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And why wouldn't they? they lost some money but mostly got bailed out at the taxpayer's expense, and nobody went to jail. If we haven't made the disincentives

And why wouldn't they? they lost some money but mostly got bailed out at the taxpayer's expense, and nobody went to jail. If we haven't made the disincentives stronger (we haven't) and if they were inadequate the first time (they were), why are we expecting bankers to make different choices? This is the expected outcome.

windexh8er 7y ago
> And why wouldn't they? they lost some money but mostly got bailed out at the taxpayer's expense, and nobody went to jail. Let's just clarify - American citizens lost $12.8Bn. [0] That money didn't evaporate, it got funneled back into many of the banks and auto manufacturers as a hand out. Some banks that took risk had little to no downside and we know that there were a continuation of bonus payouts to executives by banks that took bailout trailing the debacle. The US had a chance to wipe out some of the hogs of the market but instead chose to feed them. [0] https://finance.yahoo.com/blogs/daily-ticker/2008-financial-crisis-cost-americans-12-8-trillion-145432501.html https://finance.yahoo.com/blogs/daily-ticker/2008-financial-...
- mruts 7y ago
  While in principle I don’t ever believe in bailouts of any kind, not bailing out the banks would have led to an apocalyptic situation probably worse than the Great Depression. Sometimes those in power have a responsibility to the people instead of some idealistic morality.
  - luckylion 7y ago
    There's the alternative of nationalizing them before bailing them out if they are too big to fail. When they are stable again, you can put them back on the market. With the 2008 setup, there is little incentive not to repeat it.
  - mywittyname 7y ago
    We could have bailed the companies out while tossing the executives who facilitated this crisis into the gulags.
    - mschuster91 7y ago
      Not that I dislike the idea of putting bankers into gulags, but I believe taking away all their wealth and seizing eveything they earn above poverty level for life would be more of an effective punishment. Also, the shareholders of such banks should be held accountable - the banks in question should be dissolved and the assets distributed to the public/the state. If shareholders do not have to fear total loss as a consequence of managerial misconduct they will not have any incentive to put actual controllers instead of yes-men to the boards.
  - smcameron 7y ago
    And now the banks have learned they can hold the economy for ransom.
  - appleflaxen 7y ago
    yes, that's exactly what the bankers told us (via their special interest politicians who were given the talking points) do you believe them? and even if you do, why are they allowed to remain that big? this is exactly what "too big to fail" means, and why it's a problem.
  - smolder 7y ago
    It seems like you're presenting a false dichotomy, where the options are the bailouts we gave, or nothing. We could have bailed out the banks without rewarding all the bad actors involved at the same time, i.e. harsher terms for the bailouts. What we actually did is broadly excuse impropriety in the financial sector.
- landryraccoon 7y ago
  According to your source you are off by three orders of magnitude on the losses. $12.8 Trillion is the actual loss.
  - windexh8er 7y ago
    You are correct, my typo.
mruts 7y ago
There’s nothing wrong inferently wrong with MBSs. They are a little complicated, but then again, so are lots of things. The problem that occured in 07-08 were two-fold: corrupt/lazy rating agencies and a lack of understanding about the long-tail correlation between mortgages. The copulas banks were using to join the probability density functions of the mortgages were incorrect and spit out much lower levels of correlation than was accurate. In reality, MBSs are a truly beautiful idea that have a lot of potential to help a lot of people. The banks just needed to have better risk management and I think a lot of lessons have been learned. Despite what the public thinks, banks, especially Goldman, (one of the only institutions to not get hit very much by the collapse) take risk management very seriously. And the guys that didn’t have gone out of business (i.e Lehman). And you’re right, this is the expected (good) outcome. Learn some lessons and start selling a useful product again gaining some wisdom. Nothing wrong with that.
- SpicyLemonZest 7y ago
  Lehman had a C-level risk officer, which surely means they took risk seriously at the time they established it. In 2007 they didn't (they fired the risk officer!), but that just makes me worry whether it's possible for banks in general to durably learn risk-related lessons. Some banks are responsible and will manage risk properly on their own - to protect the others, maybe some risky but useful asset classes need to be restricted.

windexh8er 7y ago

> And why wouldn't they? they lost some money but mostly got bailed out at the taxpayer's expense, and nobody went to jail. Let's just clarify - American citizens lost $12.8Bn. [0] That money didn't evaporate, it got funneled back into many of the banks and auto manufacturers as a hand out. Some banks that took risk had little to no downside and we know that there were a continuation of bonus payouts to executives by banks that took bailout trailing the debacle. The US had a chance to wipe out some of the hogs of the market but instead chose to feed them. [0] https://finance.yahoo.com/blogs/daily-ticker/2008-financial-crisis-cost-americans-12-8-trillion-145432501.html https://finance.yahoo.com/blogs/daily-ticker/2008-financial-...

mruts 7y ago
While in principle I don’t ever believe in bailouts of any kind, not bailing out the banks would have led to an apocalyptic situation probably worse than the Great Depression. Sometimes those in power have a responsibility to the people instead of some idealistic morality.
- luckylion 7y ago
  There's the alternative of nationalizing them before bailing them out if they are too big to fail. When they are stable again, you can put them back on the market. With the 2008 setup, there is little incentive not to repeat it.
- mywittyname 7y ago
  We could have bailed the companies out while tossing the executives who facilitated this crisis into the gulags.
  - mschuster91 7y ago
    Not that I dislike the idea of putting bankers into gulags, but I believe taking away all their wealth and seizing eveything they earn above poverty level for life would be more of an effective punishment. Also, the shareholders of such banks should be held accountable - the banks in question should be dissolved and the assets distributed to the public/the state. If shareholders do not have to fear total loss as a consequence of managerial misconduct they will not have any incentive to put actual controllers instead of yes-men to the boards.
- smcameron 7y ago
  And now the banks have learned they can hold the economy for ransom.
- appleflaxen 7y ago
  yes, that's exactly what the bankers told us (via their special interest politicians who were given the talking points) do you believe them? and even if you do, why are they allowed to remain that big? this is exactly what "too big to fail" means, and why it's a problem.
- smolder 7y ago
  It seems like you're presenting a false dichotomy, where the options are the bailouts we gave, or nothing. We could have bailed out the banks without rewarding all the bad actors involved at the same time, i.e. harsher terms for the bailouts. What we actually did is broadly excuse impropriety in the financial sector.
landryraccoon 7y ago
According to your source you are off by three orders of magnitude on the losses. $12.8 Trillion is the actual loss.
- windexh8er 7y ago
  You are correct, my typo.

mruts 7y ago

There’s nothing wrong inferently wrong with MBSs. They are a little complicated, but then again, so are lots of things. The problem that occured in 07-08 were two-fold: corrupt/lazy rating agencies and a lack of understanding about the long-tail correlation between mortgages. The copulas banks were using to join the probability density functions of the mortgages were incorrect and spit out much lower levels of correlation than was accurate. In reality, MBSs are a truly beautiful idea that have a lot of potential to help a lot of people. The banks just needed to have better risk management and I think a lot of lessons have been learned. Despite what the public thinks, banks, especially Goldman, (one of the only institutions to not get hit very much by the collapse) take risk management very seriously. And the guys that didn’t have gone out of business (i.e Lehman). And you’re right, this is the expected (good) outcome. Learn some lessons and start selling a useful product again gaining some wisdom. Nothing wrong with that.

SpicyLemonZest 7y ago
Lehman had a C-level risk officer, which surely means they took risk seriously at the time they established it. In 2007 they didn't (they fired the risk officer!), but that just makes me worry whether it's possible for banks in general to durably learn risk-related lessons. Some banks are responsible and will manage risk properly on their own - to protect the others, maybe some risky but useful asset classes need to be restricted.