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What made me cynical was that the government didn't step in and handle it the same way that a private citizen having untenable obligations would be handled. I

What made me cynical was that the government didn't step in and handle it the same way that a private citizen having untenable obligations would be handled. I expected the failed institutions to literally be seized, and an orderly re-distribution of assets processed. I also expected, as a result, a correction in the price of housing to actually realistic levels. I was extremely naive about the housing issue; I had not realized how artificially constrained the markets were and how (at least in the US if not elsewhere) government regulations continue to distort the market towards artificial shortage. It all needs to be repaired and re-worked, but regulatory capture and conflict of voter interest by those who've made it in to the 'I have mine' status is far too systemic.

PoachedSausage 9y ago
You are correct, it is for the time being politically untenable to allow housing (really land) to reduce in value. The situation might change when the millenials and younger generations start becoming more politically active.
- maxxxxx 9y ago
  As soon as they start inheriting houses they will also be against lower housing prices.
  - perfmode 9y ago
    this is not a reality for the majority.
  - PoachedSausage 9y ago
    I probably just about count as a millenial, my parents could live another 20 - 30 years and that house might have to be sold to pay their hospice care should they get dementia. So the house likely isn't going to be much use to me.
    - noonespecial 9y ago
      >that house might have to be sold to pay their hospice care I suspect this is the great Faustian bargain of the boomer generation. All the wealth that they helped themselves to in lieu of fixing the big systemic problems in economy and government will be traded away in the end for the modicum of comfort in their twilight years that a better functioning system would have provided anyway.
- dmix 9y ago
  > The situation might change when the millenials and younger generations start becoming more politically active. Yes, the self-serving regulatory system that was repeatedly taken advantage of to benefit a small group of property owners in previous generations will be solved by the next generation who will inherit or earn properties of their own... /s When power repeatedly corrupts those whose define the rules then maybe the solution is stop stop giving them power? Or at a minimum limit their power...instead of handing it to the next guy with no changes and expecting different results.
pjc50 9y ago
> failed institutions to literally be seized, and an orderly re-distribution of assets processed. You realise that a large chunk of the assets were bank deposits of ordinary people and businesses, and that it was judged that having none of the payments infrastructure working for months would be a far worse outcome? It was absolutely critical to keep the system functioning. Arguably more should have been nationalised in the manner of RBS, though. And more should have gone to jail for robosigning.
- hndamien 9y ago
  How would nationalising have impacted the infrastructure working?
dv_dt 9y ago
I find it curious the number of comments blaming government regulation, instead of greed and massive private misidentification of risk and indeed the lifting of government regulations surrounding mortage backed assets as well as firewalls between banks and financial investment firms. The QE123 fix had little to do with regulations, and everything to do with money connected to power structures in the US... The one big unnoted loss is of many individual lendees who had their equity taken in foreclosure, while the issuing banks had all the effects of their bad judgements pulled off their books by the fed. In effect this give banks an immediate cash boost and indefinite timeline to work out liquidity issues while countless individuals were left to the whims of the economic downturn with little gov't backing and much less time or resources.
- Lazare 9y ago
  > I find it curious the number of comments blaming government regulation, instead of greed and massive private misidentification of risk 1) Greed is a constant. Everyone is greedy, and there's zero evidence that "greed on Wall Street" increased before or during the crisis, nor that it could be reduced. To a first approximation, "greed" has no explanatory power in cases like this, and to the extent "greed" does have explanatory power, it is a constant you need to work around. People like money, power, and prestige; this isn't news. 2) What misidentification of risk? That's the criticism of bailouts; private individuals got all the upside, and the public wore the downside. For the people who benefited from this, they correctly identified that their risk was zero. Why was it zero? Government regulation. If we lived in a world where people consciously took crazy risks and suffered huge losses trying to win outsize profits...sure. But we don't live in that world. The financial crisis was about systemic problems, underappreciated tail risk, black swan events, privatized gains, and socialised losses. > as well as firewalls between banks and financial investment firms. There's neither evidence nor a plausible story on how this might have had an impact. The biggest failures were banks that existed on one side or the other of the old Glass-Steagall lines. Countrywide had no investment banking operations; AIG wasn't a bank; Bear Stearns wasn't a retail bank. And we saw the same pattern overseas, where the old Glass-Steagall never applied to start with. How does the failure of Northern Rock (a retail bank that originated too many bad mortgages and blew up due to a bank run) tie in, considering it wouldn't have violated that firewall if it had been in the US, and it was in the UK which never had that rule to start with? How would a law preventing retail banks getting into investment banking or insurance have helped any of those institutions? Conversely the banks that weathered it best were diversified institutions that would have been banned under the old rules.
samlevine 9y ago
> I also expected, as a result, a correction in the price of housing to actually realistic levels. Housing prices were realistic. We know this because most of the Anglophone world has had similar experiences with housing prices without the "bubble" bursting, and because prices have gone back to where we started back before everything blew up. There were bad loans, and financial products that were fraudulently repackaging them. Regulators were asleep at the wheel. And the government has played a huge part in getting housing prices to high levels. But the value of the homes themselves was and is clearly real because people remain willing to pay for them.
- jazzyk 9y ago
  OK, let's take Canada: You call house prices 6-10 times [1] the family annual income reasonable? What planet are you from? [1] In areas where people actually want to live in Canada, like B.C. or Ontario https://www.theglobeandmail.com/globe-investor/personal-finance/household-finances/the-great-toronto-disconnect-house-prices-and-incomes/article34623683/ https://www.theglobeandmail.com/globe-investor/personal-fina...
  - maxxxxx 9y ago
    The prices are realistic in terms of supply and demand. Too many people with a lot of money having nothing better to do than buying and selling houses. Reasonable? No, especially for the little guy. Healthy for society? Absolutely not.

PoachedSausage 9y ago

You are correct, it is for the time being politically untenable to allow housing (really land) to reduce in value. The situation might change when the millenials and younger generations start becoming more politically active.

maxxxxx 9y ago
As soon as they start inheriting houses they will also be against lower housing prices.
- perfmode 9y ago
  this is not a reality for the majority.
- PoachedSausage 9y ago
  I probably just about count as a millenial, my parents could live another 20 - 30 years and that house might have to be sold to pay their hospice care should they get dementia. So the house likely isn't going to be much use to me.
  - noonespecial 9y ago
    >that house might have to be sold to pay their hospice care I suspect this is the great Faustian bargain of the boomer generation. All the wealth that they helped themselves to in lieu of fixing the big systemic problems in economy and government will be traded away in the end for the modicum of comfort in their twilight years that a better functioning system would have provided anyway.
dmix 9y ago
> The situation might change when the millenials and younger generations start becoming more politically active. Yes, the self-serving regulatory system that was repeatedly taken advantage of to benefit a small group of property owners in previous generations will be solved by the next generation who will inherit or earn properties of their own... /s When power repeatedly corrupts those whose define the rules then maybe the solution is stop stop giving them power? Or at a minimum limit their power...instead of handing it to the next guy with no changes and expecting different results.

pjc50 9y ago

> failed institutions to literally be seized, and an orderly re-distribution of assets processed. You realise that a large chunk of the assets were bank deposits of ordinary people and businesses, and that it was judged that having none of the payments infrastructure working for months would be a far worse outcome? It was absolutely critical to keep the system functioning. Arguably more should have been nationalised in the manner of RBS, though. And more should have gone to jail for robosigning.

hndamien 9y ago
How would nationalising have impacted the infrastructure working?

dv_dt 9y ago

I find it curious the number of comments blaming government regulation, instead of greed and massive private misidentification of risk and indeed the lifting of government regulations surrounding mortage backed assets as well as firewalls between banks and financial investment firms. The QE123 fix had little to do with regulations, and everything to do with money connected to power structures in the US... The one big unnoted loss is of many individual lendees who had their equity taken in foreclosure, while the issuing banks had all the effects of their bad judgements pulled off their books by the fed. In effect this give banks an immediate cash boost and indefinite timeline to work out liquidity issues while countless individuals were left to the whims of the economic downturn with little gov't backing and much less time or resources.

Lazare 9y ago
> I find it curious the number of comments blaming government regulation, instead of greed and massive private misidentification of risk 1) Greed is a constant. Everyone is greedy, and there's zero evidence that "greed on Wall Street" increased before or during the crisis, nor that it could be reduced. To a first approximation, "greed" has no explanatory power in cases like this, and to the extent "greed" does have explanatory power, it is a constant you need to work around. People like money, power, and prestige; this isn't news. 2) What misidentification of risk? That's the criticism of bailouts; private individuals got all the upside, and the public wore the downside. For the people who benefited from this, they correctly identified that their risk was zero. Why was it zero? Government regulation. If we lived in a world where people consciously took crazy risks and suffered huge losses trying to win outsize profits...sure. But we don't live in that world. The financial crisis was about systemic problems, underappreciated tail risk, black swan events, privatized gains, and socialised losses. > as well as firewalls between banks and financial investment firms. There's neither evidence nor a plausible story on how this might have had an impact. The biggest failures were banks that existed on one side or the other of the old Glass-Steagall lines. Countrywide had no investment banking operations; AIG wasn't a bank; Bear Stearns wasn't a retail bank. And we saw the same pattern overseas, where the old Glass-Steagall never applied to start with. How does the failure of Northern Rock (a retail bank that originated too many bad mortgages and blew up due to a bank run) tie in, considering it wouldn't have violated that firewall if it had been in the US, and it was in the UK which never had that rule to start with? How would a law preventing retail banks getting into investment banking or insurance have helped any of those institutions? Conversely the banks that weathered it best were diversified institutions that would have been banned under the old rules.

samlevine 9y ago

> I also expected, as a result, a correction in the price of housing to actually realistic levels. Housing prices were realistic. We know this because most of the Anglophone world has had similar experiences with housing prices without the "bubble" bursting, and because prices have gone back to where we started back before everything blew up. There were bad loans, and financial products that were fraudulently repackaging them. Regulators were asleep at the wheel. And the government has played a huge part in getting housing prices to high levels. But the value of the homes themselves was and is clearly real because people remain willing to pay for them.

jazzyk 9y ago
OK, let's take Canada: You call house prices 6-10 times [1] the family annual income reasonable? What planet are you from? [1] In areas where people actually want to live in Canada, like B.C. or Ontario https://www.theglobeandmail.com/globe-investor/personal-finance/household-finances/the-great-toronto-disconnect-house-prices-and-incomes/article34623683/ https://www.theglobeandmail.com/globe-investor/personal-fina...
- maxxxxx 9y ago
  The prices are realistic in terms of supply and demand. Too many people with a lot of money having nothing better to do than buying and selling houses. Reasonable? No, especially for the little guy. Healthy for society? Absolutely not.