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How'd that work out for them? If you act rationally at all times and then loose your shirt in the end, are you "pretty good" at judging risk? I believe banks

by jmulho 8y ago

How'd that work out for them? If you act rationally at all times and then loose your shirt in the end, are you "pretty good" at judging risk? I believe banks failed miserably at the the one thing they were supposed to be good at and it cost us a trillion dollars.

icelancer 8y ago
>> How'd that work out for them? Just fine. Bailouts.
- maxerickson 8y ago
  And the largest bank failure in US history: https://en.wikipedia.org/wiki/Washington_Mutual#Subprime_losses https://en.wikipedia.org/wiki/Washington_Mutual#Subprime_los... Okay for JP Morgan though.
pas 8y ago
Banks did what they were supposed to do. In that sector, in those circumstances, if you don't ride the wave with the others, you get left behind. Banks did have "counterparty risk insurance" on their assets - those CDS (credit default swap) things. (Like the other banks. And thus the CDS provier AIG "failed", because - of course - all their insurance contracts were correlated / not independent enough.) I'm not saying they are/were angels. There were seriously in the stupid zone just from a technical point of view. ( See that table: https://www.econlib.org/archives/2013/05/conditional_ins.html?highlight=%5B%22subprime%22%5D https://www.econlib.org/archives/2013/05/conditional_ins.htm... ) I think the important distinction between all the banks are stupid and a stupid systemic failure of banks is important. After all, a lot of banks were not stupid, and stayed afloat well, without any sort of bailout.
bunderbunder 8y ago
So you've got to draw a distinction there, though the distinction was blurred significantly by the repeal of the Glass-Steagall act. Particularly before it was repealed, you had two different kinds of banks: Savings and Loans, and investment banks. S&Ls were the ones actually making the loans, and would have been prohibited from getting involved with CDOs. Investment banks would have been allowed to get involved with the derivatives market, but could not have operated as a S&L. The banks who were just operating as S&Ls made out like bandits - they made bad loans, immediately found a rube to sell them to, and whistled Dixie as they walked away. Banks that bought a lot of these CDOs ended up being the rubes, and that activity was the major source of the "too big to fail"-type bank closures and near-closures. Where it gets muddy is that it used to be illegal for those two kinds of banks to be the same entity. But still, I think you can draw a logical, if not physical, line down the middle in order to say, "the people actually making the bad loans weren't really the victims here."

by jmulho 8y ago

icelancer 8y ago

>> How'd that work out for them? Just fine. Bailouts.

maxerickson 8y ago
And the largest bank failure in US history: https://en.wikipedia.org/wiki/Washington_Mutual#Subprime_losses https://en.wikipedia.org/wiki/Washington_Mutual#Subprime_los... Okay for JP Morgan though.

pas 8y ago

Banks did what they were supposed to do. In that sector, in those circumstances, if you don't ride the wave with the others, you get left behind. Banks did have "counterparty risk insurance" on their assets - those CDS (credit default swap) things. (Like the other banks. And thus the CDS provier AIG "failed", because - of course - all their insurance contracts were correlated / not independent enough.) I'm not saying they are/were angels. There were seriously in the stupid zone just from a technical point of view. ( See that table: https://www.econlib.org/archives/2013/05/conditional_ins.html?highlight=%5B%22subprime%22%5D https://www.econlib.org/archives/2013/05/conditional_ins.htm... ) I think the important distinction between all the banks are stupid and a stupid systemic failure of banks is important. After all, a lot of banks were not stupid, and stayed afloat well, without any sort of bailout.

bunderbunder 8y ago

So you've got to draw a distinction there, though the distinction was blurred significantly by the repeal of the Glass-Steagall act. Particularly before it was repealed, you had two different kinds of banks: Savings and Loans, and investment banks. S&Ls were the ones actually making the loans, and would have been prohibited from getting involved with CDOs. Investment banks would have been allowed to get involved with the derivatives market, but could not have operated as a S&L. The banks who were just operating as S&Ls made out like bandits - they made bad loans, immediately found a rube to sell them to, and whistled Dixie as they walked away. Banks that bought a lot of these CDOs ended up being the rubes, and that activity was the major source of the "too big to fail"-type bank closures and near-closures. Where it gets muddy is that it used to be illegal for those two kinds of banks to be the same entity. But still, I think you can draw a logical, if not physical, line down the middle in order to say, "the people actually making the bad loans weren't really the victims here."