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>For the rest of us debtors...it remains an ongoing disaster Taxpayers didn't pay for bailouts. The Fed did. Taxpayers did make a profit form them, however, si

>For the rest of us debtors...it remains an ongoing disaster Taxpayers didn't pay for bailouts. The Fed did. Taxpayers did make a profit form them, however, since the profits the Fed saw from the bailouts were, by law, handed over to Treasury (except for statutory operating expenses), offsetting taxes. >those who greased the runways for the shareholders with their lost homes Most of those those losing homes did so by taking loans they could not pay, and the ripples were felt by those not taking such loans, in their retirement funds. Those who left those funds alone recovered the value and then some after the recession. Those who did not, or could not, did lose value. But don't just blame bankers. Also blame borrowers defaulting.

raxxorrax 7y ago
True, looking forward to blaming a lot of US students for wanting education. While I do think borrowers are partly responsible, I also think there was a strong incentive for lenders to spread loans like candy and they probably de-emphasized the risks. So the correct strategy would have been to take even larger loans and probably bury the money somewhere.
- ChrisLomont 7y ago
  >True, looking forward to blaming a lot of US students for wanting education. Some perspective: Under 40% of people get any college at all. Of those, 30% of students graduate with no debt. The remaining average $30k in debt. This is not much debt compared to other things they will buy in life. Avg starting salary for a college grad is $50k. Avg new car price is $35k. Some people buy many cars in a lifetime. Median home listing is $279k. ~65% of US is homeowners.
pjmorris 7y ago
> Taxpayers didn't pay for bailouts. The Fed did. The 2+ Trillion dollar expansion of the Fed balance sheet during the crisis costs taxpayers every day that they pay interest on a loan enabled by that 2T+ expansion. Every house that used to be $200K and is now $500K is part of the price people are paying for how the crisis was managed. > But don't just blame bankers. Also blame borrowers defaulting. The core function of a bank is to evaluate risk. Being able to do so correctly enables the bank to make loans at a profit. Being unable to do so means that the people involved should go do something else. Debtors have been defaulting for millennia, it's a well-understood process. The financialization and securitization of housing was the creation of bankers, not borrowers.
- ChrisLomont 7y ago
  >The 2+ Trillion dollar expansion of the Fed balance sheet during the crisis costs taxpayers every day that they pay interest on a loan enabled by that 2T+ expansion. Taxpayers don't pay interest on Fed assets. You have a fundamental misunderstanding of how monetary policy works. What makes you think your statement true? Did you read it in a explanation of how the Fed works, or did you make it up? >The financialization and securitization of housing was the creation of bankers, not borrowers. This is shortsighted and incorrect. If borrowers didn't default, there would be no crisis. Many were expecting housing to rise forever and were taking out second mortgages as piggy banks, then got in trouble when prices didn't increase forever. High risk borrowers could keep refinancing at higher and higher prices since house prices were climbing. When the prices stopped climbing, this process stopped. >Debtors have been defaulting for millennia, it's a well-understood process. And bubbles from irrational people have been happening for millennia too. Does this simplistic tautology allow me to assign all blame to borrowers?
  - pjmorris 7y ago
    Compare your > 'Taxpayers don't pay interest on Fed assets.' with what I said; 'they pay interest on a loan enabled by that 2T+ expansion' (of Fed assets.) The Fed bought ~1.5-2T of MBS, turning bad loans that would never be repaid - credit that simply never should have been issued - into bank reserves. Those reserves both inflate asset prices and enable the banks to make loans on which interest is paid. > When the prices stopped climbing, this process stopped. The price climb - and the influx of less able borrowers - was primarily enabled by securitization. > And bubbles from irrational people have been happening for millennia too. Does this simplistic tautology allow me to assign all blame to borrowers? Borrowers can only exist if they've borrowed from lenders. Hence my point about lenders needing to evaluate risk to continue to be lenders.
    - ChrisLomont 7y ago
      >Those reserves both inflate asset prices and enable the banks to make loans on which interest is paid Banks don't need those assets to make loans. Banks can make loans whenever and where ever they want, and can simply borrow from the Fed. This is the point of short-term interest rates - banks can lend past reserve requirements whenever they find a decent loan to make. It's the difference between exogenous and endogenous theories of money, and modern economies with central banks usually work this way to allow the market to decide how much money is needed, not how much reserves a bank can obtain because a central bank absorbed assets. And most loans rate people get are tied pretty directly to Fed rates, not bank reserves. This is again due to endogenous money creation - demand creates money, not reserves. So the Fed and banks having 0 reserves or having 100 trillion reserves is nearly irrelevant - it is interest rates that matter, and those are set directly by the Fed board. Also, if you recall, the banks were famously not giving loans after the bailouts, despite having the capital to do so [4]. I guess that also doesn't help your claims. >they pay interest on a loan enabled by that 2T+ expansion If you're going that far afield, then it's simple to point out what financial trouble they would be in if the Fed didn't make those loans. People would likely be far worse, in which case it makes the argument for those loans even stronger. It would be interesting to check even correlation between Fed balance and interest rates. Here's [1] an IGM Forum economist poll of most of the country's top economists on whether or not the bailouts improved unemployment. I'd guess being unemployed is worse than claimed interest rate hikes. Here's [2] their answer to the question: "the benefits of bailing out U.S. banks in 2008 will end up exceeding the costs" - resulting in strong support with certainty (especially considering the types of questions these polls ask - check other questions). So there's not much real argument on the bailouts being beneficial. Now that the Fed is selling off MBS [3], shouldn't that cause the reverse of what you claim absorbing them did? Because those effects are not see in the markets. Maybe your effects did not happen? [1] http://www.igmchicago.org/surveys/bank-bailouts http://www.igmchicago.org/surveys/bank-bailouts [2] http://www.igmchicago.org/surveys/bailouts-banks-and-automakers http://www.igmchicago.org/surveys/bailouts-banks-and-automak... [3] https://www.federalreserve.gov/monetarypolicy/bst_recenttrends.htm https://www.federalreserve.gov/monetarypolicy/bst_recenttren... [4] https://research.stlouisfed.org/publications/economic-synopses/2016/02/05/bank-lending-during-recessions/ https://research.stlouisfed.org/publications/economic-synops...
omginternets 7y ago
>Also blame borrowers defaulting. Forgive my ignorance, but wasn't the subprime crisis so scandalous precisely because bankers were recklessly pushing mortgages on people who couldn't pay?
- Merrill 7y ago
  NINJA mortgages. No Income, No Job, or Assets. There is actually a good business in providing mortgages to people who have income, jobs or assets, but who can't/won't provide documentation because of their legal status or the nature of their job/assets. They are actually good credit risks because they don't want any of the attention caused by debt collection and/or bankruptcy proceedings. But some mortgage brokers took it way to far to people who simply did not have those things.
  - omginternets 7y ago
    So short answer, yes? Or am I missing some nuance in your explanation.

raxxorrax 7y ago

True, looking forward to blaming a lot of US students for wanting education. While I do think borrowers are partly responsible, I also think there was a strong incentive for lenders to spread loans like candy and they probably de-emphasized the risks. So the correct strategy would have been to take even larger loans and probably bury the money somewhere.

ChrisLomont 7y ago
>True, looking forward to blaming a lot of US students for wanting education. Some perspective: Under 40% of people get any college at all. Of those, 30% of students graduate with no debt. The remaining average $30k in debt. This is not much debt compared to other things they will buy in life. Avg starting salary for a college grad is $50k. Avg new car price is $35k. Some people buy many cars in a lifetime. Median home listing is $279k. ~65% of US is homeowners.

pjmorris 7y ago

> Taxpayers didn't pay for bailouts. The Fed did. The 2+ Trillion dollar expansion of the Fed balance sheet during the crisis costs taxpayers every day that they pay interest on a loan enabled by that 2T+ expansion. Every house that used to be $200K and is now $500K is part of the price people are paying for how the crisis was managed. > But don't just blame bankers. Also blame borrowers defaulting. The core function of a bank is to evaluate risk. Being able to do so correctly enables the bank to make loans at a profit. Being unable to do so means that the people involved should go do something else. Debtors have been defaulting for millennia, it's a well-understood process. The financialization and securitization of housing was the creation of bankers, not borrowers.

ChrisLomont 7y ago
>The 2+ Trillion dollar expansion of the Fed balance sheet during the crisis costs taxpayers every day that they pay interest on a loan enabled by that 2T+ expansion. Taxpayers don't pay interest on Fed assets. You have a fundamental misunderstanding of how monetary policy works. What makes you think your statement true? Did you read it in a explanation of how the Fed works, or did you make it up? >The financialization and securitization of housing was the creation of bankers, not borrowers. This is shortsighted and incorrect. If borrowers didn't default, there would be no crisis. Many were expecting housing to rise forever and were taking out second mortgages as piggy banks, then got in trouble when prices didn't increase forever. High risk borrowers could keep refinancing at higher and higher prices since house prices were climbing. When the prices stopped climbing, this process stopped. >Debtors have been defaulting for millennia, it's a well-understood process. And bubbles from irrational people have been happening for millennia too. Does this simplistic tautology allow me to assign all blame to borrowers?
- pjmorris 7y ago
  Compare your > 'Taxpayers don't pay interest on Fed assets.' with what I said; 'they pay interest on a loan enabled by that 2T+ expansion' (of Fed assets.) The Fed bought ~1.5-2T of MBS, turning bad loans that would never be repaid - credit that simply never should have been issued - into bank reserves. Those reserves both inflate asset prices and enable the banks to make loans on which interest is paid. > When the prices stopped climbing, this process stopped. The price climb - and the influx of less able borrowers - was primarily enabled by securitization. > And bubbles from irrational people have been happening for millennia too. Does this simplistic tautology allow me to assign all blame to borrowers? Borrowers can only exist if they've borrowed from lenders. Hence my point about lenders needing to evaluate risk to continue to be lenders.
  - ChrisLomont 7y ago
    >Those reserves both inflate asset prices and enable the banks to make loans on which interest is paid Banks don't need those assets to make loans. Banks can make loans whenever and where ever they want, and can simply borrow from the Fed. This is the point of short-term interest rates - banks can lend past reserve requirements whenever they find a decent loan to make. It's the difference between exogenous and endogenous theories of money, and modern economies with central banks usually work this way to allow the market to decide how much money is needed, not how much reserves a bank can obtain because a central bank absorbed assets. And most loans rate people get are tied pretty directly to Fed rates, not bank reserves. This is again due to endogenous money creation - demand creates money, not reserves. So the Fed and banks having 0 reserves or having 100 trillion reserves is nearly irrelevant - it is interest rates that matter, and those are set directly by the Fed board. Also, if you recall, the banks were famously not giving loans after the bailouts, despite having the capital to do so [4]. I guess that also doesn't help your claims. >they pay interest on a loan enabled by that 2T+ expansion If you're going that far afield, then it's simple to point out what financial trouble they would be in if the Fed didn't make those loans. People would likely be far worse, in which case it makes the argument for those loans even stronger. It would be interesting to check even correlation between Fed balance and interest rates. Here's [1] an IGM Forum economist poll of most of the country's top economists on whether or not the bailouts improved unemployment. I'd guess being unemployed is worse than claimed interest rate hikes. Here's [2] their answer to the question: "the benefits of bailing out U.S. banks in 2008 will end up exceeding the costs" - resulting in strong support with certainty (especially considering the types of questions these polls ask - check other questions). So there's not much real argument on the bailouts being beneficial. Now that the Fed is selling off MBS [3], shouldn't that cause the reverse of what you claim absorbing them did? Because those effects are not see in the markets. Maybe your effects did not happen? [1] http://www.igmchicago.org/surveys/bank-bailouts http://www.igmchicago.org/surveys/bank-bailouts [2] http://www.igmchicago.org/surveys/bailouts-banks-and-automakers http://www.igmchicago.org/surveys/bailouts-banks-and-automak... [3] https://www.federalreserve.gov/monetarypolicy/bst_recenttrends.htm https://www.federalreserve.gov/monetarypolicy/bst_recenttren... [4] https://research.stlouisfed.org/publications/economic-synopses/2016/02/05/bank-lending-during-recessions/ https://research.stlouisfed.org/publications/economic-synops...

omginternets 7y ago

>Also blame borrowers defaulting. Forgive my ignorance, but wasn't the subprime crisis so scandalous precisely because bankers were recklessly pushing mortgages on people who couldn't pay?

Merrill 7y ago
NINJA mortgages. No Income, No Job, or Assets. There is actually a good business in providing mortgages to people who have income, jobs or assets, but who can't/won't provide documentation because of their legal status or the nature of their job/assets. They are actually good credit risks because they don't want any of the attention caused by debt collection and/or bankruptcy proceedings. But some mortgage brokers took it way to far to people who simply did not have those things.
- omginternets 7y ago
  So short answer, yes? Or am I missing some nuance in your explanation.