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We should've realized there was a problem when low income workers making below the poverty line became the hot new commodity in finance. Whereas in the 80s, yo

by Dilpil 18y ago

We should've realized there was a problem when low income workers making below the poverty line became the hot new commodity in finance. Whereas in the 80s, young men in finance spent hours calling rich people insisting they give them money, in the last 5 years, they have instead been calling up poor people insisting to give them money.

nailer 18y ago
Someone moderated you to zero. I think you make a fair point: poor people's debt is exactly what sub prime mortgage boom was about.
- swombat 18y ago
  No, no, not poor people's debt. Our debt. Because: * we own the debt now * we're all gonna be poor anyway :-)
  - nailer 18y ago
    I'd say how the crisis started is more relevant to understanding the crisis than the way governments are attempting to fix it.
Alex3917 18y ago
"We should've realized there was a problem when low income workers making below the poverty line became the hot new commodity in finance." Except for those loans aren't what caused the problem. Rather, the problem was caused by the investment banks betting on those loans.
- maurycy 18y ago
  The loans were the consequence of betting. Or, more precisely speaking, of false belief that AAA rated papers, which were betted on, are safe.
  - Alex3917 18y ago
    No, the loans were just bad investments. That is different than betting, at least in the sense that wall street people use the term betting. C.f. http://www.dailykos.com/storyonly/2008/11/13/201226/64/403/660641 http://www.dailykos.com/storyonly/2008/11/13/201226/64/403/6... Or listen to the NPR series on credit default swaps.
    - maurycy 18y ago
      But the reason why companies were so happy to lend so much money was caused by a belief, which turned out to be false, that loans securized into CDOs and such papers, frequently rated well, are safe and risk is properly managed. The betting merely caused a spread of the risk between all market participants, making it systematic risk. Also, the betting was not properly managed because market partipicants weren't able to understand the risk. Also, one might say that the reason why companies started securization and, then, betting on the papers are low interest rates, but, please, let's don't dig into the whole Fed discussion.
      - Alex3917 18y ago
        The betting didn't just spread the risk, it magnified it. For every dollar the banks lost on bad loans they probably lost 30 dollars of bets on those loans. No one even knows the exact number because the market is completely unregulated.
        maurycy 18y ago
        And the reason why banks, and not only banks, lost so much on the papers is because the loans were basically worthless. Banks knew that loans were worthless but the paper's ratings created a different impression, boosting the loans. The spread part is very important. If there were no betting, selling and reselling of the papers, then only bad lenders would collapse.

by Dilpil 18y ago

nailer 18y ago

Someone moderated you to zero. I think you make a fair point: poor people's debt is exactly what sub prime mortgage boom was about.

swombat 18y ago
No, no, not poor people's debt. Our debt. Because: * we own the debt now * we're all gonna be poor anyway :-)
- nailer 18y ago
  I'd say how the crisis started is more relevant to understanding the crisis than the way governments are attempting to fix it.

Alex3917 18y ago

"We should've realized there was a problem when low income workers making below the poverty line became the hot new commodity in finance." Except for those loans aren't what caused the problem. Rather, the problem was caused by the investment banks betting on those loans.

maurycy 18y ago
The loans were the consequence of betting. Or, more precisely speaking, of false belief that AAA rated papers, which were betted on, are safe.
- Alex3917 18y ago
  No, the loans were just bad investments. That is different than betting, at least in the sense that wall street people use the term betting. C.f. http://www.dailykos.com/storyonly/2008/11/13/201226/64/403/660641 http://www.dailykos.com/storyonly/2008/11/13/201226/64/403/6... Or listen to the NPR series on credit default swaps.
  - maurycy 18y ago
    But the reason why companies were so happy to lend so much money was caused by a belief, which turned out to be false, that loans securized into CDOs and such papers, frequently rated well, are safe and risk is properly managed. The betting merely caused a spread of the risk between all market participants, making it systematic risk. Also, the betting was not properly managed because market partipicants weren't able to understand the risk. Also, one might say that the reason why companies started securization and, then, betting on the papers are low interest rates, but, please, let's don't dig into the whole Fed discussion.
    - Alex3917 18y ago
      The betting didn't just spread the risk, it magnified it. For every dollar the banks lost on bad loans they probably lost 30 dollars of bets on those loans. No one even knows the exact number because the market is completely unregulated.
      - maurycy 18y ago
        And the reason why banks, and not only banks, lost so much on the papers is because the loans were basically worthless. Banks knew that loans were worthless but the paper's ratings created a different impression, boosting the loans. The spread part is very important. If there were no betting, selling and reselling of the papers, then only bad lenders would collapse.