T Nation

This Recession of Ours

Freddie and Fannie, AIG, Merrill Lynch…

Who’s fault is this? Where does the blame lie? Was it a lack of regulation? Or something else?

I’m almost entirely ignorant on this subject, and while we’ve had some discussions about what to do now, and HOW this happened, I don’t think we’ve had a blame game thread :smiley:

So, Clinton? Bush? Reagan? Lincoln? Congress? Who’s fault is this?

It’s not a recesssion.

I hear that most of this is a mix of several factors. The “antiquicated” regulatory system, the credit rating system, Congressional shenanigans, and Sarbanes Oxley.

Then there is the “ABF” factor that is more popular with most people. All Bush’s Fault.

It’s a depression, not a recession. No one person can be blamed. Some actions by a few people are more to blame than others: Namely, Greenspan/Bernanke.

Also the fact that the US is paying for a war it cannot afford also must be blamed; so, in that regard: Bush/Cheney/Congress.

Ultimately the American people are to blame because they do not act to counter these people who perpetrator this evil.

[quote]Beowolf wrote:
Freddie and Fannie, AIG, Merrill Lynch…

Who’s fault is this? Where does the blame lie? Was it a lack of regulation? Or something else?

I’m almost entirely ignorant on this subject, and while we’ve had some discussions about what to do now, and HOW this happened, I don’t think we’ve had a blame game thread :smiley:

So, Clinton? Bush? Reagan? Lincoln? Congress? Who’s fault is this?[/quote]

Can you really put the blame on anyone?

It’s entirely too complex to blame one person or group.

Start with the ease of getting a subprime mortgage

Add in the overpriced housing market

Add in people running up their debt and over-consuming

Add in the rapid rise of oil prices at a bad time causing a lot of money going overseas

Add in inflation due to oil prices and added liquidity to the system from oil going overseas

Add in the lack of incomes increasing as expected

300000X more things.

Just to play along with the game though: blame investment banks over financing irresponsible people.

As an aside: does everyone else not see this partially coming back to getting off foreign oil? It just seems to me that you can relate so many things to our money going overseas and not being reinvested/reinserted back into the US economy.

PS it’s not a recession

[quote]LIFTICVSMAXIMVS wrote:
It’s a depression, not a recession. No one person can be blamed. Some actions by a few people are more to blame than others: Namely, Greenspan/Bernanke.

Also the fact that the US is paying for a war it cannot afford also must be blamed; so, in that regard: Bush/Cheney/Congress.

Ultimately the American people are to blame because they do not act to counter these people who perpetrator this evil. [/quote]

Wow…

Where exactly are you from?

Regulation and gov’t involvement is partially to blame. We don’t need more regulation or gov’t involvement.

If the fed is going to continue to exist, it needs to let the market determine interest rates and stop “creating” money.

If the gov’t is going to continue to regulate they should focus on transperancy and guarenteed reserve ratios.

Congress needs to quite spending money it does not have.

The gov’t needs to quit bailing these guys out and encouraging risky behavior. Like any other industry failures are a benefit to the market. Thinning the herd so to speak. Get rid of the inefficient and make room for the efficient.

[quote]AssOnGrass wrote:
Where exactly are you from?[/quote]

Where I am from has nothing to do with the soundness of my judgment.

If the American people are responsible for their own governance and government is to blame then the American people take the blame for this depression. The beauty of democracy and self determination is that none can escape blame for the evils government commits.

What say you?

[quote]Beowolf wrote:
Freddie and Fannie, AIG, Merrill Lynch…

Who’s fault is this? Where does the blame lie? Was it a lack of regulation? Or something else?

I’m almost entirely ignorant on this subject, and while we’ve had some discussions about what to do now, and HOW this happened, I don’t think we’ve had a blame game thread :smiley:

So, Clinton? Bush? Reagan? Lincoln? Congress? Who’s fault is this?[/quote]

When you list all the factors the impression of a “perfect storm” forms…

In the end the big banks knew they were taking a risk buying variable rate mortgages and buying smaller firms accounts receivables. It was poorly calculated risk.

Combine that with the wholly unethical loan originators selling their account receivables and the overconfidence of the real-estate market in general and you have a massive shitstorm.

I saw it coming in 05’ when I realized that the DC real estate market was entirely out of most people’s range, including the people actually buying the property… I mean people were banking on the market just going up and up, that’s why they took loans they couldn’t afford. This was just stupidity and overconfidence, but when the unethical practices came to light the whole thing just collapsed. There was no hope of price stability after it was realized that so many of the loans had no hope of being repaid.

So it wasn’t just one thing. That’s why Greenspan is characterizing it as unprecedented.

[quote]LIFTICVSMAXIMVS wrote:
AssOnGrass wrote:
Where exactly are you from?

Where I am from has nothing to do with the soundness of my judgment.

If the American people are responsible for their own governance and government is to blame then the American people take the blame for this depression. The beauty of democracy and self determination is that none can escape blame for the evils government commits.

What say you?[/quote]

The reason I asked where you are from was because your post read to me as bitterness towards the US and their people and immediately made the objectivity go out the window.

BUT…

If you read my post I put the blame on the people, just in a different way.

I just didn’t blame EVERYONE I blamed the irresponsible people who took out these mortgages and over spent with credit that shouldn’t have been given to them. I for one think the government is less to blame than the nature of the market.

I didn’t blame the war… that’s where me and you differ

[quote]AssOnGrass wrote:
LIFTICVSMAXIMVS wrote:
AssOnGrass wrote:
Where exactly are you from?

Where I am from has nothing to do with the soundness of my judgment.

If the American people are responsible for their own governance and government is to blame then the American people take the blame for this depression. The beauty of democracy and self determination is that none can escape blame for the evils government commits.

What say you?

The reason I asked where you are from was because your post read to me as bitterness towards the US and their people and immediately made the objectivity go out the window.

BUT…

If you read my post I put the blame on the people, just in a different way.

I just didn’t blame EVERYONE I blamed the irresponsible people who took out these mortgages and over spent with credit that shouldn’t have been given to them. I for one think the government is less to blame than the nature of the market.
[/quote]
The market is blameless because it cannot act but rather only can be acted upon. I was being very general when I said everyone is to blame. If knowing people stand by and watch a crime being committed it is just as bad as committing the crime – that is all I meant by it.

Just because I believe everyone shares blame does not mean I think the American people are necessarily evil or stupid or that they should be held accountable. All actions have consequences and even non-actions also have a consequence. Part of understanding why these depressions happen also means understanding who or what actions causes them.

[quote]LIFTICVSMAXIMVS wrote:
AssOnGrass wrote:
Where exactly are you from?

Where I am from has nothing to do with the soundness of my judgment.

If the American people are responsible for their own governance and government is to blame then the American people take the blame for this depression. The beauty of democracy and self determination is that none can escape blame for the evils government commits.

What say you?[/quote]

You are a fascinating mix of thought dude.

You range from genuine towering profundity to undiluted bullshit and sometimes in the same post.

I think I mean that more as a compliment than a criticism.

[quote]Tiribulus wrote:
LIFTICVSMAXIMVS wrote:
AssOnGrass wrote:
Where exactly are you from?

Where I am from has nothing to do with the soundness of my judgment.

If the American people are responsible for their own governance and government is to blame then the American people take the blame for this depression. The beauty of democracy and self determination is that none can escape blame for the evils government commits.

What say you?

You are a fascinating mix of thought dude.

You range from genuine towering profundity to undiluted bullshit and sometimes in the same post.

I think I mean that more as a compliment than a criticism.[/quote]

Word! I believe in the power of undiluted bull-shit – it’s the only kind there is. And I welcome criticism – even when thinly veiled as a compliment. It’s the only way of learning sometimes.

[quote]Beowolf wrote:
Freddie and Fannie, AIG, Merrill Lynch…

Who’s fault is this? Where does the blame lie? Was it a lack of regulation? Or something else?

I’m almost entirely ignorant on this subject, and while we’ve had some discussions about what to do now, and HOW this happened, I don’t think we’ve had a blame game thread :smiley:

So, Clinton? Bush? Reagan? Lincoln? Congress? Who’s fault is this?[/quote]

Perhaps 30 years ago or more the collective “government” made a decision to try and increase home ownership. Freddie and Fannie were spawned to buy the mortgages that banks and mortgage companies underwrote.

The real estate boom hit in the 70’s and people went to real estate as a hedge against inflation. Rates rose to the point that construction stopped in the late 70’s. Eventually the fed learned to balance things out and the economy generally enjoyed sustained growth from about 1984 thru 1999 with a few bumps and corrections along the road.

The real estate market got hot about the year 2000. It got so hot it drew in amatuers and speculators not just homeowners and investors. This is where the problem really manifested itself. Fannie and Freddie were quasi-government institutions. The underwriters and mortgage sellers were not. The real estate mortgage underwriters were able to get mortgages for anyone who could sign an application and pay a fee…and freddie and fannie bought the mortgages. It all depended on constantly rising real estate prices and easy credit for boorowers. The rising market assured liquidity.

Unlimited capital, easy liquidity and an endless supply of new buyers. The perfect storm really for a bubble.

The big investment banks got fat and happy bundling the “safe mortgages” and peddling them as secure investments. Investors put money into these “safe” investments with the expectation they were secured by real mortgages and had the US Govenment behind them to some degree. After all they were quasi government agencies.

Then prices started falling. Foreclosures rose and borrowers defaulted. This caused lenders to tighten up credit which slows construction which is a major driver of the economy. Then it got worse. Banks and brokers who held FNMA and GNMA bonds saw the value of their investments drop and they needed to “mark them to market”. They did and suddenly their capital bases dried up and they became insolvent overnight…not over time. Bad guess on their part and too quick to do anything about it. These were pro’s by the way. Greedy pro’s, but professionals none the less.

The market will correct itself and the fed and the administration are actually doing a decent job managing the risk and heading off some of the really bad outcomes that could happen. Right now it’s all about liquidity and stabilization of the markets and prices for real estate. In reality 98% of mortgages are NOT in default. 94% of those who want to work are working and GDP is expanding. The US is still the engine driving the world economy and will continue to do so for a long time. McCain was right when he said the fundamentals are strong. Most of the listeners, including Obama’s staff, are not literate enough in economics to understand the statement.

This is bad but the late 70’s were worse. The S&L crisis in the 80’s was also worse in my opinion. This one however is not over so who knows where it will lead.

Not to interject politics but a tax increase at this point would slide this economy off the ledge. Business needs an incentive to invest and Sarbanes-Oxley is prohibitive cost for most companies stifling growth.

[quote]hedo wrote:
Not to interject politics but a tax increase at this point would slide this economy off the ledge. Business needs an incentive to invest and Sarbanes-Oxley is prohibitive cost for most companies stifling growth.
[/quote]

And how! It costs an estimated $4M/year for most moderate companies to be SOX compliant.

In my perverted brain I somehow think it is just a backward plan to make work for accountants and lawyers. You know how hard they have it in the 'hood without work.

[quote]Tiribulus wrote:
LIFTICVSMAXIMVS wrote:
AssOnGrass wrote:
Where exactly are you from?

Where I am from has nothing to do with the soundness of my judgment.

If the American people are responsible for their own governance and government is to blame then the American people take the blame for this depression. The beauty of democracy and self determination is that none can escape blame for the evils government commits.

What say you?

You are a fascinating mix of thought dude.

You range from genuine towering profundity to undiluted bullshit and sometimes in the same post.

I think I mean that more as a compliment than a criticism.[/quote]

Lol I agree.

I generally agree with a lot of his economic insights, that’s why I was so thrown by his comments

One of the key factors is that the Wall Streeters are typically way, way smarter than those who work in government (be it the Fed, Congress, SEC, etc.). I don’t say that in a demeaning way, I say that because it’s factually true. Some of the financial vehicles and financial engineering schemes, ways to make money, products to sell, deals they can structure, are literally structured by rocket scientists. No joke. I was a Wall Street headhunter for 10.5 years, so I’ve seen their resumes. Masters and doctoral degrees in financial engineering, quantum physics, computer science, mechanical engineering, mathematics, statistics, etc., etc., etc., from the very best schools in the world. These kinds of minds make for brilliant traders, brilliant investment bankers, brilliant product development and structuring people, and so on.

People with those backgrounds don’t typically go to work for the Fed. Why go somewhere where you MIGHT end up making a couple hundred thousand dollars a year when you can go to Wall Street and eventually earn 5 to 15 MILLION a year?

Bottom line being that the Wall Street guys will always be a step or three ahead of the government, coming up with new products, financing schemes, etc., so the government is always playing catchup. They government has got to figure out what these products and structures ARE and how they work before they can even begin to decide and agree upon how to (or if to) regulate them. And that can take a long, long time.

What exactly changes about anything if we give a title to whatever we’re in? “Slow growth”, “recession”, “depression”… it’s as if a title changes shit? You either have money to blow or you don’t. We don’t save, never have.

[quote]hedo wrote:

[/quote]

NICE overview.

I’d like to add one small piece of the puzzle, or not small. Whatever. This whole idea about “everyone needs a house” was legislated to Fannie/Freddie by members of Congress in 1999 or 2000 (I forget). They basically said “FRE/FNM, you’re not helping the ‘under-served’ demographics enough”. Well guess what those under-served demographics are? Low-income and high debt. At this time, I think F/F had about 38-40 ish % sub-prime mortgages in their portfolio. Since they’re quasi-governmental, they took their cues from said congressmen and went to 50% or so subprime. And kept buying more, and more, and more.

Someone correct me if I’m wrong here. But basically, that’s another piece of the puzzle.

[quote]Beowolf wrote:
Freddie and Fannie, AIG, Merrill Lynch…

Who’s fault is this? Where does the blame lie? Was it a lack of regulation? Or something else?

I’m almost entirely ignorant on this subject, and while we’ve had some discussions about what to do now, and HOW this happened, I don’t think we’ve had a blame game thread :smiley:

So, Clinton? Bush? Reagan? Lincoln? Congress? Who’s fault is this?[/quote]

In the name of my generation, I humbly apologize to you young folks for this mess. I personally voted against a lot of this but the majority of my generation sold your freedom for an $800 monthly check and Medicare benefits.

We didn’t know any better. We were brought up on unselfishness. We drained the producers in favor of the consumers. We wrote checks that you guys will wind up having to cover. We created the Great Society Program. We thought we could make decent citizens out of folks who loathe education and embrace the ghetto.

We fucked up royally. Now you have to live in an authoritarian society. And there’s nothing we can do now to stop it. :<