3 ms·

Unfortunately, I'm afraid this is nothing new…

krav 17y ago
Agreed.
cwan 17y ago
Who are the ones robbing us blind here? The problem wasn't so much the underwritten credit derivatives - for which there's an actual genuine business need, but rather governments who have enabled companies like Goldman Sachs (AIG, and Lehman - which the government of course let go under), instead of letting these guys get reborn through some type of accelerated bankruptcy structure or better yet, collapse to be replaced by nimbler, smaller competitors.
- riffraff 17y ago
  hear hear
- vlod 17y ago
  I think the general thought is that a few banks would fail, nobody would really care (because they are sleaze anyway) and everything would continue as normal. errh.. no. They let a few banks die and look at the global effect. Imagine if they let everything tumble down. The banks are very-very tightly coupled together, such that the whole system nearly collapsed. Thats not just the finance industry, thats the whole economy.
  - cwan 17y ago
    It's not an easy choice - but the anger is a bit misplaced insofar as Goldman Sachs goes given that the "us" here was complicit. The question isn't so much allowing everything tumble down but provide a structure where banks can quickly deal with the losses/asset revaluations and be reborn so that depositors don't fear for the safety of their deposits. To suggest that the choice was binary and that we could have either saved them or let the world descend into chaos as silly as it is untrue. Instead we've created a system where bankers have gotten rewarded for taking outsized risks without fear of the downside and the supposed "systemic" risk has gotten even larger as those massive banks have become even larger.
    - vlod 17y ago
      What structure existed at the end of last year that allowed banks to be reborn with the depositors not being scared? You don't think there would have been a run on the banks if more had failed and gone Chapter-11?
      - cwan 17y ago
        When the government started making it clear that they would provide liquidity to large banks, they effectively extended their own credit rating to these institutions - for the same reason that Fannie Mae and Freddie Mac didn't fail because they were taken over by the government. As noted, if there were more of a rapid bankruptcy structure where the government could have taken over a bank on a Friday to allow it to emerge Monday and restructure its assets, this could have provided greater confidence to the markets. The major issue of these institutions was that they weren't able to continue funding ongoing cash requirements. Lehman went into bankruptcy because of liquidity - ie that their short term assets weren't able to cover their short term obligations. Much of this reason was because people didn't trust the valuations of their assets (e.g. subprime mortgages) and fears that proved to be overblown as to outstanding unstated liabilities - because it wasn't a transparent market. Barings, if you recall was brought down by a rogue trader so it wasn't beyond the realm of possibility and at that point the numbers being quoted as to the risk exposure of CDS's was in the tens if not hundreds of trillions of dollars (which again if netted out was only a couple trillion - and for that exposure to be realized would basically require every major company in the Fortune 1000 to go bankrupt at once).
        vlod 17y ago
        How would they restructure their assets so quickly (over the weekend) and solve their liquidity problem without the Fed? (with the banks not lending to each other) Even if a bank wanted to lend another bank money, it takes time to do a reevaluation (more than a weekend) of another banks assets and they would be more concerned of trying to calculate their own exposure.
        17y ago

krav 17y ago

Agreed.

cwan 17y ago

Who are the ones robbing us blind here? The problem wasn't so much the underwritten credit derivatives - for which there's an actual genuine business need, but rather governments who have enabled companies like Goldman Sachs (AIG, and Lehman - which the government of course let go under), instead of letting these guys get reborn through some type of accelerated bankruptcy structure or better yet, collapse to be replaced by nimbler, smaller competitors.

riffraff 17y ago
hear hear
vlod 17y ago
I think the general thought is that a few banks would fail, nobody would really care (because they are sleaze anyway) and everything would continue as normal. errh.. no. They let a few banks die and look at the global effect. Imagine if they let everything tumble down. The banks are very-very tightly coupled together, such that the whole system nearly collapsed. Thats not just the finance industry, thats the whole economy.
- cwan 17y ago
  It's not an easy choice - but the anger is a bit misplaced insofar as Goldman Sachs goes given that the "us" here was complicit. The question isn't so much allowing everything tumble down but provide a structure where banks can quickly deal with the losses/asset revaluations and be reborn so that depositors don't fear for the safety of their deposits. To suggest that the choice was binary and that we could have either saved them or let the world descend into chaos as silly as it is untrue. Instead we've created a system where bankers have gotten rewarded for taking outsized risks without fear of the downside and the supposed "systemic" risk has gotten even larger as those massive banks have become even larger.
  - vlod 17y ago
    What structure existed at the end of last year that allowed banks to be reborn with the depositors not being scared? You don't think there would have been a run on the banks if more had failed and gone Chapter-11?
    - cwan 17y ago
      When the government started making it clear that they would provide liquidity to large banks, they effectively extended their own credit rating to these institutions - for the same reason that Fannie Mae and Freddie Mac didn't fail because they were taken over by the government. As noted, if there were more of a rapid bankruptcy structure where the government could have taken over a bank on a Friday to allow it to emerge Monday and restructure its assets, this could have provided greater confidence to the markets. The major issue of these institutions was that they weren't able to continue funding ongoing cash requirements. Lehman went into bankruptcy because of liquidity - ie that their short term assets weren't able to cover their short term obligations. Much of this reason was because people didn't trust the valuations of their assets (e.g. subprime mortgages) and fears that proved to be overblown as to outstanding unstated liabilities - because it wasn't a transparent market. Barings, if you recall was brought down by a rogue trader so it wasn't beyond the realm of possibility and at that point the numbers being quoted as to the risk exposure of CDS's was in the tens if not hundreds of trillions of dollars (which again if netted out was only a couple trillion - and for that exposure to be realized would basically require every major company in the Fortune 1000 to go bankrupt at once).
      - vlod 17y ago
        How would they restructure their assets so quickly (over the weekend) and solve their liquidity problem without the Fed? (with the banks not lending to each other) Even if a bank wanted to lend another bank money, it takes time to do a reevaluation (more than a weekend) of another banks assets and they would be more concerned of trying to calculate their own exposure.
        17y ago