Considering people like Preet Bharara are now out, I'd say deterioration is only further accelerating.

endorphone 9y ago

Causing financial crisis wasn't illegal Risks were grossly and knowingly understated, which was against the law. People were betting with other people's money, with all of the upside but very little of the downside, so it isn't surprising that the market as a whole completely twisted the risk profile, as a largely corrupt industry.

mikeash 9y ago

Except for all the illegal stuff they did to cause the crisis, it wasn’t illegal? No, you couldn’t prosecute people just for causing the crisis. But there was plenty of crisis-causing illegal activity that could have been prosecuted.

rayiner 9y ago
Like? The most obvious would be falsifying documentation in connection with mortgages ultimately sold to Fannie/Freddie. But that’s just capture a bunch of loan agents, not satisfy anyone’s blood lust.
- pjc50 9y ago
  Robo-signing definitely was illegal, and everyone involved in it (especially the supervisors) should have been jailed for fraud. The Quinn family who blew up Anglo-Irish bank eventually did get short jail sentences in addition to their personal bankruptcy: http://www.bbc.co.uk/news/uk-northern-ireland-20167760 http://www.bbc.co.uk/news/uk-northern-ireland-20167760
- mikeash 9y ago
  All those loan agents were falsifying loan documents with zero direction or knowledge from above?
- Klinky 9y ago
  Multiple fraud violations[1][2]? It's interesting how Martha Stewart was put in prison for insider trading, but the financial industry's Culture of Fraud lead to practically no one going to prison. There really needs to be a way to hold top executives accountable for the culture they've created, such as at Well Fargo where millions of fraudulent accounts were opened due to the intense pressure created by executive growth targets. This is similar to financial firms bundling shitty loans, paying off a ratings agency to call it gold while knowing full well it's full of shit, and then passing those loans off golden investment opportunities. Yet the people who get caught are those at the bottom. If you create a culture that encourages bad things(fraud) and do not have checks and balances in place to catch bad behavior(fraud), then you should be held accountable. Typically the executives state they had "no knowledge of what was going on" in the company/department they were supposed to be running and were paid handsomely to do. 1. http://www.nytimes.com/2011/11/08/business/in-sec-fraud-cases-banks-make-and-break-promises.html http://www.nytimes.com/2011/11/08/business/in-sec-fraud-case... 2. https://www.sec.gov/spotlight/enf-actions-fc.shtml https://www.sec.gov/spotlight/enf-actions-fc.shtml

wavefunction 9y ago

In the US it's easy to build charges off of nothing. Not committing a crime is no barrier to arrest, deprivation of property and punitive actions outside the normal scope of settled statute. There's nothing stopping bankers from being locked up for their social crimes other than a lack of will or politesse on the parts of the people.

skookumchuck 9y ago
The French tried that around 1800, and while it likely was very satisfying to guillotine the rich, ultimately it didn't do anyone any good. The Russians tried it again in 1917, didn't work out well for the lower class then, either. Pol Pot did it too, with similar results.
- jessaustin 9y ago
  Wow that's impressive. GP suggested that rich people with access to great lawyers are subject to a different legal process than poor folks without that access... You went straight to the Killing Fields! Bravo!
bradleyjg 9y ago
It's funny how everyone is deeply concerned about due process of law when it comes to celebrities, the very wealthy, and cops. I'd like to see some of these people getting on their high horse go to down to their local criminal part and see how they justice system they are so proud of actually works for people that aren't in one of those categories. It is better that everyone be subject to the same system, even if that system is unjust, than for there to be two justice systems. Otherwise how the worse one ever going to get better?

cm2187 9y ago

Agree, it’s like asking why techies aren’t in prison for causing the 1999 .com bubble and subsequent crash. But bank bail out didn’t cost 13, let alone 3 trillions.

sumedh 9y ago
Wasnt it the bankers who were publicly saying that the company going for an IPO is going to change the world but privately saying its full of shit.

eeZah7Ux 9y ago

The questions stands regardless of the legality of causing a crisis.

vostok 9y ago

> Unethical but not a crime. Except for some cases of misselling products, banks playing against the customer etc. Bailout was. I've never understood the argument that betting against your customers should be illegal. If you're buying something from me then I think that selling it is better than buying it and you think that buying it is better than selling it.

Super_Jambo 9y ago
Depends on the relationship with your client. If you're giving advice from one department whilst other departments are betting against it then somethings gone weird.
- vostok 9y ago
  It seems even less controversial when two different departments do it. I assume you're talking about something like your ECM doing a follow on and your ER putting out a positive report? I'd argue that it means your compliance department is doing a great job. You generally don't want the two to talk to each other...
barrkel 9y ago
Sure: for things like securities, it seems like every transaction is a bet each way: the seller is betting that the customer will be worse off, and the customer is betting that the seller will be worse off. But sellers and buyers are different entities, and the fact that they're different means they can value things differently. If I'm a cobbler and you're a tailor, it's natural that we'd want to trade; I have a surplus of shoes and scarcity of suits, and you vice versa. We value our relative products differently, so when we exchange them, we're both better off. This doesn't justify me knowingly selling you crap shoes. In fact it's even worse than that: because I know more about shoes than you do, if I sell you faulty shoes, I'm even more of an asshole. Or I'm incompetent. There are slightly more subtle arguments as to why different entities would value securities differently: different appetites for volatility, different time horizons, different liquidity, and sometimes, yes, different information. If the buyer has better information than the seller, people don't complain as loudly as the opposite. To me, the whole thing was a mixture of assholes and incompetence. I subscribe to the idea that taking someone's money because you're smarter than them is just as morally wrong as taking it because you're stronger than them. So some clever people took money off some not-so-clever people, and all along the chain a bunch of incompetent people were left holding the bag, and had to be helped out.

branchless 9y ago

Exactly. We should have said to the banks "oh you need our help, let's see - what do you guys do when that happens? That's right, we are going to take you for everything you have". We should own all the banks, all the land. We are renting our own countries back off these guys after bailing them out.

throwaway613834 9y ago

> For $3 trillion less than bailout, we could have paid off every U.S. mortgage! I seem to recall the "bailout" was a purchase of bank assets (including stocks, etc.) which was subsequently repaid as the market healed. Which sounds more like lending money rather than giving it away. Is that correct? And if so, how is that similar to paying off mortgages?

rando444 9y ago

It pangs me to see this sort of garbage logic on a site like HN. This whole "it wasn't illegal" mindset is just so far removed from reality. Do people honestly think that Goldman Sachs paid 5 billion dollars in settlement money because they did nothing legally wrong? No, they agreed to pay such a large settlement to avoid criminal convictions, because what they did was a crime. This is a whole other topic of conversation regarding Eric Holder's justice department techniques of going after settlements instead of convictions, and sadly the end result is that after all of the settlements are done, and the companies profit off their crimes, somehow people get the idea in their head that the actions were never crimes to begin with.. which is not even remotely true.

cgmg 9y ago
> Do people honestly think that Goldman Sachs paid 5 billion dollars in settlement money because they did nothing legally wrong? No, they agreed to pay such a large settlement to avoid criminal convictions, because what they did was a crime. Not saying your facts are wrong, but it is very hypocritical of you to accuse others of "garbage logic" with such a terrible argument. Due to incentives in the U.S. justice system, particularly with regard to prosecution, many, many innocent actors settle or plead guilty even if they're innocent. This problem is well-known and documented.
- rando444 9y ago
  The garbage logic is nobody is in jail == nothing was illegal. I agree that someone asserting that a plea deal equals undeniable guilt is also faulty logic, but that was not the argument presented. My only point is that it's not possible to say that because nobody was convicted that nothing was illegal.. and should be not stated as such.
- r00fus 9y ago
  The term you used "actors" is disingenuous. Please don't equate a poor person with no resources to a company with billions of dollars and massive political clout. The asymmetry in power makes all the difference. GS didn't throw away $5B because they were innocent.

GeekyBear 9y ago

Fraud is a felony offense. It's simply not possible to sell subprime loans as AAA investments without a liberal sprinkling of fraud. https://www.huffingtonpost.com/william-k-black/the-two-documents-everyon_b_169813.html https://www.huffingtonpost.com/william-k-black/the-two-docum... Some other reading on the subject: >the Financial Crisis Inquiry Commission, in its final report, uses variants of the word “fraud” no fewer than 157 times in describing what led to the crisis, concluding that there was a “systemic breakdown,” not just in accountability, but also in ethical behavior. >As the commission found, the signs of fraud were everywhere to be seen, with the number of reports of suspected mortgage fraud rising twenty-fold between 1996 and 2005 and then doubling again in the next four years. >As early as 2004, FBI Assistant Director Chris Swecker was publicly warning of the “pervasive problem” of mortgage fraud, driven by the voracious demand for mortgage-backed securities. http://www.nybooks.com/articles/2014/01/09/financial-crisis-why-no-executive-prosecutions/ http://www.nybooks.com/articles/2014/01/09/financial-crisis-...

gozur88 9y ago
There's no question the ratings agencies played a huge part in the collapse. Part of the problem, politically, is these agencies were set up by the government.

mtgx 9y ago

> Causing financial crisis wasn't illegal. Unethical but not a crime. I don't know why people keep repeating this. It feels like brainwashing of some sort. Why do people repeat this? Did Obama repeat it a lot at the time, and because many people liked Obama, they just bought that excuse? It just feels so strange to see people argue against their best interest. Do you want another financial crisis to happen because of the bankers once again? Because that's how you're going to get one - by ensuring nobody gets punished for the last one. Also, in his final years, Eric Holder admitted that the main reason he didn't go after bankers wasn't because "they did nothing illegal" but because he (and Obama) "thought" (or got paid to think) that jailing the bankers would "hurt the economy". I've never seen a more bullshit excuse. Also, Holder, but only after he quit the administration, had some "regrets" that he didn't go after the bankers. https://www.huffingtonpost.com/2013/03/06/eric-holder-banks-too-big_n_2821741.html https://www.huffingtonpost.com/2013/03/06/eric-holder-banks-... https://www.theguardian.com/money/us-money-blog/2014/sep/25/eric-holder-resign-mortgage-abuses-americans https://www.theguardian.com/money/us-money-blog/2014/sep/25/... https://theintercept.com/2016/07/12/eric-holders-longtime-excuse-for-not-prosecuting-banks-just-crashed-and-burned/ https://theintercept.com/2016/07/12/eric-holders-longtime-ex... The entire government system in the U.S. is corrupt from top to bottom. Everyone in an legislative or executive position seems to either only ever do the bidding of their rich donors or ensure that whatever actions they take while in government doesn't hurt their private employment after working in the government (especially when they intend to work in the industries they regulate).

deleted 9y ago

[deleted]

volgo 9y ago

>For $3 trillion less than bailout, we could have paid off every U.S. mortgage That comparison makes no sense. We didnt pay off the bank's debt. It was a temporary loan from the government and every penny was paid back. In addition the government, and tax payers, benefited enormously from the interest accrued.

riku_iki 9y ago
How is that? As part of stabilization program government bought toxic assets from banks. Is there any evidence that those assets paid back?
- deleted 9y ago
  [deleted]
poof131 9y ago
I think that is entirely disingenuous. The banks have been borrowing from the Fed and lending to the Treasury for a profit.[1] The taxpayers have essentially recapitalized the banks. Now we are in a trap of low interest rates trying to edge our way out. We’ll see how it goes. Free markets would have let the banks fail. Instead we’ve created a world with champions for free markets for trade, free markets for labor, but protected markets for capital. Absolute self-serving hypocrisy. FDIC was designed to protect the little guy. The bailouts protected the richest americans and excellerrated the growing inequality in this country. I believe in capitalism, but 2008 was the crony variety. It still angers me thinking about watching the crying pundits talk about risk on monitors next to Americans taking real risks in Iraq. The bailouts were bipartisan fraud at a grand scale and epitomize the corruption of establishment politics and the revolving door between government and the private sector. But sure, “americans got paid back with interest.” Believe it if you want to. [1] https://www.pbs.org/newshour/economy/are-banks-borrowing-from-the-f https://www.pbs.org/newshour/economy/are-banks-borrowing-fro...
- gozur88 9y ago
  >Free markets would have let the banks fail. Instead we’ve created a world with champions for free markets for trade, free markets for labor, but protected markets for capital. Because the government was afraid failing banks would take everything else with them. The problem was banks were allowed to become too large and to sell risk to each other. If I were running things I'd break them all up into regional entities and separate them financially.

manigandham 9y ago

> For $3 trillion less than bailout, we could have paid off every U.S. mortgage No thanks, I prefer people pay their own debts. The bailout was a loan and the banks paid it back with interest, which means the government actually made money while stemming further chaos. Regardless of whether that was the right solution, mass forgiveness of housing debt certainly isn't.

gigatexal 9y ago

I had those same thoughts. Bailout the people and let the banks burn and then buy them up for pennies since that’s how an efficient market would have worked. Well an efficient market would have done so sans any bailout but still.

mathattack 9y ago

Tremendous amount of fraud. Not just unethical behavior, but fraud. Lying on financial documents, fraudulently altering loan documents are two starts.

caseysoftware 9y ago

Paying off the mortgages would have been another bailout, just more diffuse from what we saw. And while the existing bailouts incentivized banks to misbehave, paying off mortgages would have incentivized a generation (or two?) to misbehave.. and also further screwed the people who did play by the rules. Of those two scenarios, I prefer the bank bailout.

roenxi 9y ago
If the economic system could speak, which it cannot, a crisis would be it saying 'hold on! we're giving scarce resources to people who are not using productively'. Now there are really only two ways this can play out: 1) Organically, whoever was making the (economically) poor decisions is removed from the system by virtue of going broke. 2) The government steps in and the taxpayer settles debts. Once you enter (2) territory, which is what the US did in the '07 crisis, it really doesn't matter who you give the money to. You are still going to have economic mismanagement. It will continue unless it somehow gets so catastrophic that not even the government can settle it. Now, the US government is pretty powerful, so maybe that day will never come. But if they are going to get involved at all, why into give the money directly to the little people? They are already throwing out the principles of good economic management.
- caseysoftware 9y ago
  It sounds like your reasoning is "if you're going to have your leg broken, better your left than your right!" I would have gone for the more short term painful but long term better option of letting them fail. What would have replaced it would not have been as fragile in this regard. (The replacement would have had other weaknesses.. but not these.)

heedlessly2 9y ago

Fraud is illegal. Banks willingly hired workers to change records