The Mysteries Of The Collapse

While I was in Europe, the world celebrated the anniversary of the collapse of Lehman Brothers, the financial house at the center of the mortgage meltdown. Like everyone, the fact that it has been ten years since the world teetered on the edge of the abyss slipped my mind. It is important though, to think back on the last decade, since many economists and analysts still think it was a near-death experience for the world. Danish television was playing the movie The Big Short, which was based on the great Michael Lewis book.

As to the crisis itself, a few things remain remarkably obscure. One is that the best minds on this stuff still cannot bring themselves to notice the biological element. Blacks and Hispanics were wildly over-represented in the default numbers. The only analysts and commentators, outside of those on this side of the divide, to notice this fact, do so in order to “debunk” it. These are the folks who run around making sure everyone in the human sciences says “race is a social construct” five times a day while facing Frankfurt.

The other mystery is that the so-called experts still have not explained how the sub-prime mortgage bubble formed, why it went unnoticed and what happened in the after math. Even a decade on, it is hard to get reliable numbers on the quantity of mortgages that constituted the bad paper. The only thing that the experts agree upon is that the lowering of lending standards created a speculative bubble. The result was a wave of over-lending and over-building, that led to the great mortgage bubble which burst a decade ago.

Currently, the druids from the grand economic council claim that eight million people lost their jobs as a result of the recession that followed the collapse. That seems small, given that the labor force is roughly 160 million. That means unemployment would have gone from about four percent to just under ten percent. That’s the official line from the druids in the academy, but it certainly does not fit with the narrative about this being a near-death experience for the economy. Those numbers suggest a fairly common recession.

Another part of the official narrative is that super-smart druids from the academy rushed in and saved the world from ruin. That’s an interesting aspect of this story. Economists all believe that the Great Depression could have been thwarted, and as a result the events that followed could have been avoided, if central banks had expanded the money supply in response to the crash of ’29. Therefore, the reason this crash did not result in world war and the rise of you-know-who was the central banks expanded the money supply.

Another number that was presented at the end of the film was that the collapse resulted in six million foreclosures. This number is hard to judge, other than the presence of the mystical number six. There’s no question that lots of people lost their homes. It’s also true that lots of connected people cashed in on this by quietly investing in house flipping operations that preyed on the vulnerable. I recall being in Las Vegas sometime after the crash and thinking that the only guy getting rich was the guy selling “For Sale” signs.

Of course, the inability to figure out the details of what was billed as the greatest economic event in world history since the crash of 1929, may have something to do with who was responsible. In a world run by bankers of a certain sort, it is probably a bad idea to point out that the bankers were responsible for destroying the economy. The economists start from the assumption that the failure was not systemic and not deliberate. They seem to view it as a weird accident like leaving the coffee pot on before leaving for work.

It’s like the bias toward normal distributions that Nicholas Taleb discusses in his book, The Black Swan. This blind spot for various aspects of the crash is not the result of some complex conspiracy. Economists are not sitting around plotting to obscure the facts from the public. They simply start from a set of assumptions that rule out things like a cultural bias that manifests as a systemic bias. They can only think systemically within the accepted parameters of the system itself. That means ignoring lots of possible answers.

Like the Great Depression, the mortgage collapse of 2008 has created a specialty of study within the field of economics. PhD’s in economics will be based in this event for generations, assuming the we make it that long. Each book and paper will fill in a bit of the official narrative until the only people questioning it will be cranks and oddballs. This is how religions evolve. As long as the disaster is not repeated again in the near term, the ambitious will be happy to go along with the conventional wisdom.

Another part of the official narrative is what is assiduously excluded from the official narrative. For example, the fact that no one was held accountable for the disaster. Take, for example, Franklin Raines, the head of Fannie Mae. He walked away with millions, never having to answer for his crimes. Angelo Mozilo, the guy in charge of Countrywide Financial, was allowed to avoid acknowledgment of wrongdoing and criminal charges, by paying a relatively small fine to the SEC. He retired a gazillionaire.

Just as important, as Steve Sailer likes to point out, no one even mentions that the Bush Crime Family was largely responsible for the sub-prime loan disaster. It was the Bush administration that pushed banks to drop their lending standards as a part of the “ownership society” campaign and the desire to buy votes from migrants. In fact, the political class emerged unscathed from the disaster. If anything, the catastrophe that was the Bush administration strengthened the managerial state’s stranglehold on society.

Here’s where you see the race obscurantism warp official reality. To focus on the wrongdoings of the Bush people, would require acknowledging some unpleasant realities about diversity. For example, default rates for blacks and Hispanics were three and four times the rate for whites. Similarly, the people targeting these groups with bogus loans were doing so because they knew they were not savvy enough to understand what was happening to them. That opens doors that must remain bolted closed in this age.

My own view on this, to wrap up the post, is that the financial system is built on the biases of the people who control it. A system designed by people who keep a bug-out bag next to their desk, and leave their car running in the parking lot, is never going to incorporate long term risk. Ours is a parasitic system that is designed to drain the blood from the American middle-class. The patches and remedies to keep it going are just that, quick fixes to keep the blood flowing. Eventually, the host will die and the bankers will move on.

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Rich Whiteman
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Rich Whiteman

We’re just livestock on the tax farm, here to be milked until we’re ready for the table when the milk runs dry.
Gloomy perspective.

Tax Slave
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Hence my nickname.

Drake
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Drake

My father was a banker – the real kind who started as a loan officer and moved up the management ladder in community / retail banking. He and his compatriots were very good at accessing risk and making a profit in the personal and small to medium commercial market. What they were bad was managing politicians and their bureaucrat regulators. It has always been a see-saw – flipping between getting hounded to lower lending standards, write loans to minorities and in the hood. Then a couple years later, stern government auditors show up and declare big swaths of their loan… Read more »

Member

” It also enabled the big financial gambling houses to bundle up risks and sell them to suckers.”

What apparently hasn’t registered is that “suckers” made great careers out of buying the crap, and bankers etc who didn’t buy the crap didn’t exceed targets and thus get promoted and didn’t have the opportunity to cash in. Are you a sucker if you get rich being a “sucker”?

Screwtape
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Screwtape

When its all “other peoples money”, propped up by big daddy gov’t, the sucker is the one who applies rational investment merit to decisions in a ponzi. I worked at a major investment bank during this time in alternative/proprietary investing. It was all volume/velocity. Our research team (a bunch of ivy phd’s) were repeatedly told to pound sand aka play ball and stfu about all those pesky metrics that clearly defined the bubble and inevitable collapse. The culture sinister: apply rigorous investment acumen but do so such that reality is artfully kept at bay. The pressure to get $ out… Read more »

Member

I sometimes believe that a lot of us are like boy scouts trying to live our morally programmed lives in a hellish world and expecting some form of justice.

Yeah, they’ll get theirs, right? In a righteous world there would have been a lot of bloody walls. In that world the Hildebeast would be in jail with her husband.

Karl McHungus
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Karl McHungus

Hell man, have you seen Hillary and Bill lately?! It’s like an Oscar Wilde story come to life.

Scars
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Scars

Thomas Sowell wrote THE HOUSING BOOM AND BUST which explained what happened in clear and simple prose.

AFC#9684723
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AFC#9684723

He’s awful on a lot of things, but Taibbi has written some great stuff on this. Netflix (!) even aired a pretty good piece, oddly dubbed in french with english subtitles: “Goldman Sachs: the Bank that Runs the World” The simplest explanation is always the correct one. Bush and friends wanted to buy brown votes. People much smarter than him knew the score and figured out a way to cash in big on both the upswing and downswing, and to protect themselves when the SHTF. The big question: what new hosts will the bankers move on to?

DeBeers Diamonds
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DeBeers Diamonds

Japanese and Chinese banks are “zombies”, stuffed full of debts that will never be paid back, and probably can’t be paid back.

Muslims have admirably maintained usury restrictions, one of the few things they do correctly.

Karl McHungus
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Karl McHungus

Yes, the lack of interest payments has really caused islamic economies to bloom.

A.B. Prosper
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A.B. Prosper

Islamic nations are low trust, lower IQ and clan based. This more than Islamic banking codes creates the issues they face. In any case matters as much as size in an economy is wealth distribution The US GDP is around 20 trillion. However 90% of that is in the hands of around 10% of the population Also the government at all levels spends around 40% of the GDP Therefore the real GDP is 2 trillion or so wages for most people and some part lets call it 25% in direct and indirect distribution Most of America lives in roughly a… Read more »

Linda Fox
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Those usury restrictions? I’ve been told by Muslims that they are largely fictitious – there are workarounds that essentially negate them.

Member

I lived in Saudi Arabia. I paid a “service fee” for a loan up front, and the principal in equal monthly installments over the term of the loan. It’s technically not “usury”, and actually a worse deal than with western banks.

Allah be praised!

Darth Curmudgeon
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Darth Curmudgeon

True – a Muslim coworker of mine explained it. Different countries do it differently but basically they add what would be the interest cost to the price of the house and then pay it off a chunk at a time. See? No interest!

Hoagie
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Hoagie

The college loan bubble.

DeBeers Diamonds
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DeBeers Diamonds

One has to wonder if a malevolent Skynet type AI was put in charge of running the financial system? Could it be any worse than what we are living in? It’s not hard to see evidence that nothing has been learned since 2008. A small hike in the Fed’s interest rates threatens to destroy the economies of Turkey, Argentina, South Africa and Brazil. All of that helicopter money caused the inflation that was predicted, it just wasn’t here. The GOP tax cut exemplifies their collaborationist nature. The banks are run by people that hate Middle America, and think nothing of… Read more »

Lester Fewer
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Lester Fewer

“One has to wonder if a malevolent Skynet type AI was put in charge of the financial system”

It was and is, of course; except it wasn’t “put” in charge, it assumed/arrogated control on its own behalf.

Your phrase “Skynet type AI” is more apt than you realize: simply add “PAC” after “AI” and you’ve essentially named your culprit.

Member

Jews are living in your brain rent-free.

Out here in the real world AIPAC had nothing to do with the housing bubble.

Jaqship
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Jaqship

And, more importantly, the Lehmans were Jews, but Paulson is not.
It was he who called the shots about the bailouts.

Lester Fewer
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Lester Fewer

The stupid is strong with these two young Jedi.

“AIPAC had nothing to do…”

Look up “metonym,” also look up “joke” (see, certain kinds of ‘sentence-completion’ tasks can work as “jokes”. And we all know how Meistersinger Freud concluded that jokes are without sub-surface meaning.)

Jedi No. 2, in his great wisdom, thinks Hank Paulson was the eye of this ‘ere hurricane.

I’ll let a jury of his munchkin peers debate that one.

Jaqship
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Jaqship

So, for failing to read your mind, I / we are Jedi Deplorables?
Perhaps I’ll wear that as a badge of honor.

Member

Paulson is a strange case. It’s not clear how he ended up at the top at GS. He was in charge of the Chicago GS office back when Continental Bank failed (a really big deal back then) so he sat in on all the meetings but the guys from GS New York basically treated him like the idiot brother in law.

Karl McHungus
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Karl McHungus

The American “host’s” immune system is adapting very rapidly to this parasite’s presence. Ignore the doom and gloom, there is real change going on right now — after decades and decades of paralysis. The fact that it is happening at all, is orders of magnitude more significant than the details of any particular change/event. You can make the argument that Obama was able to rise to POTUS is evidence the ancient regime’ was already in a parlous condition; i.e. Obama was an external “virus” that took over the Dem party. Trump is just the same thing, re: taking over the… Read more »

cheesehead
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cheesehead

I remember the first time I heard the IBGYBG (I’ll Be Gone You’ll Be Gone) philosophy on wall street. It became undeniable that the sole concern was finishing the deal, not who will suffer as a result. Bankers commonly view themselves as part of a global elite, so pedestrian concerns of justice or a common good attached to a particular people are out of the question. They just can’t cognize the concept. To some degree, blame also lies at the feet of rand and the obectivists. When OTC derivatives began to explode in the 90’s Greenspan opposed any form of… Read more »

Jaqship
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Jaqship

Yeah, cheesehead, it was the huge pile of *tinder* (the bundling of suspect loans into unintelligible derivatives), which turned a minor collapse of one corner of the real estate market, into a world-wide crisis. The subprime loans get far too much, and derivatives get far too little, attention from many alt-Righters. These loans were merely the *match* which started the conflagration. That conflagration became so dangerous, because of leverage and derivatives. In the S&L crisis of the late 1980s, the bad loans were not the bases for massively leveraged instruments. Thus, the collapse of S&Ls could not endanger major Wall… Read more »

cheesehead
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cheesehead

You’re right the S&L debacle is another good event to mention. The rate mismatch between what S&L’s could lend at and what depositors demanded on deposits made it an untenable business. The longer they operated the more insolvent they became. Instead of targeting the cause, reagan and bush just deregulated the S&L’s, hoping they’d jump into riskier investments with higher returns and “dig themselves out”. Ofc, ibanks saw the opportunity to buy-up insolvent S&L’s and use them as pass-thrus because of their special legal status. The gubbmint didn’t have to issue a bailout and bankers got a loophole. Everyone was… Read more »

Din C. Nuffin
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Din C. Nuffin

The banking analyst addressed our broker training class in 1972. When he finished, someone asked about the Savings and Loans, which he hadn’t mentioned. He responded by flatly stating the S&L concept wasn’t viable. You can’t make long-term home loans against short-term savings deposits, because if interest rates rise, you are broke. Surprise!

Jaqship
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Jaqship

Well, Din, you can get away with borrowing short and lending long, if your derivative hedging against a rate rise holds up in a crisis.
Alas, so many Wall St. firms were awash in so many exotic derivatives, that the failure of one major counterparty casted huge doubt on the solvency of the others.

Jaqship
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Jaqship

Well, cheese, the S&L debacle may’ve directly cost taxpayers more than the ’08 crash.
But, if you include the subsequent *Yellen (etc.) Put*, financed by well-nigh interest-free Fed loans, the math may look different.

These loans may not yet directly affect taxpayers, but, in due course, figure to inflict a huge price upon the general public.
For example, when foreign $$ need to pile back (from $$ instruments) into US goods/ services, you’ll see hyperinflation.

cheesehead
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cheesehead

Yes. What I meant was that the direct cost of the bailout was more. Which is why that is what I said.

MikeCLT
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MikeCLT

You are mostly right. It was not the CDSs that caused the crisis but the securitized debt instruments that caused it. CDS is basically an insurance policy on some type of securitized debt (CDO, CMBS, RMBS etc.). At the time, I remember reading some columnist who urged people not to panic as there were only about $350 billion in outstanding subprime loans. He forgot that there were trillions of dollars in derivatives tied to that $350 billion in subprime loans. The CDSs did in AIG. What did in so many of the banks and brokerages were the trillions in securitized… Read more »

Jaqship
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Jaqship

Really good stuff, Mike.
No way was the GOP brass going to touch the Dems on this, when the GOP brass had cheerled the whole mess from the start.

And, the MSM had also cheerled it all, so they would’ve jumped all over any GOP talk to this effect.

Folks don’t call it the Uniparty Swamp for nothing.

cheesehead
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cheesehead

Agree completely. Swaps were not the precipitating factor. They magnified the size of the collapse. That is what I meant by “accelerated”, but I probably could have been clearer.

Al from da Nort
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Al from da Nort

Mike; I agree that it was hypothecation of the same security as an infinite series of diminishing terms that was a big factor. As mentioned above, the S & L collapse didn’t put the entire financial system at risk because the expanding universe of leverage hadn’t yet been created. Besides that, in ’08 it was mostly a dark universe due to regulatory capture of the uni-party by Wall St. I personally experienced an earlier, smaller bubble in in mid-market commercial lending in ’73 – ’74. I was just out of the .mil for the first time and working as a… Read more »

Drake
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Drake

Not a coincidence that Elliot Spitzer had just chased AIG CEO and founder Hank Greenberg out of the company on ridiculous charges. The idiot they replaced Greenberg with got suckered and destroyed the company.

Cost shareholders and the economy $billions, but Spitzer made his name and got elected Governor – so it was all worth it.

Member

Read Moldbug on the banking crisis, posted exactly 10 years ago. (That is, while it was happening.) He lays it all out. When we ask: “what caused the bank crisis,” we need to distinguish between proximate and ultimate causes. Our focus today will be on the ultimate cause. But first, let’s get the proximate cause out of the way. The proximate cause of the bank crisis is the gigantic vote-buying machine we know and love as the “Democratic Party.” This gave us something called the Community Reinvestment Act, which compelled banks to steer over a trillion dollars in flagrantly bogus… Read more »

Member

Right, a few paragraphs into this I started thinking “didn’t Moldbug cover this shortly after the crisis itself?” And he was largely just co-opting principles identified by Austrian economists decades back. Who cares what mainstream “economists” think – they’re part of the problem! America’s 300-year-old banking system is built on sand. It’s based on an illogical (and in many religious traditions, illegal) practice known as maturity transformation, from which all other problems like fractional reserve and central banking logically arise. It creates asset bubbles – the notorious boom-bust cycle, or business cycle as it is known to the Austrians. What… Read more »

Jaqship
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Jaqship

Good stuff, Lance. For more on the instability of the current system, and for a glimpse at how a new (non- Gold Standard) system will emerge from the crisis of overload of unpayable debt, see e.g. http://www.moneyandmarkets.com/the-g-20s-Secret-Debt-Solution-27996 , and http://fofoa.blogspot.com/2015/05/clean-float-why-dollar-must-collapse.html . For relevant theoretical background on the evolution of capitalism and int’l finance, see the *Austrian* School’s Antal Fekete, esp. on *Menger* and marginal utility, e.g. at http://www.fame.org/htm/Fekete_Anatal_Whither_Gold_AF-001-B.HTM . In that long post, Fekete presents a gripping Hexagonal Model of the workings of the capital markets. In various other essays, he explains how well each side of that hexagon were… Read more »

Member

That last link looks interesting but seems to go to a 404.

I found this with a web search, is it the same?

http://www.24hgold.com/english/news-gold-silver-the-hexagonal-model-of-capital-markets.aspx?article=566808398G10020&redirect=false&contributor=Antal+E.+Fekete

Jaqship
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Jaqship

Lance, you found the latter part of a long essay.
See all of it at http://www.usagold.com/WhitherGold.html .

Member

Not to minimize the damage done by Dubya and his cronies (I hate the bastards), but we must not forget what the Clinton administration did. I had dinner one evening in the mid-90s with a banker who complained bitterly about the abandonment of lending practices being forced on the banking community. The banker swore ominously that the entire system would eventually collapse into a pool of insolvency if the regulations were not reversed. Far from being reversed, the Bush team added their own foolish idealogical prerogatives to the federal rule book of lending regulations.

Jim C
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Jim C

You are correct. The red-lining protests in the 90s started the downgrade of underwriting standards by Fannie and Freddie, and in particular Freddie. Freddie was originally a purchaser of high quality loans and Fannie was the buyer of bad loans. After Clinton, Freddie and Fannie underwriting standards became one and the same, with either purchasing any loan up for grabs. The underwriting standards went to hell which was made possible by a change in the law.

In fact, I am not so sure that Bush did anything more than buy into the ownership BS.

John Juan
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John Juan

Community Reinvestment Act of the late ’70’s given steroids under the Clinton Admin. Those lending institutions that didnt want to play “let’s lend to losers” were threatened with being labeled racist and blah blah blah. During the Bush years this thing had a mind of its own and both parties were championing this as a plus. I remember seeing a video of a Bush admin regulation official being berated by Dem Congress critters over lending practices and how everything was going to be just fine, despite what the numbers said.

Member

In the car dealer waiting room several years ago, I fell into conversation with another retiree who had been a loan officer at a bank. He said he was forced into approving loans to borrowers everyone knew were unqualified. Race wasn’t mentioned overtly, but this is the small-town South and we knew who we were mostly talking about.

Chaotic Neutral
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Chaotic Neutral

I agree with your version and mostly blame the diversity engine for the crisis, but also the understood lack of accountability of the financial class enabled the situation by removing the correctives that should have been in place. As to the people who made money, sort of like bitcoin, I imagine I would take advantage of the situation too. Like as I always decried bitcoin as a bubble, but you can bet if I could go back I would gladly put a couple of thousand in bitcoin! OT, what do people think of this Kavanaugh situation? I find it eeiriely… Read more »

Member

Well, first I would love it if Kavenaugh got derailed, because Trump could do better than Kennedy’s clerk. Unfortunately, the Dems are vicious and the TrueCons worthless, but the fix is in and the effort to stop Kavenaugh going nowhere.

Yes, the Kavenaugh accusations are very like the ones against Roy Moore, but Moore really was a weirdo even if the allegations were crap, and an outsider who couldn’t keep the GOPe onside, while Kavenaugh is to the Swamp born, and favored.

Greg Hiscott
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Greg Hiscott

Mortgages and the Bonds that enabled them were a low margin/low risk investment instrument. That is why the banksters were looking for ways to transform or pitch them as equities where large pools of dumb money would readily buy without fully understanding the risks. The markets had been booming and the banksters caused dumb investors to believe these equities would rise with the tide. This is how the money was sourced. On the other side, the Clinton administration started the loosening of the mortgage rules through legislation and Fannie Mae. The Bushes just turned the volume up as a result… Read more »

Jaqship
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Jaqship

Yeah, Greg, as long as Wall St. can (with impunity) peddle equity-turds to millions of ignorant suckers, the system will continue to flirt with disaster.
See http://fofoa.blogspot.com/2014/12/Global-Stagnation.html , on how massive malinvestment stems from dumb money being herded into “investing” rather than *saving*.

Jaqship
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Jaqship

Let’s try the link again: http://fofoa.blogspot.com/2014/12/global-stagnation.html . Seeing as that post is so long, scroll down to the section “Money Hoarding”, in which the author writes: “The re-lending of credits earned as surplus revenue simulates the money creation process, without actually creating any new money, again overvaluing the unit itself, as the credits enjoy a present purchasing power that would otherwise be lower, if new money had actually been created. Re-lending is fine and normal, to a degree. That degree is, where it is done *professionally*, with one’s own surplus revenue. Where it becomes hazardous is, when it is done… Read more »

Jaqship
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Jaqship

Another key passage from the above link:
“… a glut of passive savings crowds active money out of prudent activities, thereby retarding the entire financial system. For years I have made the point, that investing requires *active specialization*, and should therefore not be a passive activity. That naturally-passive, risk-averse savers are a large and distinct group, separate from investors, traders and speculators, and that only in the present dollar-based international monetary and financial system (the $IMFS) are they forced to swim with the sharks.”

Jaqship
Guest
Jaqship

Bottom line:
The above-mentioned mass flows of dumb money entice smart money to think *less* about the really-viable investments in productive innovations, and *more* about where the dumb money is going to flow, and about when the dumb money is likely to flee.

Mcleod
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Mcleod

My great granddad, who lived to the ripe old age of 106, owned, among other things, a bank. It was one of two banks in the region that didn’t fold during the depression. If anyone made a comment about him owning a bank he would inform them that the federal government has owned the bank since the depression, but they let him keep his office. And yet, he was a Roosevelt Democrat.

TomA
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TomA

Both sides of the mortgage scam knew what was going on. The bankers knew that the loans could never be repaid and the mortgagees knew that there would be an eventual default, but they got to live high-on-the-hog for few years in exchange for an esoteric economic sanction that they didn’t care about anyway. The banker’s cut was the vig on the loan tranches and politicians made sure the debt became federal (see student loan debt for a similar scam). One of the advantages of the extinction of privacy is that the names of the culprits are now known to… Read more »

Drake
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Drake

I’m not a banker, but 10 years ago I could have walked through the neighborhood and accurately predicted which houses would be foreclosed on. The lazy con-man with no legal form of income, and the weird druid family with the drug habit (who quit his job as a Postal Carrier when he won the grand sum of $60k in the lottery) would have been the easy guesses. Before the Sheriff’s auction, both owed far more than the houses were worth and hadn’t made a payment in years. An actual bank would never have handed these losers $700k – but a… Read more »

Dutch
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Dutch

2008 was a weird moment, because the Democrats needed to blame everything going wrong on the powers that be, and make things look and be as bad as possible in the short run, all for votes. At the same time, they needed to play up the idea that their “really smart people” would make it all better. Flooding the system with cash did a good short term job of replacing much of the cash and equity lost in the quickly declining asset values. But we haven’t found any other method of coaxing prosperity along, other than constant financial stimulus. The… Read more »

Guest
Guest
Guest

My take on the crisis is that all economic actors acted in an economically rational response to misguided incentives created by the government and the central banks. Starting from the bottom, consumers who had no business owning a home rationally decided to buy a home. Why not? Fedgov had been pushing banks to extend credit to underserved communities. The central bank had been pushing down interest rates, causing asset prices to rise. Freddie/Fannie had dropped underwriting standards in the secondary market. Why pay rent for a shitty apartment in the ghetto when you can get into a nice, new home… Read more »

Guest
Guest
Guest

Praying = preying.

Dutch
Guest
Dutch

When the security of the system is based on “past performance”, and the financial instruments involved only resemble those of the past, but operate differently, that’s where the “black swans” come from.

Member

Politically, the Cloud People learned nothing from this crisis, because they suffered very little.

Oh, they learned. They learned that the tax payer will bail you out if you gamble high enough.

Chiron
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Chiron

“Another number that was presented at the end of the film was that the collapse resulted in six million foreclosures. This number is hard to judge, other than the presence of the mystical number six.“

Oy Vey.

calsdad
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calsdad

The Federal Reserve IS a parasitic system. I know you don’t like to acknowledge libertarianish thinking – but Ron Paul and economists like Murray Rothbard have been all over this system for a long time. The Federal Reserve prints money – with nothing real backing it up. This is literally a “license to print money”. The dummies on the left constantly bitch about corporations and “rich people” stealing all the wealth – then they turn right around and bitch that the government needs more money to spend on non-productive people. Who the hell do they think gets to spend all… Read more »

Dutch
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Dutch

If I recall correctly, George W didn’t invent the “ownership society” thing, but he bought into it wholeheartedly, once it was out there.

CaptainMike
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CaptainMike

I read the last sentence as “progressive poZZle”
Finally coined a phrase!

Frank
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Frank

ZMan – I was listening to Frank Gaffne on the Radio on Sunday and he had a guest on who talked at length about something I had never heard reported before. He said that the crisis at Lehman was initiated by a coordinated short attack coming out of Quatar and led by the Saudis. He said that they suddenly made a huge short bet against Lehman (called the bank) which exposed the bad loans on the mortgage backed securities, once the massive selling started. It was described as a deliberate attack on a Jewish run financial institution by the Saudis.… Read more »

cheesehead
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cheesehead

Oddly enough they tried MBS’s in early 20th century. It immediately turned into a bubble so the feds banned them. I can’t remember who, but some intrepid banker in the 70’s tried to revive them to some success. ibankers love them because you don’t have to deal with borrowers and people will usually do whatever it takes to avoid home loan default, so supposedly the risk is lower. I imagine they will stick around.

Member

Well it wasn’t a banker, it was a lawyer. Jason Kravitt at Mayer Brown. He’s still around!

Tax Slave
Guest

“ These are the folks who run around making sure everyone in the human sciences says “race is a social construct” five times a day while facing Frankfurt.”

Don’t forget “getting on their knees mimicking the motions of fellating George Soros.”

Lester Fewer
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Lester Fewer

Kurt Vonnegut once drily suggested that instead of “E pluribus unum,” the motto of the U.S. should be “Grab all you can, or you won’t get anything at all.” Looks like all the key players in this racket agreed. A simple (but not perfect) heuristic for all this would be to disaggregate the typical “means, motive and opportunity” checklist for crime-solving: viz. there are three players instead of one. Means: the various crooks who dine out on America’s childish, simple-minded and sentimental racial politics — libtards, Goodwhites, race hustlers, gibsmedats, and (((genocidal subversives))) who all saw a way to leverage… Read more »

Lester Fewer
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Lester Fewer

“banisters” should be “banksters” obviously; whoever writes autocorrect software needs to adjust for post-English usage.

Christopher Chantrill
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Christopher Chantrill

Couple of points (expanded on my blog). Bagehot in “Lombard Street” writes that the credit system needs two things: properly collateralized loans, and borrowers that can make their payments. If either is questionable (hello blacks and Hispanics) then people start to worry about the weak links. Second, in the central banking era (invented by the Dutch and cribbed by the Brits and then Alexander Hamilton) the government bets the country with its sovereign debt. This is win-win for rulers that have squirreled away their bugout money. But not, of course, for deplorables. You can blame greedy bankers all you like,… Read more »

Altlander
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Altlander

I think also the generational angle cannot be ignored. It’s like I told my son who is a millennial, (I’m a genxr) the generation that grew up in the greatest period of growth and relative safety, decided that instead of taking on the chin they would borrow from the next two or three generations. That is what will continue, we don’t live in one America, we live in several. There’s Boomer America, the America that gives it all away: jobs to China, NAFTA, basically dismantling “their “ inheritance and selling it to make their wealth go a little further. There’s… Read more »

Jaqship
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Jaqship

Yeah, Altlander, it’s pathetic when these Boomers, of all people, call others “snowflakes”.

Altlander
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Altlander

I know right? The endless preaching by those people and look at them.

Hollowpoint
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Hollowpoint

Atlander…….I’m a mid-60’s Boomer and I didn’t vote for or even think of anything you said about my generation. I drove truck cross country, worked hard and lived my life. I’m so far from being rich that Church Mice take pity in me and give me a few scraps once in a while. Jesus H. Krist, what was I supposed to do? Rub a crystal ball and diabolically cackle with glee as I raped the environment, screwed the workers and bombed the world? All the while living like a King and having my filthy way with vestal virgin. Gee wiz,… Read more »

Altlander
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Altlander

How can we settle anything? Whats done is done, sorry bout your generations legacy.
I used to hear from boomers, “sorrry you kids are gonna get stuck with the bill and the mess”
My reply was this, don’t feel bad for us, I can keep working and get it back, YOU are retiring into the worst most uncertain time since the Civil War, what will you boomers do? Probably make it legal to adopt immigrants as long as they take care of you.

Hollowpoint
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Hollowpoint

Altlander…..That’s a nonsensical reply. It does not address what I was asking. Since you seem very confused and angry, here is my question again in a different frame of reference:

What specifically would you have done, in my place, to change the future?

BTW, if you ever actually heard any “Boomer” saying something as ridiculous as “sorrry you kids are gonna get stuck with the bill and the mess”, then you were delusional and most likely smoking something toxic.

NOBODY ever said that, but it sounds good to you so you went for it.

calsdad
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calsdad

Personally I don’t see this as much of a generational thing as I see it as an ideological thing. The generations get swept up in the blame game because by and large generations adopt the prevailing bullshit that dominates the time period they grew up in. The generations thing seems like horseshit to me anyway. I was born in 1964 – and lately I keep getting called a boomer. Twenty years ago – I was Generation X. Not quite sure exactly how I’d fall into the category of a boomer seeing as how I was born almost twenty years after… Read more »

calsdad
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calsdad

As soon as the Federal Reserve came into being in 1913 – the current generation was borrowing from the future with no intent on paying it back. The train sped up in 1935 when Social Security was created. The hard money crowd knew damn well what the Federal Reserve meant – and were against it when it was created. There’s a reason why Andrew Jackson shut down the National Bank. There were people calling out Social Security for the Ponzi scheme that it is – at the time it was created. Everybody seems to be blaming the Baby Boom generation… Read more »

Dutch
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Dutch

“The big money people didn’t like that there was nothing in the system backing them up, and they could (and did) lose their fortunes to the whims of capitalism. Which is of course entirely as it should be”. Money quote, right there. The financiers bought off the politicians (cheaply), the Federal Reserve was created, and the rest was history.

Tim
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Tim

“Republic as it had stood – was not up to the task of empire and the centralization of command that was needed to run that empire.”

Tremendous comment. And that was, and is, the bottom line. Once you go Empire, you never go back.

calsdad
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calsdad

Here’s another graphic that clearly shows how the bogus finances directly track the advancement of the empire from the beginning of the progressive experiment. The chart clearly shows the point those people who refer to the US as the “Empire of Debt” are trying to make:

http://www.woodpilereport.com/photos/chart-debt-to-gdp.gif

Rod1963
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Rod1963

Parts of CA were ground zero for the RE bubble. I remember it quite well, entire housing tracts were being populated by illegal aliens and poor blacks. All thanks to NINJA loans and balloon mortgages. Anyone could get a home back then. Although at very high prices. We had two room shacks out in Mojave, CA go for $95,000.00 at the peak. Guys were quitting well paying jobs to flip homes. One man I knew had 24 homes he was flipping at one time. That wasn’t the worst. Other idiots were treating their homes like ATM’s with HELOC’ and going… Read more »

Jaqship
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Jaqship

Ironically, Rod1963, it may not be beyond patching, if FoFoA etc. are right (about the Freegold patch).
(See my above reply to Lance, at 12:52 PM.)

However, it’s likely that, if the Freegold patch works, many current elites will become paupers.

Jaqship
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Jaqship

At that FoFoA link ( http://fofoa.blogspot.com/2015/05/Clean-Float-why-dollar-must-collapse.html ), he shows how the current Dirty Float int’l system will be replaced by a Clean Float system, wherein gold is Free from the Gold Standard shackles, to *informally* aid the (“natural”) mechanisms for settling trade etc. imbalances, before these imbalances can grow to destabilize the world economy.

Al from da Nort
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Al from da Nort

Rod; Good points about the greed and frenzy of the period. I recall it too as an observer scratchin’ ma haid. No swindle works without the greed and stupidity of the mark. Hence the literally true saying, ‘You can’t cheat an honest man’, meaning you’re unlikely to be swindled if you are not inclined to take what you know to be unfair advantage of an *apparently* foolish mark (actually the con-man). So, greedy, short sighted folks used their houses like ATM’s or bought mega-houses they planned to mail in the keys on once the ARM reset. And many of them… Read more »

Unknownsailor
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Unknownsailor

Karl Denninger was all over the fraud of the housing bubble.

It was widespread, pernicious fraud, from end to end, en toto. And to date, not one person has gone to prison.

Jaqship
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Jaqship

Yeah, Unknownsailor, KD was a pioneer in agitating for prosecutions, and for incentives to minimize leverage.
Too bad he so wantonly wields the Ban Hammer, that he drives off thoughtful critics.

Joe Y
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Joe Y

I was a consultant for both F’s, but mainly Fannie, and also for several Citi units that were responsible for making the loans that collapsed. I was on the ground level, in charge of creating classes for employees of both the Fs and Citi in making sure these loans went through. From the perspective of the front lines of both organizations, the mentality was simply that these loans had to be made or their organizations would get in tremendous trouble with the government. The F agents were in charge of working with banks to get them to make loans which… Read more »

calsdad
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calsdad

Thanks for bringing this up.

Yes – the loans to people who were completely unable to pay was the doing of the Federal government. As you pointed out – underwriting is a science and banks don’t typically make stupid loans without a lot of “incentive” ( a gun to the head is a good incentive).

Member

Joe Y, great comment.

Member

“These are the folks who run around making sure everyone in the human sciences says “race is a social construct” five times a day while facing Frankfurt.”

Bwahahahaha!

MrZero
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MrZero

I met with a stock broker two days ago. He was discussing risks and mentioned the beta risks of portfolios: https://en.wikipedia.org/wiki/Beta_(finance) I mentioned, pace Nassim Taleb, that this does not measure right tail risk at all. That the financial crash was in no way anticipated or cushioned by this (useless) metric. If something happens infrequently it can’t be modeled. Like trying to predict if a black swan in fact exists from looking at all know examples of white swans. No machine learning can predict data that never existed before. As AI takes over these types of risk will haunt and… Read more »

Dutch
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Dutch

The way I like to explain it, is that Wall Street likes to talk about the equivalent of batting averages, when what investors want to know is what is going to happen in the next at-bat. Investing is about finding a satisfactory return amongst the probabilities inherent in an investment environment clogged with an infinite number of variables. The way to save your skin in an adverse outcome is to not bet too heavily on any one set of outcomes. A fundamental problem with Wall Street is that investing is actually gambling, and the g-word is verboten in talking with… Read more »

Jaqship
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Jaqship

Why not gamble, when you know the Fed etc. will cover your losses?

Member

I chuckled my way through this one, with a few guffaws along the way. The last sentence brought ne up short. Where will the bankers run when it all does collapse.

Terry Kirkpatrick
Guest

What about the role of Frank and Dodd — Frankendodd?

Swrichmond
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Swrichmond

ACA Capital ==> Bear Stearns ==> Lehman Brothers.

Member

With all due respect, the CRA/ “Ownership Society”/ Affirmative Action angle wasn’t the prime driver. It was the latest in financial engineering , the combination of tranched Mortgage Securitization and Credit Default Swaps. Huge amounts of money were being made by inducing rating agencies to give high ratings to complex bundles of crap, the Mortgage Backed Securities. The agencies were paid by the bundlers so any staff who made a stink were canned. Pension Funds and and others bought the MBS on the high ratings plus the historically low mortgage default rate without understanding the crap they were buying. The… Read more »

Moran ya Simba
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Moran ya Simba

This reminds me of the post, allegedly on software, about ‘sometimes it is just better to start over again from scratch.’ The modern financial market is completely intransparent and hypercomplex. And I dont think any single individual fully understands it. But I do believe this ‘obscurity in complexity’ is part of a new strategy to deliberately mislead. And it could well be a rational strategy for a high IQ elite to mask their intentions and power from ‘the masses.’ Then there will be a branch of slightly sharper tools in the shed who feel ‘left out of the fun’ and… Read more »

Jagman
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Jagman

An excellent book was written about the 30 year build up to the 2008 crash. Called “The Sellout”, by Charles Gasparino. It is extremely well documented and detailed.
It’s a good read for those who would like to learn the full length “backstory” of what happened.

Chris H
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Chris H

I’ve always been somewhat befuddled by the hyperbole of ‘Worst Financial Crisis since the Great Depression.’ Maybe I’m too damn old, but when did all this leapfrog the Jimmuh Carter days?’ Shid was off the chain with peanut head- unemployment, interest rates and inflation around double-digit, and of course who can forget the Misery Index.

Blegoo
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Blegoo

Z… I’m surprised that you link “…no one even mentions that the Bush Crime Family was largely responsible…” to the subprime crisis.
Not a word about “Community Reinvestment Act” of 1977″ ?
As far as I know… Carter was president.