5 ms·

On June 29, 2009, Judge Chin sentenced Madoff to the maximum sentence of 150 years in federal prison. I vaguely remember the economic collapse of 2008, partly

On June 29, 2009, Judge Chin sentenced Madoff to the maximum sentence of 150 years in federal prison. I vaguely remember the economic collapse of 2008, partly because at the time I was just getting out of a rough patch in my life and I'd bought a starter home. Granted, it was a mobile home, but it was 50,000 i'd made sure I could pay off at the bank and start building some equity. Then out of nowhere I lost my job, the machine shop I worked at closed, and after about 3 months I was effectively homeless. People like me dont have "hedge fund" investment money. I had to give my dog away because i couldnt afford to feed it and sell my car for a deposit on a studio apartment. I guess Bernies bones will bleach for those hundred some odd years of biblical retribution, but for me I never saw any justice. As far as I can tell, nobody, not one person responsible for crashing the economy and taking everything from me, was arrested or jailed. Im just supposed to imagine that the economy "got better" and everything is OK now. Madoff just seems like 'millionaires getting a few million back' to me.

helios893 8y ago
Thank you for sharing this with us.
rplnt 8y ago
I see what you mean and I agree, but those buying overpriced homes with too good to be true mortgages should bear no responsibility? Especially in a country like US where people don't like to be limited/controlled (read protected) by laws.
- dlisboa 8y ago
  Most people don't have the financial wisdom to judge "too good to be true" on a macroeconomics basis. Specially not before the bubble burst, when even most experts regular people had access to thought there was nothing wrong with it. Someone offered them a great deal and they took it, simple as that. If a bank offers me a loan with very low interests should I consider the state of the whole economy and the impact of my loan on the country in 10 years before I take it? Compounding to that the fact that these people weren't even benefited by the whole scam. They lost their houses, their savings, everything. If they knew what was at stake they might bear some responsibility, but they didn't.
  - phd514 8y ago
    I don't think it's fair to say that people who defaulted during the 2008 mortgage-backed securities crisis did so because they lacked sufficient macroeconomic knowledge to make prudent financial decisions. Some were offered loans (for a variety of bad reasons) that they could not repay if they encountered even the slightest setback in their current financial decisions. Those people should bear some responsibility for that poor choice as should those who offered them the loans for which they shouldn't really have qualified. Others exploited the process by strategically defaulting on mortgages after extracting money due to appreciation on the underlying property. IMO, that's unfair and borders on the fraudulent if they never intended to pay back the mortgages they took out. There were other problems that contributed as well, but none of the causes are so easily characterized that anyone who lost money should expect to see someone jailed as a consequence of their misfortune.
    - hedvig 8y ago
      The greatest recession since the 1930s, caused by the similar wild west speculative innovation, and the victims on the lower end get depicted as strategic wolves somehow.
- michaelmrose 8y ago
  The people buying the houses they couldn't afford took a bath financially. The companies did to a degree. The people running the show whose malicious actions an idiot could have predicted would lead to eventual collapse got a bonus. You can say people bear responsibility and they do but we rely on our professionals to use their greater education, and their expertise to manage systemic risk by making informed choices and creating systems that manage not create risk. No degree or number of idiot customers could have created the collapse because banks wherein the bank intends to hold the loan isn't insentivized to give out loans wherein it has a poor chance of being paid. Foreclosure is unlikely to yield but a fraction of the face value of the debt. In order to crash and burn you need an entire mechanism whereby banks can originate bad loans, get paid, and sell them off en mass as securities by outright lying about the nature of the loans being sold while securing this whole endeavor with insurance that can't possibly afford to pay for the collapse you are engineering. Then you need to pump the gas on the stupid until you run the economy into a ditch. The economy collapsed because a bunch of dumb people bought houses they couldn't afford is a myth that conservatives and the financial industry is retconning in hopes that we are too stupid and uninformed to read. There have always been idiots willing to sign on the dotted line for dumb financial products. There are a million idiots now. We expect the adults in the room not to sell them the same way we don't expect the invisible hand of the market to keep people from eating melamine in their food.
  - josho 8y ago
    Then to add insult to injury quantitative easing to fix the problem was simply a fancy way of saying “let’s give those banks that profited from this situation trillions of dollars so they can trickle the wealth down”.
- awakeasleep 8y ago
  On one side you have the finance companies. They can lobby the government to change laws. They hire PHDs in the thousands develop attractive, tricky products. They hire million dollar marketing firms to influence us to buy. On the other side you have busy people trying to get by in a confusing world. They dont hire anyone to help them, but they trust the rules that allowed their parents to get by (how credit is allocated). Many of them are essentially innumerate, especially when compared to a quant at a bank or even an engineer. We’re talking about taking candy from a baby here. Is it the baby’s fault it can't defend itself? We dont live in a fantasy of every human having 100% self reliance where every person can handle every tricky situation thrown against them. We need laws and moral standards- and when those are revoked it is not enough to understand the consequences as “the victim’s fault”
  - thablackbull 8y ago
    I completely agree with you, but the parent's comment is saying that the very people who need to be protected are the very ones who don't want government involvement. > Especially in a country like US where people don't like to be limited/controlled (read protected) by laws. Not sure what a good solution is, but it's difficult to help those who don't want to be helped.
- TheOtherHobbes 8y ago
  I vividly remember banks running mortgage scam paper mills that would try and foreclose on anyone and everyone, legally or not. https://www.vice.com/en_au/article/yvxajb/what-happened-when-the-fbi-investigated-foreclosure-fraud-in-florida https://www.vice.com/en_au/article/yvxajb/what-happened-when... Individuals have a responsibility to act realistically. But the ultimate responsibility for due diligence lies with lenders. And when banks commit fraud on an industrial scale, and get away with it, it stops being a problem of individual misbehaviour and becomes a problem of institutionalised corporate corruption.
  - TuringNYC 8y ago
    Good reference for a shocking read: https://en.wikipedia.org/wiki/2010_United_States_foreclosure_crisis https://en.wikipedia.org/wiki/2010_United_States_foreclosure...
bsenftner 8y ago
The US housing market is a ponzi scheme. It isclearly unattached from economic reality, and is just Vegas, as is the stock market. Gambling is about all they got, those money folk.
- deleted 8y ago
  [deleted]
- Nasrudith 8y ago
  That isn't what a Ponzi Scheme is at all. An investment bubble certainly in many areas but merely earlier holders benefitting from new traffic does not a Ponzi Scheme make. A Ponzi Scheme is a fraud first off. Estimates may be wrong for value but they are getting what they (over)pay for. If tommorow the housing market had a massive collapse in value people would still get the house promised and would need to keep paying to avoid repossession - if they could pay say $2.5k to get a comparable house and move they could voluntarily default and their liability would be limited. Given such extremes and shaky risk curves many if not most banks would ageee to a middle ground if they thought the crash would endure. One can argue ethics of all parties but there is no inherent fraud here. Continuing to sell shares beyond 100% of a gold mine and using sales proceeds to make prior customers think they are getting returns is a Ponzi Scheme. If people stop buying it collapses and when the dust settles a 20% share is only a share of 1% rationalized to true percentage. That is fraud.
agumonkey 8y ago
I always wondered how large federal lawsuit helped the actual victims.
riggins 8y ago
"not one person responsible for crashing the economy" https://www.amazon.com/Stabilizing-Unstable-Economy-Hyman-Minsky/dp/0071592997 https://www.amazon.com/Stabilizing-Unstable-Economy-Hyman-Mi... The incentives in capitalism "crash the economy". Yes, there was bad behavior. However focusing on individual behavior misses the forest for the trees. Here's how it works. Banks start off conservative. Banks only offer loans that pay themselves off. There's a run of good years. The incentive in capitalism is to make more money, and based off the recent history of good years, Bank A realizes they can offer more aggressive loans (e.g. interest only), take market share, and make more money. So Bank A does that. Bank B now has the choice of matching Bank A, or losing market share (and maybe their business). So Bank B matches and maybe also offers less money down. This cycle continues with progressively more aggressive loan offerings until there's a run of bad years and things and people are stuck with too aggressive financing.
- newaccoutnas 8y ago
  Indeed and also wrap up other financial products into byzantine structures, like CFDs
- Nasrudith 8y ago
  That sounds like an evasion of agency and responsibility that wouldn't be accepted from a lowly soldier, burglar, or even athlete for why they massacred a village, robbed houses, or cheated to get ahead respectively so why the hell should we accept that excuse from the privileged who had myraids moral alternative options?
gwbas1c 8y ago
> i'd made sure I could pay off at the bank > Then out of nowhere I lost my job, ..., and after about 3 months I was effectively homeless. You absolutely, positively, need to have 6 months of buffer when you buy a home. If you're homeless in 3 months, then it means you're overextended.
- braythwayt 8y ago
  You need to have six months of buffer to have a low risk of disaster. Nevertheless, the vast majority of people purchasing their first homes in Canada and the US do not have six months of buffer. No bank has ever denied my application for a mortgage for not having six months of mortgage and tax payments in a savings account. My government backs certain kinds of loans for first-time buyers, and it does not require this buffer. So while I agree with what you're saying in a logical sense, in a practical social sense, you are asking the vast majority of people who buy their first home to pass on buying a home, in the face of all social evidence that seems to contradict your advice. It's good advice of a sort, but recognize that this is not accepted wisdom. It's highly conservative and contrarian. Which is smart, but if you want people to embrace it, you'll need to wrap it in a lot of justification and other mechanisms for explaining why they should zig while all around them, people are zagging. (FWIW, My very first real estate purchase was a loft condo where I actually had cash for the entire thing, but took out a small mortgage to kick-start my credit rating. It was paid off in two years. From that point on, I have not had six months buffer in cash, but I have had more than the nose-bleed minimums in equity, and that's another kind of risk management. So I do empathize with your message, but I suggest it needs a lot of selling to get people to adopt it in the face of a trillion-dollar industry convincing people otherwise.)
  - bunderbunder 8y ago
    This maybe speaks to OP's point. I don't want to weigh in on whether they overextended themselves or not. 2008-2009 were rough years, and financial situations that didn't work out during that period would probably have been fine any other time. Also, let's cut some slack and presume that they were doing the best they could with a difficult set of circumstances. With that out of the way, I think it bears mentioning that, while it isn't illegal to encourage people to overextend themselves, that's what everyone related to the housing industry seems to be doing. Realtors don't want you to be conservative with your money because they earn a percentage of how much you spend. Bankers don't (or didn't) because they don't (or didn't) give a rat what your chances of covering the mortgage are -- they just needed you to be able to make payments long enough for them to sell the loan to Fannie or Freddie or whoever. There are all sorts of do-gooders who have decided that homeownership is not a mark of prosperity, it's actually the path to it, and consequently have (or had) a tendency to get a bit too cheerleader-y. Even other homeowners, the victims of the housing boondoggle if ever there were any, are a part of it, because thinking of your house as an investment goes hand-in-hand with believing that of course home prices should be taking a one-way trip to the moon. (Tangentially, that last aspect has me starting to suspect that the house and condo market is something of a Ponzi scheme that we are collectively pulling on ourselves.) I don't know where I'm going with this, so I guess I'll throw one last thought out: The contrast does seem pretty stark to me. The rich are getting justice, and everyone else gets victim blaming.
hellbanner 8y ago
Well at least you aren't mad enough to revolt because then change might occur. Ah right, revolt is impossible due to economic conditions.
gammateam 8y ago
Yes, you would have been prohibited from being in a Madoff fund by LAW, the literal no peasants allowed law (Reg D) So whats your point?

helios893 8y ago

Thank you for sharing this with us.

rplnt 8y ago

I see what you mean and I agree, but those buying overpriced homes with too good to be true mortgages should bear no responsibility? Especially in a country like US where people don't like to be limited/controlled (read protected) by laws.

dlisboa 8y ago
Most people don't have the financial wisdom to judge "too good to be true" on a macroeconomics basis. Specially not before the bubble burst, when even most experts regular people had access to thought there was nothing wrong with it. Someone offered them a great deal and they took it, simple as that. If a bank offers me a loan with very low interests should I consider the state of the whole economy and the impact of my loan on the country in 10 years before I take it? Compounding to that the fact that these people weren't even benefited by the whole scam. They lost their houses, their savings, everything. If they knew what was at stake they might bear some responsibility, but they didn't.
- phd514 8y ago
  I don't think it's fair to say that people who defaulted during the 2008 mortgage-backed securities crisis did so because they lacked sufficient macroeconomic knowledge to make prudent financial decisions. Some were offered loans (for a variety of bad reasons) that they could not repay if they encountered even the slightest setback in their current financial decisions. Those people should bear some responsibility for that poor choice as should those who offered them the loans for which they shouldn't really have qualified. Others exploited the process by strategically defaulting on mortgages after extracting money due to appreciation on the underlying property. IMO, that's unfair and borders on the fraudulent if they never intended to pay back the mortgages they took out. There were other problems that contributed as well, but none of the causes are so easily characterized that anyone who lost money should expect to see someone jailed as a consequence of their misfortune.
  - hedvig 8y ago
    The greatest recession since the 1930s, caused by the similar wild west speculative innovation, and the victims on the lower end get depicted as strategic wolves somehow.
michaelmrose 8y ago
The people buying the houses they couldn't afford took a bath financially. The companies did to a degree. The people running the show whose malicious actions an idiot could have predicted would lead to eventual collapse got a bonus. You can say people bear responsibility and they do but we rely on our professionals to use their greater education, and their expertise to manage systemic risk by making informed choices and creating systems that manage not create risk. No degree or number of idiot customers could have created the collapse because banks wherein the bank intends to hold the loan isn't insentivized to give out loans wherein it has a poor chance of being paid. Foreclosure is unlikely to yield but a fraction of the face value of the debt. In order to crash and burn you need an entire mechanism whereby banks can originate bad loans, get paid, and sell them off en mass as securities by outright lying about the nature of the loans being sold while securing this whole endeavor with insurance that can't possibly afford to pay for the collapse you are engineering. Then you need to pump the gas on the stupid until you run the economy into a ditch. The economy collapsed because a bunch of dumb people bought houses they couldn't afford is a myth that conservatives and the financial industry is retconning in hopes that we are too stupid and uninformed to read. There have always been idiots willing to sign on the dotted line for dumb financial products. There are a million idiots now. We expect the adults in the room not to sell them the same way we don't expect the invisible hand of the market to keep people from eating melamine in their food.
- josho 8y ago
  Then to add insult to injury quantitative easing to fix the problem was simply a fancy way of saying “let’s give those banks that profited from this situation trillions of dollars so they can trickle the wealth down”.
awakeasleep 8y ago
On one side you have the finance companies. They can lobby the government to change laws. They hire PHDs in the thousands develop attractive, tricky products. They hire million dollar marketing firms to influence us to buy. On the other side you have busy people trying to get by in a confusing world. They dont hire anyone to help them, but they trust the rules that allowed their parents to get by (how credit is allocated). Many of them are essentially innumerate, especially when compared to a quant at a bank or even an engineer. We’re talking about taking candy from a baby here. Is it the baby’s fault it can't defend itself? We dont live in a fantasy of every human having 100% self reliance where every person can handle every tricky situation thrown against them. We need laws and moral standards- and when those are revoked it is not enough to understand the consequences as “the victim’s fault”
- thablackbull 8y ago
  I completely agree with you, but the parent's comment is saying that the very people who need to be protected are the very ones who don't want government involvement. > Especially in a country like US where people don't like to be limited/controlled (read protected) by laws. Not sure what a good solution is, but it's difficult to help those who don't want to be helped.
TheOtherHobbes 8y ago
I vividly remember banks running mortgage scam paper mills that would try and foreclose on anyone and everyone, legally or not. https://www.vice.com/en_au/article/yvxajb/what-happened-when-the-fbi-investigated-foreclosure-fraud-in-florida https://www.vice.com/en_au/article/yvxajb/what-happened-when... Individuals have a responsibility to act realistically. But the ultimate responsibility for due diligence lies with lenders. And when banks commit fraud on an industrial scale, and get away with it, it stops being a problem of individual misbehaviour and becomes a problem of institutionalised corporate corruption.
- TuringNYC 8y ago
  Good reference for a shocking read: https://en.wikipedia.org/wiki/2010_United_States_foreclosure_crisis https://en.wikipedia.org/wiki/2010_United_States_foreclosure...

bsenftner 8y ago

The US housing market is a ponzi scheme. It isclearly unattached from economic reality, and is just Vegas, as is the stock market. Gambling is about all they got, those money folk.

deleted 8y ago
[deleted]
Nasrudith 8y ago
That isn't what a Ponzi Scheme is at all. An investment bubble certainly in many areas but merely earlier holders benefitting from new traffic does not a Ponzi Scheme make. A Ponzi Scheme is a fraud first off. Estimates may be wrong for value but they are getting what they (over)pay for. If tommorow the housing market had a massive collapse in value people would still get the house promised and would need to keep paying to avoid repossession - if they could pay say $2.5k to get a comparable house and move they could voluntarily default and their liability would be limited. Given such extremes and shaky risk curves many if not most banks would ageee to a middle ground if they thought the crash would endure. One can argue ethics of all parties but there is no inherent fraud here. Continuing to sell shares beyond 100% of a gold mine and using sales proceeds to make prior customers think they are getting returns is a Ponzi Scheme. If people stop buying it collapses and when the dust settles a 20% share is only a share of 1% rationalized to true percentage. That is fraud.

agumonkey 8y ago

I always wondered how large federal lawsuit helped the actual victims.

riggins 8y ago

"not one person responsible for crashing the economy" https://www.amazon.com/Stabilizing-Unstable-Economy-Hyman-Minsky/dp/0071592997 https://www.amazon.com/Stabilizing-Unstable-Economy-Hyman-Mi... The incentives in capitalism "crash the economy". Yes, there was bad behavior. However focusing on individual behavior misses the forest for the trees. Here's how it works. Banks start off conservative. Banks only offer loans that pay themselves off. There's a run of good years. The incentive in capitalism is to make more money, and based off the recent history of good years, Bank A realizes they can offer more aggressive loans (e.g. interest only), take market share, and make more money. So Bank A does that. Bank B now has the choice of matching Bank A, or losing market share (and maybe their business). So Bank B matches and maybe also offers less money down. This cycle continues with progressively more aggressive loan offerings until there's a run of bad years and things and people are stuck with too aggressive financing.

newaccoutnas 8y ago
Indeed and also wrap up other financial products into byzantine structures, like CFDs
Nasrudith 8y ago
That sounds like an evasion of agency and responsibility that wouldn't be accepted from a lowly soldier, burglar, or even athlete for why they massacred a village, robbed houses, or cheated to get ahead respectively so why the hell should we accept that excuse from the privileged who had myraids moral alternative options?

gwbas1c 8y ago

> i'd made sure I could pay off at the bank > Then out of nowhere I lost my job, ..., and after about 3 months I was effectively homeless. You absolutely, positively, need to have 6 months of buffer when you buy a home. If you're homeless in 3 months, then it means you're overextended.

braythwayt 8y ago
You need to have six months of buffer to have a low risk of disaster. Nevertheless, the vast majority of people purchasing their first homes in Canada and the US do not have six months of buffer. No bank has ever denied my application for a mortgage for not having six months of mortgage and tax payments in a savings account. My government backs certain kinds of loans for first-time buyers, and it does not require this buffer. So while I agree with what you're saying in a logical sense, in a practical social sense, you are asking the vast majority of people who buy their first home to pass on buying a home, in the face of all social evidence that seems to contradict your advice. It's good advice of a sort, but recognize that this is not accepted wisdom. It's highly conservative and contrarian. Which is smart, but if you want people to embrace it, you'll need to wrap it in a lot of justification and other mechanisms for explaining why they should zig while all around them, people are zagging. (FWIW, My very first real estate purchase was a loft condo where I actually had cash for the entire thing, but took out a small mortgage to kick-start my credit rating. It was paid off in two years. From that point on, I have not had six months buffer in cash, but I have had more than the nose-bleed minimums in equity, and that's another kind of risk management. So I do empathize with your message, but I suggest it needs a lot of selling to get people to adopt it in the face of a trillion-dollar industry convincing people otherwise.)
- bunderbunder 8y ago
  This maybe speaks to OP's point. I don't want to weigh in on whether they overextended themselves or not. 2008-2009 were rough years, and financial situations that didn't work out during that period would probably have been fine any other time. Also, let's cut some slack and presume that they were doing the best they could with a difficult set of circumstances. With that out of the way, I think it bears mentioning that, while it isn't illegal to encourage people to overextend themselves, that's what everyone related to the housing industry seems to be doing. Realtors don't want you to be conservative with your money because they earn a percentage of how much you spend. Bankers don't (or didn't) because they don't (or didn't) give a rat what your chances of covering the mortgage are -- they just needed you to be able to make payments long enough for them to sell the loan to Fannie or Freddie or whoever. There are all sorts of do-gooders who have decided that homeownership is not a mark of prosperity, it's actually the path to it, and consequently have (or had) a tendency to get a bit too cheerleader-y. Even other homeowners, the victims of the housing boondoggle if ever there were any, are a part of it, because thinking of your house as an investment goes hand-in-hand with believing that of course home prices should be taking a one-way trip to the moon. (Tangentially, that last aspect has me starting to suspect that the house and condo market is something of a Ponzi scheme that we are collectively pulling on ourselves.) I don't know where I'm going with this, so I guess I'll throw one last thought out: The contrast does seem pretty stark to me. The rich are getting justice, and everyone else gets victim blaming.

hellbanner 8y ago

Well at least you aren't mad enough to revolt because then change might occur. Ah right, revolt is impossible due to economic conditions.

gammateam 8y ago

Yes, you would have been prohibited from being in a Madoff fund by LAW, the literal no peasants allowed law (Reg D) So whats your point?