The Cretinism of the American Left & the Mortgage Crisis

[Lounsbury]

Well, on request, although I have observed my own OP's suck, I shall bravely take on the entire American Left in observing that Left populist positioning on mortgages and the financial crisis is incoherent rot (http://www.huffingtonpost.com/2009/07/29/frank-threatens-banks-we-_n_247286.html) and their general position on banks incoherent. Mad that banks make profits, mad when they lose money.

There we are there's the OP. Banks should be profitable, but not too much so, and watch out for depositor's interest, but not at the expense of the Holy Homeowner who greedily over leveraged during the housing boom.

And just to be Blog Spotting and Self Referentialish, I will add in that the Left is incoherent on regulation as evidenced by this: kind of commentary on regulation in banking (http://www.motherjones.com/kevin-drum/2009/04/basel-squared)

[SmartAleq]

My observation is that the Left predominantly wants to fix things, to make things right and acknowledges that there are no simple answers in a world where deregulation and feeding frenzy tactics turned the world economy into the biggest overturned Port-A-Potty imaginable. The Right, on the other hand, seems mainly to want to blame the victims, e.g., blaming Fannie and Freddie loosening their lending guidelines to allow more low income people to afford modest houses, rather than focusing on the high end mortgage vendors who speculated hard on the real estate bubble by offering ever more outragous ATM style equity loans on properties whose valuation was suspect and with terms that pretty much guaranteed default and foreclosure absent an unrealistically performing market in real estate. Also conspicuously absent from blame from the Right are the deregulated investment/consumer/business megabanks (made possible by erosion of Glass/Steagall and the passage of the Graham/Leach/Bliley Act) who bundled and sold tranches of these insolvent loans as though they actually had AAA value (as opposed to AAA valuation.)

The Right seems to be focused primarily on maintaining and reimposing the status quo of the past eight years without ever once acknowledging the fact that the playing ground has changed considerably and that it's just not gonna be possible to stuff that genie back into the bottle. Since they aren't going to get what they want, they appear to have resorted to the twin tactics of "I'll hold my breath until I turn blue if you don't do what I want" and "I got tired of holding my breath so now I'm gonna scream 'NO' as loudly as possible until you give me what I want." Either way, their blindness and wilfull obstructionism hardly does them credit. It certainly is doing nothing to improve the financial situation of the country.

[Really Not That Fucking Stupid Either]

You're not a million miles away from the truth; some people just like being angry, though this attitude is hardly confined to the left.

[SmartAleq]

Actually, at the moment all the really crazy foaming pissoff seems to be coming from the fringe Right, enabled by the rest of them, either tacitly or explicitly. What the Left is more mad about is that the people we put in charge to do a job are trying to back away from doing it. We say we're all grownups here and can face the job of cleaning house, but the status quotidians are trying to play Daddy Knows Best and it ain't sitting well.

[Panacea]

I dunno Aleq, I still hear far too many Lefties wanting to throw more money at things instead of acknowledging that there are No Simple Answers. And I also think that the over-leveraged mortgages can't all be blamed on too-eager lenders ~ some of those mortgagees should have been wiser.

I do agree with you that Righties seem to be very inflexible, and it's sooo hard to get them to compromise on solutions to the problems. Hell, you can't even get them to talk about the problems, they just go on rants about 'socialist policies'.

We just need more centrists, dang it.

[WednesdayAddams]

coll, really. How can you completely excuse the banks from blame when they were using such shoddy business practices? It is their job to make money, yes, but it is also their job to correctly differentiate between good and poor risks. Many of those mortgages were very poor risks indeed. In short: just like two parties having sex, either one could have said 'no.'

[Lounsbury]

And just to be Blog Spotting and Self Referentialish, I will add in that the Left is incoherent on regulation as evidenced by this: kind of commentary on regulation in banking (http://www.motherjones.com/kevin-drum/2009/04/basel-squared)

And not a single person got my in joke so far. SDMB, think back.... someone think back.

[Lounsbury]

coll, really. How can you completely excuse the banks from blame when they were using such shoddy business practices?

I did not completely excuse the banks.

However, it is worth pointing out that as I understand the American mortgage lending market, "the banks" in most of the problem "sub prime" (low quality borrowers) lending were not in fact banks, but mortgage brokers, often licensed on your State level rather than with a proper national regulator. That in itself is utterly ridiculous, but as the US is attached to archaicisms in this area...

To my understanding, actual mortgage lending via the classic (nationally regulated) banks largely held up (here differentiating from some national bank portfolios that got contaminated by buying up said mortgage brokers / specialists).

It is also my understanding that among the larger proper banks (deposit takers) on a quasi national regulatory body , the worst performers was under one serial failure, your Office of Thrift Supervision. It entirely escapes me why this entity even exists.

So, I excuse "The Banks" only insofar as my understanding

It is their job to make money, yes, but it is also their job to correctly differentiate between good and poor risks.

Yes, and there are many ways to do so, in the credit business it's called pricing risk.

Many of those mortgages were very poor risks indeed.

Very high risk. Not the same as 'poor risk.'

That does not mean of course that the US banking system dealt properly with said risks (including the clear signs of an asset bubble and collapsing lending standards among the mortgage brokers).

In short: just like two parties having sex, either one could have said 'no.'

Yes, but that also means that howling for the scalps of the lenders (and painting all of them with the same brush is not justified, rather than looking at the sins in the politicized low income lending area and the madness of the regulatory system.

[Panacea]

Here, I think you dropped this: )

[Really Not That Fucking Stupid Either]

The current administration has proposed the creation of a consumer financing protection agency- sort of a lending version of the Securities and Exchange Commission, which would sort out some of the issues you raise (without throwing money at the problem) but still wouldn't regulate nontraditional mortgage lenders.

AFAIK, if the mortgage lenders only operate in their own states, there's nothing us lefties or anyone else can do to regulate them on a national level.

[BJMoose]

The current administration has proposed the creation of a consumer financing protection agency- sort of a lending version of the Securities and Exchange Commission, which would sort out some of the issues you raise (without throwing money at the problem) but still wouldn't regulate nontraditional mortgage lenders.

AFAIK, if the mortgage lenders only operate in their own states, there's nothing us lefties or anyone else can do to regulate them on a national level.

Seems to me the "regulate commerce" clause in the Constitution has long been used as justification to meddle in 'local" matters. In any case, it seems that if government gets a hankering to stick its nose in someone's tent, it will do so.

Alas, lack of appropiate regulation seems to be the ultimate reason for these messes. I find myself thinking of the Savings and Loan meltdown in the Eighties, where a stodgy but functional system was ruined when the greedy folks (a.k.a. "fiscal conservatives") got the rules loosened up and promptly screwed the pooch. (I'm not even sure there are any S&L's any more. At any rate, I can't think of any in these parts.)

This subprime business would never have happened if there were a simple rule requiring mortgage makers to keep those mortgages for the life of the loan. There is no incentive to avoid "bad" loans if you know you won't be left holding the bag.

[Really Not That Fucking Stupid Either]

The regulate interstate commerce is indeed used to meddle in local matters, but even Congress needs a pretext. If businesses don't do business across state lines, the Fed has to keep its hands off.

Savings and loan associations are still around, mostly in the South and the Northeast I think, although they're called co-op banks up there.

Fannie Mae and Freddie Mac took over a lot of their market after the S&L collapse- low-income consumers requiring underwriting of small loans.

[Lounsbury]

The regulate interstate commerce is indeed used to meddle in local matters, but even Congress needs a pretext. If businesses don't do business across state lines, the Fed has to keep its hands off.

The resale of lending portfolios to the national and international as in the case of securitisation is a more than sufficient excuse, one should think.

Savings and loan associations are still around, mostly in the South and the Northeast I think, although they're called co-op banks up there.

Your S&L regulator was rebranded as Office of Thrift Supervision, and once again shows up as your worst national regulator.

Of course, why you do not have a single Credit Regulator utterly escapes everyone, but perhaps your idiot representatives that like having multiple committees to sit on.

Fannie Mae and Freddie Mac took over a lot of their market after the S&L collapse- low-income consumers requiring underwriting of small loans.
No, those entities are not primary lenders, that is they do not lend to retail customers. They buy loan portfolios from primary lenders, as I recall historically had to come from the prime market and from primary banks. I seem to recall reading that a change of policy was obtained late in the game, 07?, to allow them to buy non-Prime mortgage loan portfolios.

The purposes of such entities was to allow quality mortgages (which historically had performed well) to be sold on, giving cash to the banks / primary lenders to recycle and lend out. If loans of a 30 year term sit on the bank's books, that money is locked up for the term.

[Really Not That Fucking Stupid Either]

Of course, why you do not have a single Credit Regulator utterly escapes everyone, but perhaps your idiot representatives that like having multiple committees to sit on.
Our idiot representatives like to look busy. Combine that with federalism - which, to be honest, is probably unavoidable to some degree in a country this big - and you end up with 18 regulatory agencies instead of 1. That's simply the nature of the beast.

The trick is not to shove everything under one giant umbrella, but to make sure your many smaller umbrellas are properly placed to keep things from getting wet.

ETA: Fannie Mae and Freddie Mac "took over part of the market" in the sense that they required/encouraged/indemnified larger primary lenders to issue loans that only small local lenders would have made before.

[Lounsbury]

Seems to me the "regulate commerce" clause in the Constitution has long been used as justification to meddle in 'local" matters. In any case, it seems that if government gets a hankering to stick its nose in someone's tent, it will do so.

Yes, analytically there is plenty of reason, however it is your Congress that likes the bizarre byzantine system you have.

(I'm not even sure there are any S&L's any more. At any rate, I can't think of any in these parts.)

I am not sure 'Fiscal Conservatives' had anything to do with the US S&L crisis, but you still have Thrifts (S&L's), and indeed a separate Thrift regulator, the Office of Thrift Supervision (remade from the S&L regulator, and once again a failure). Why you need such an entity when the rest of the world has a unified bank regulator....

This subprime business would never have happened if there were a simple rule requiring mortgage makers to keep those mortgages for the life of the loan. There is no incentive to avoid "bad" loans if you know you won't be left holding the bag.

Perhaps.

However, there are also compelling reasons to have securisiation, to enable more long-term lending to various markets. Which is not possible if loans stay on the books.

What is most certainly the case is when you allow unregulated rubbish into a system that passes off risk down the line, you get problems. Allowing effectively unregulated originators to sell securities nationally and internationally was insane, it was a situation that fairly screamed for oversight.

[Lounsbury]

The trick is not to shove everything under one giant umbrella, but to make sure your many smaller umbrellas are properly placed to keep things from getting wet.

Queer, other large countries manage to have unified regulation. Making sure "many smaller umbrellas" are properly placed is idiotic wishful thinking. Multiple agencies supervising what is in the end one core business - lending - make no sense. None, nada, zero, walou, la haga, etc. And, oddly, no other proper country in the world does so. Your banana republic habits notwithstanding.

ETA: Fannie Mae and Freddie Mac "took over part of the market" in the sense that they required/encouraged/indemnified larger primary lenders to issue loans that only small local lenders would have made before.
In other words, you were utterly wrong.

The US Gov backed mortgage agencies did the same business as always (buying mortgage pools). Other lenders moved in.

[Really Not That Fucking Stupid Either]

I am not sure 'Fiscal Conservatives' had anything to do with the US S&L crisis...
Most definitely. S&Ls never had to be tightly regulated until the 80s because they could only offer two services: depository savings accounts and secured personal loans.

The Depository Instutitions Deregulation Act and the Garn-St. Germain Depository Institutions Act, both Reagan initiatives, changed that, by allowing federally chartered S&Ls to provide normal banking services like credit cards and unsecured loans. However, they didn't subject S&Ls to the oversight that banks were under.

Most S&Ls were almost "mom and pop" jobs with a few dozen employees at most. Few had any staff who knew anything about credit servicing or other bank functions. They were bound to fuck it up.

[Really Not That Fucking Stupid Either]

Queer, other large countries manage to have unified regulation. Making sure "many smaller umbrellas" are properly placed is idiotic wishful thinking. Multiple agencies supervising what is in the end one core business - lending - make no sense. None, nada, zero, walou, la haga, etc. And, oddly, no other proper country in the world does so. Your banana republic habits notwithstanding.
Other large countries don't have the constitutional constraints we do, and your "banana republic" comment is nonsensical. Banana republics are invariably tiny and are unlikely to have more than one lending institution, let alone more than one regulatory agency.

[Lounsbury]

Other large countries don't have the constitutional constraints we do,

Bollocks. You have a multiplicity of National level regulators for credit (never mind a mind boggliing balkanisation at the provincial level). Your constitution as such has fuck all to do with your incompetence and archaicism in the area of financial sector regulation.

and your "banana republic" comment is nonsensical. Banana republics are invariably tiny and are unlikely to have more than one lending institution, let alone more than one regulatory agency.

More tripe.

Primo, Banana Republic as a phrase has been applied to substantial nations such as South Africa, Brazil, Argentina, etc. so your bit of literalism per origin is really the nonsensical part (although I would hardly say Honduras is tiny. Not huge to be sure, but hardly tiny).

Secundo, historically lower income countries have a rather large number of banks, insofar as they're generally quite small and atomized banks. I seem to recall little Jordan, where I once worked, having 18 odd banks for a population of 5 million resident (c. 10 yrs ago).

[Really Not That Fucking Stupid Either]

Secundo, historically lower income countries have a rather large number of banks, insofar as they're generally quite small and atomized banks. I seem to recall little Jordan, where I once worked, having 18 odd banks for a population of 5 million resident (c. 10 yrs ago).
That's not a large number. The Netherlands has 120-odd banks serving a population of ~16,000,000.

[SmartAleq]

The interface where efficient regulation runs into state's rights is an interesting one. On the one hand, it only makes sense that consumer protection measures, such as the proposed regulation of credit card rates/fees/etc., be administered at the federal level and that there be a unified set of rules--thereby avoiding such cockups as Delaware being the putative home of a bajillion credit card companies due to the laxer regulations of the state. It's like having a Liberia in your country, kinda dumb.

On the other hand, maintenance of the state's rights and vigorous policing of what the feds get to administer vs what the states take care of is a good thing and allows us to experiment with smaller communities deciding their own character without undue interference from a central government. For example, the federal government is highly unlikely to legalize weed any time soon but if the weird interstate commerce rules were changed to make sense individual states could and would make their own accomodations as to how far they're willing to go with it. I could see California, Oregon and Washington saying fuckit and going whole hog, which would bring a whole huge industry of tourism and new products and a new tax base into the mix, but a state like Ohio wouldn't be nearly as likely to allow such naughtiness out there where the children could see. Right now the ponderousness of federal oversight prevents us from trying the experiment.

I think that's what Really is getting at--we really do have fifty individual governments operating under a federal umbrella and whereas this can lead to some really bizarre loopholes in regulation it would be retarded to throw out the baby with the bathwater and convert completely to a system where the federal law is all there is. It's a dichotomy we've struggled with all along, but it's also where our weird diversity and vigor comes from, in large part.

So the real trick is to identify what needs oversight at the top level--I'd say that banking, credit card lending and mortgage lending need to be standardized and administered the same across the board. Health care ought to be in there, too, one set of rules for every provider across the country. Most everything else can and probably should be left to the states to decide based on the individual character of the population and the unique needs of the state. When you look at a state like California, it's pretty easy to see that the laws it needs are going to be vastly different from a state like, say Montana.

[Lounsbury]

That's not a large number. The Netherlands has 120-odd banks serving a population of ~16,000,000.

Netherlands has an entirely bankable population. 16 odd millions and a per capita income in the US$40k range.

Jordan was around 5 millions with a per capita income of around US$2k. Bankable pop maybe a million.

Nevermind that I am too lazy to go and verify my sense that your banks number relative to retail lending banks is wrong.

[Sybarite]

Other large countries don't have the constitutional constraints we do, and your "banana republic" comment is nonsensical. Banana republics are invariably tiny and are unlikely to have more than one lending institution, let alone more than one regulatory agency.
You might find it interesting to look up the Canadian banking system. It has emerged from the subprime crap as the stablest banking system in the world; I don't know if by "constitutional constraints" you mean the amount of constraints at various levels or the overall level of constraints, but I think the Canadian system is quite constrained, which turned out to be a Good Thing.

[Lounsbury]

You might find it interesting to look up the Canadian banking system.

More properly the Canadian bank regulatory practice.

It has emerged from the subprime crap as the stablest banking system in the world;

Ahem, you have done okay so far, but stablest in the world is a bit much.

I don't know if by "constitutional constraints" you mean the amount of constraints at various levels or the overall level of constraints, but I think the Canadian system is quite constrained, which turned out to be a Good Thing.

They mean American approach to Federalism, but that's somewhat silly.

The Canadian regulatory system relative to banking was good and solid, market regulation however suffers from some of the same issues as the US.

In any case, unlike NY, Paris, London, Tokyo, Hong Kong - Canada is not a big money centre so some issues the US system must face, Canada does not.

[The Second Stone]

Well, at least all those people who lost their homes are going to suffer for their stupidity. Banks will just get bailed out, or whatever the euphemism of the day is by the public at large and then get big bonuses guaranteed by the taxpayer.

[Lounsbury]

Well, at least all those people who lost their homes are going to suffer for their stupidity. Banks will just get bailed out, or whatever the euphemism of the day is by the public at large and then get big bonuses guaranteed by the taxpayer.

Glad to see at least one example of cretinous populism stepping up. Please expand. There is little material to work with here.

[john ingram]

Are you denying that people have lost their homes, or that banks are being bailed out? Or are you just being deliberately obtuse?

[The Second Stone]

Glad to see at least one example of cretinous populism stepping up. Please expand. There is little material to work with here.

Work with what God gave you. Pull yourself up by your bootstraps like that Wedgewood heir Charles Darwin did.

[Lounsbury]

Are you denying that people have lost their homes, or that banks are being bailed out? Or are you just being deliberately obtuse?

I was hoping for something of substance to work with.

Banks bailed out, citizens losing homes. Yes. Bonuses, well unclear grammar, but we can deduce some incoherent rage about employees getting paid contractual bonuses.

Where to go with this?

It does get us back on the incoherent populism of the American Left (strike that, the Left in general) with respect to the financial sector.

However, the digression above is useful for highlighting that the American regulatory system itself was in no small part at fault (along with private behaviour, both bank and non-bank and clientele). Beyond the issues cited, the excessive reliance on the Ratings Agencies, required and driven by the regulators themselves relative to the securities was a perverse incentive that ended up sabotaging a system (securities ratings) that had worked well over a good 100 years or so, say 70 before the regulators started wholesale co-opting ratings as a substitute for their own judgment.

So back to the incoherent populism of the Left - particularly in the US. Sadly, in politics the "easy for the unwashed to understand" rules in policy, but taking first the mortgages and securitisation side of this Frank fellow's problem re reworking mortgages: an unknown, but rather large percentage by most estimates, of the mortgage based securities (MBS hereafter) were sold on to pension funds and similar retirement schemes. Given the dominance in your market of the big public pension and related retirement schemes, that automatically means a good portion of the MBSes reside now in funds that largely serve the middle to lower classes retirements. Not rich folks, but actually the great Middle owning for the future its own housing problems (to the extent that there is an identity between US Middle Class [in the US sense] and over-indebted homeowners).

Focusing on the "poor homeowners" (and I rather find it hard to credit that a majority of this lending was "predatory" in any sense of the term, except to the end buyer of the securities, ironically the pension funds serving the mass public) ignores the effects on the securities holders, that is the effects on the retirements of a significant percentage of the populatoin. Of course retirement requires being forward looking... And sucking up the sob stories of people who used their houses to finance current consumption or bought too much house in a massive speculative flipping game.

Now things have blown up, and voila, all the banks fault (never mind the factual correction supra in thread re lending sourcing), and also the masses can howl on if in fact the banks recover and actually make money. Clearly what needs to be done is for there to be a bailout, then the banks should adopt socialist lending policies to lose yet more money, but help the schemers who overspent against any basic financial logic at all, because that's the heartfelt simple minded thing to do.

[Really Not That Fucking Stupid Either]

Then it seems obvious that the most sensible course of action would be to bail out the mortgagors, ensuring that they get to keep their homes by continuing to pay their mortgages, which would keep the lenders from going bust.

[Lounsbury]

Then it seems obvious that the most sensible course of action would be to bail out the mortgagors, ensuring that they get to keep their homes by continuing to pay their mortgages, which would keep the lenders from going bust.

Obvious is not equivalent to rational or right.

Bail out borrowers who abused or exploited loose credit, at the expense of depositors and pensioners / taxpayers in general (as that is the real choice) is bad policy and contra the simple minded emotional analysis, not really helpful.

So renters pay for McMansions in the end.

[BJMoose]

Most definitely. S&Ls never had to be tightly regulated until the 80s because they could only offer two services: depository savings accounts and secured personal loans.

The Depository Instutitions Deregulation Act and the Garn-St. Germain Depository Institutions Act, both Reagan initiatives, changed that, by allowing federally chartered S&Ls to provide normal banking services like credit cards and unsecured loans. However, they didn't subject S&Ls to the oversight that banks were under.

Most S&Ls were almost "mom and pop" jobs with a few dozen employees at most. Few had any staff who knew anything about credit servicing or other bank functions. They were bound to fuck it up.

Small nitpick: I would say that they limited their business to savings accounts and personal loans because that was all they were allowed to do; i.e., they were tightly regulated.

They certainly were simplistic businesses. I always figured that S&L execs begged for deregulation because they simply wanted more to do than decide whether to offer toasters or waffle irons as bonuses for opening a new account.

[Really Not That Fucking Stupid Either]

Obvious is not equivalent to rational or right.

Bail out borrowers who abused or exploited loose credit, at the expense of depositors and pensioners / taxpayers in general (as that is the real choice) is bad policy and contra the simple minded emotional analysis, not really helpful.

So renters pay for McMansions in the end.
Or, we could bail out traders who abused or exploited the loose regulatory system, at the expense of depositors and pensioners / taxpayers in general.

Both methods reward the responsible and the irresponsible equally.

[SmartAleq]

I do have some empirical evidence of the predatory side of the lending equation--I was working for a real estate appraiser when the nasty shit started hitting the fan. One thing that drove a lot of the collapse were these funky ARM loans that many new buyers were steered into by mortgage brokers who liked the big fat bonus they got from selling one--a bonus that didn't get paid on a conventional 30 year fixed. Many buyers were told they didn't qualify for any other loan, but that it was okay because by the time the grace period expired on the low introductory rate there'd be no problem refinancing because the house would have appreciated to the point where equity would allow for a refi into a more conventional loan. Unfortunately that appreciation didn't happen and people were stuck with monthly loan payments that in some cases had risen by 150-300%, and with that much going out the door each month it was vanishingly unlikely they'd be able to sock away the down payment required to refi into a better loan.

In many cases, the buyer was uninformed regarding the availability of more stable loan products and the brokers took advantage of them. Yes, they should be more aware but then again most people don't buy enough houses to make them sophisticated in the process and the brokers are supposed to give all the available options. I liken it to a crooked mechanic--give a plausible enough sounding diagnosis in a very authoritative manner and it's going to be hard for a n00b to gainsay it.

[Lounsbury]

I do have some empirical evidence of the predatory side of the lending equation--I was working for a real estate appraiser when the nasty shit started hitting the fan. ....

Anecdote is not data.

And I am not at all sympathetic to people making a 30-40 year commitment for a very large capital purchase who do not shop around. Historically that was the case. If one did not do it, it meant one was playing the game, although of course every one of said personages would swear up and down, post facto, otherwise.

[Lounsbury]

Or, we could bail out traders who abused or exploited the loose regulatory system, at the expense of depositors and pensioners / taxpayers in general.

Both methods reward the responsible and the irresponsible equally.

Traders had fuck all to do with the regulatory failures. Traders (in the sense of people buying and selling marketable [to general investors] securities) had no role in the origin of the problems. Nor did Traders have anything to do with the impact on Depositors.

The original sin for the regulatory regime was the non-regulation (or regulation via weak entities) of a key area of mortgage lending - of which the worst parts came from non-banks, the so called mortgage brokers (I would add that to my knowledge the US is the only serious economy that has such a weak and fucked up system in this area). The second level sin was relative to the securitisation process. Here, the Financial Engineers (AKA Investment Bankers [the term borrowed in part from the Fr. practice of hiring engineers in this area], but more technically people working in structured finance) carry a burden of sin for believing that complex portfolio theory actually could solve the problem of rubbish mortgages. While I personally have long felt said portfolio theory (short hand here) was badly overstretched, and it was foolish to try to structure away risk when one had doubts about underlying quality, a lot of the error was based on a misplaced belief in the quality of the sourcing.

As for the exploitation of pensioners, that is simple minded idiocy. Retirement funds were hungry for return over the past decade, and hungry for higher paying but "Investment Grade" assets (as Funds said funds in the US, UK and EU markets are generally required to hold most assets in liquid, rated assets - and said assets rated only by Approved Rating Agencies, which proved quite wrong odldy enough which raises the question of why Regulators should Approve rating agencies)...

Traders did not dupe Pensioners. Rather Pensioners did not save enough, and Pension funds, trying to meet return objectives, invested in faux-safe securities.

There were a lot of problems in this process, some of which were private (the incentive structure for the Securitization process notably), some of which were Governmental (Regulatory, and in the US, and insane over-incentivization for investment in housing). Populist analysis of the problem will merely lead you to build an even stupider system.

[Ichigodaisuki]

And not a single person got my in joke so far. SDMB, think back.... someone think back.


The Lounsbury,
Just checked your link (http://www.motherjones.com/kevin-drum/2009/04/basel-squared). It goes back to Mother Jones, mentioning the BASEL II accords. Didn't know you read there.
Compared to the article, the comments section has 4x the panachiacity.*

*is that a word? copyright, please?

[Lounsbury]

The Lounsbury,
Just checked your link (http://www.motherjones.com/kevin-drum/2009/04/basel-squared). It goes back to Mother Jones, mentioning the BASEL II accords. Didn't know you read there.
Compared to the article, the comments section has 4x the panachiacity.*

*is that a word? copyright, please?

I believe I rather ranted on about the operational details Basel II versus Basel I.

Okay dammit, no one got it. Blog Spotting. I used to whack a certain december with that stick, insofar as he liked to take some random blog post and hold it up as The Left. My little in joke was in fact I was/ am doing that here. (Albeit with more depth and panache).

[Lounsbury]

Small nitpick: I would say that they limited their business to savings accounts and personal loans because that was all they were allowed to do; i.e., they were tightly regulated.

They certainly were simplistic businesses. I always figured that S&L execs begged for deregulation because they simply wanted more to do than decide whether to offer toasters or waffle irons as bonuses for opening a new account.

While far from being an expert in the history of American banking, as I recallThrifts etc had lobbied to take on wider business as the high inflation environment of the 1970s through early 1980s had substantially damaged their portfolios. The American experience, if I recall correctly, had much common with many mutual type bank structures globally that had regulated interest rates during this period. The Give Aways were desperate attempts to find non-cash means to remunerate deposits in an environment where lending and deposit rates were not keeping up with real cost of money.

In short, not merely greed, but real business pressures from the utter failure of monetary and regulatory policy during the 1970s drove changes. That was certainly the case in other markets, and if dim memory serves, the case in the US of A. Of course the more simplistic narrative is more fun for the Left.

[Sybarite]

More properly the Canadian bank regulatory practice.
That's a good distinction.

Ahem, you have done okay so far, but stablest in the world is a bit much.

Eh, I'm just repeating what I read from various sources (including NPR news. (http://www.npr.org/templates/story/story.php?storyId=95545749)).


They mean American approach to Federalism, but that's somewhat silly.

The Canadian regulatory system relative to banking was good and solid, market regulation however suffers from some of the same issues as the US.

In any case, unlike NY, Paris, London, Tokyo, Hong Kong - Canada is not a big money centre so some issues the US system must face, Canada does not.
True enough.