Thread: Origin of the financial crisis.

Looking back, I'd like to hear what what people think were some of the early events or policies that led to our current financial debacle?

I can think of two, both of which I consider key.

1). Bundling of mortages into marketable securities back in the mid 19080's (I think that's when it was). Beofre that, each lending institution had to be much more responsible for the loans they mad.

2). Credit cards for everyone. I particularly dislike the original business model (by Providian and CapitalOne, in particular, I think) that targeted individuals mediocre credit who would RELIABLY wrack up high balances regardless of credit limit AND continue to be able to make monthly payments with missing payments of less than ~5%.

On a larger scale, I think we just fucked up. Theri are class distinctions in a capitalistic society and we weren't satisfied with that. We believed everyone should have cars, boats, trucks, campers, etc..... the list goes on and on. The lines got very grey as to what the class distinctions were. We got too focused on the affordability of products than concern over the ramifications of such. We sold out too other countries, the list goes on and on. But, to me this seems like it started quite a few years ago and is quite worse than a lot of people want to believe.

Originally Posted by metheron

On a larger scale, I think we just fucked up. Theri are class distinctions in a capitalistic society and we weren't satisfied with that. We believed everyone should have cars, boats, trucks, campers, etc..... the list goes on and on. The lines got very grey as to what the class distinctions were. We got too focused on the affordability of products than concern over the ramifications of such. We sold out too other countries, the list goes on and on. But, to me this seems like it started quite a few years ago and is quite worse than a lot of people want to believe.

Oh, I entirely agree. Individual responsibility has gone down the tube. I think THAT started with these little feel good ideas we started promoting a few decades back. You know the ones that there is not right or wrong only difference. Everybody should be allowed to their own thing. Don't punish someone who fails for any reason (even laziness), because we might hurt their feelings.

I understand what the people who promoted these ideas were trying do. And I applaud the intent. It's just that the implementation had some very serious unintended consequences.

In fact I think the same seeds that sowed greed and irresponsibility on the part of EveryMan might have found fertile soil in the minds of those who staff BigFinanace.

Originally Posted by metheron

On a larger scale, I think we just fucked up. Theri are class distinctions in a capitalistic society and we weren't satisfied with that. We believed everyone should have cars, boats, trucks, campers, etc..... the list goes on and on. The lines got very grey as to what the class distinctions were. We got too focused on the affordability of products than concern over the ramifications of such. We sold out too other countries, the list goes on and on. But, to me this seems like it started quite a few years ago and is quite worse than a lot of people want to believe.

Interesting perspective--really hadn't considered this quite like that before. Thanks, Joe. Wondering though about the positive effects of massive increased consumption on the economy.

basically it comes down to this:
if the people in a certain area make their money from real physical wealth, you'll see recessions when orders fall, but nothing terrible.
If people make their money from speculation, you'll see bubble economics - money being to take on a life of its own and loses all ties to real physical wealth.
Once the US became an economy that A) Allowed massive speculation and B) Began to do speculative practices, that's when it fucked up.

Originally Posted by metheron

On a larger scale, I think we just fucked up. Theri are class distinctions in a capitalistic society and we weren't satisfied with that. We believed everyone should have cars, boats, trucks, campers, etc..... the list goes on and on. The lines got very grey as to what the class distinctions were. We got too focused on the affordability of products than concern over the ramifications of such. We sold out too other countries, the list goes on and on. But, to me this seems like it started quite a few years ago and is quite worse than a lot of people want to believe.

It actually began in the 1920s with Southern Company and other utilities selling appliances with the price and finance charges bundled into the monthly bills.

the real causes of the financial crisis...

Community Reinvestment Act - Wikipedia, the free encyclopedia

The Community Reinvestment Act (or CRA, Pub.L. 95-128, title VIII, 91 Stat. 1147, 12 U.S.C. § 2901 et seq.) is a United States federal law that requires banks and thrifts to offer credit throughout their entire market area and prohibits them from targeting only wealthier neighborhoods with their services, a practice known as "redlining." The purpose of the CRA is to provide credit, including home ownership opportunities to underserved populations and commercial loans to small businesses.

I am sick and tired of hearing everyone blame the market. There is no way in hell market forces alone can cause a bubble the likes of this one. They'd require outside help (like, say, from interest rates being obscenely low or a law against redlining causing too many houses being bought).

Originally Posted by Dr House

the real causes of the financial crisis...

Community Reinvestment Act - Wikipedia, the free encyclopedia

I am sick and tired of hearing everyone blame the market. There is no way in hell market forces alone can cause a bubble the likes of this one. They'd require outside help (like, say, from interest rates being obscenely low or a law against redlining causing too many houses being bought).

I think this act is part of the problem, but certainly not the main problem. You have to look at the federal reserve. They gave loans to banks at extremely low interest rates. That + community reinvestment act = more people getting homes, which increased the demand for homes and sent prices soring. This included an increased risk for the lenders, so they sold off the mortgages to other companies. But it didn't really matter anyway, b/c the feds low interest rates and policy of "easy money" caused a false inflation on all homes. There was no difference between good mortgages and the high risk ones b/c everyones home values were falsely inflated.

Then came the slowdown and the realization that our homes were not worth as much as was thought. We then begin to see foreclosures, people defaulting on their loans, and the banks that made these loans in trouble.

Alot of people that wanted to flip houses for quick cash are simply abandoning the homes b/c they overpaid for them. Other people don't want to be stuck paying for a home that they overpaid for, and some people simply just got screwed.

Now the solutions that the government proposes to fix the problems ~bailouts, lower taxes, stimulus package~requires the fed to print more money and only further devalues our economy and declines the value of our dollar. This will contribute to our cost of living and further hinder the middle class.

Why anyone thinks the federal reserve should not be abolished is beyond me. They are the reason for this crisis, and all previous bubbles, recessions, crisis' in the past.

Abolishing the Fed, repeal of the Community Reinvestment Act and I would add Credit Card exemption from normal loan contact requirements but this list could be extended quite a bit and still not get rid of all the financial market distortions caused by DC.

Originally Posted by mjdsr

I think this act is part of the problem, but certainly not the main problem. You have to look at the federal reserve. They gave loans to banks at extremely low interest rates. That + community reinvestment act = more people getting homes, which increased the demand for homes and sent prices soring. This included an increased risk for the lenders, so they sold off the mortgages to other companies. But it didn't really matter anyway, b/c the feds low interest rates and policy of "easy money" caused a false inflation on all homes. There was no difference between good mortgages and the high risk ones b/c everyones home values were falsely inflated.

Then came the slowdown and the realization that our homes were not worth as much as was thought. We then begin to see foreclosures, people defaulting on their loans, and the banks that made these loans in trouble.

Alot of people that wanted to flip houses for quick cash are simply abandoning the homes b/c they overpaid for them. Other people don't want to be stuck paying for a home that they overpaid for, and some people simply just got screwed.

Now the solutions that the government proposes to fix the problems ~bailouts, lower taxes, stimulus package~requires the fed to print more money and only further devalues our economy and declines the value of our dollar. This will contribute to our cost of living and further hinder the middle class.

Why anyone thinks the federal reserve should not be abolished is beyond me. They are the reason for this crisis, and all previous bubbles, recessions, crisis' in the past.

Did I say that the CRA was the only cause? I said that government meddling was the sole culprit, and that includes the Fed monkeying around with interest rates.

I'm glad you agree with me, though.