Stop Blaming Poor People and Minorities for the Financial Crisis - aka Go Read Griftopia and Educate Yourself

I posted this in another thread, but thought it was worthy of a thread of its own. First of all, if you haven't read Matt Taibbi's "Griftopia" yet, go buy it and read it ASAP.

Second off, I wrote this because I've been reading and hearing enough people make the claim that the crisis was really the fault of the government for pushing home ownership and easing standards to help people with less income / wealth own homes. Yes, that is partially to blame, but that alone could only cause so big a problem. What really caused us to get where we are today is the short-term mentality of big money now, no consequences later. Or, as I put it in another thread:

I always laugh when someone insinuates (or outright claims) that the financial crisis and housing bubble was the fault of poor people spending outside their means on houses they couldn't afford. Let's be clear:

Everyone is at fault, but the problem was made INFINITELY worse by the big banks and AIG, why? Because:

--Boiler-room-esque lending operations pushed products they knew to be shitty for short-term gain, not giving a fuck if the people they were lending to could actually pay things back

--They could do this because the big banks had an insatiable desire to create and pimp out absolute garbage securities in the form of CDOs and the hilarious CDO^2s.

--They knew they could pump out CDOs and CDO^2s because they could go and buy "protection" in the form of CDS from AIG (who wrote them despite never having enough capital to cover them)

--The lenders pimping shitty Option-ARM mortgages and sub-prime crap, the banks making garbage products and marketing them as AAA investments, and AIG selling CDS like they were going out of style took a big problem (people borrowing to buy houses they couldn't afford) and made it INFINITELY WORSE.

And if you want to blame the government, blame dipshits like Greenspan and Bob Rubin and Phil Gramm for destroying the world economy. We bailed out the banks to the tune of trillions of dollars (yes, TARP was paid back, but the banks got WAY MORE HANDOUTS than that AND we haven't been paid back for the backdoor AIG bailout).

But no, why would you possibly go after the real bad guys here, the ones who REALLY fucked shit up, when you can just blame poor black people. Good job!

Now go buy Griftopia, read that shit, and realize that you're retarded.

 

So it is unfair to blame something that started it all?

No shit that a snowball doesn't destroy a house, but when you start it rolling down a hill and it becomes massive it can do damage.

Law of unintended consequences bro.

 
Anthony .:
So it is unfair to blame something that started it all?

No shit that a snowball doesn't destroy a house, but when you start it rolling down a hill and it becomes massive it can do damage.

Law of unintended consequences bro.

Unbelievable. The banks with their pals (Rubin and co.) fucking lobbied to remove all of the regulations that were in place to prevent the shit from happening. Thus, exacerbating the problem to the 1000 degree. Also, you have to be a fool to think that the shit mortgages could have propagated to the extent that they did without the banks demand for garbage to securitize and sell. The lending was pushed by the government, yes, but it was pushed through the roof by those who stood to make MASSIVE short term gains without having to give a fuck about long-term consequences.

 

"The lending was pushed by the government, yes, but it was pushed through the roof by those who stood to make MASSIVE short term gains without having to give a fuck about long-term consequences."

Dude, I need some help. I am going to type 5 words for you and I want you to tell me everything I am thinking by only using those 5 works. Ok?

Jesus Christ. What I just quoted, that you said, was the snowball I am talking about. It got things rolling. Banks went hog wild, people went hog wild, etc.

I want everyone's help. Here is my post:

"So it is unfair to blame something that started it all?

No shit that a snowball doesn't destroy a house, but when you start it rolling down a hill and it becomes massive it can do damage.

Law of unintended consequences bro."

Maybe I am typing in another language. Where in all those words did I say that the banks did nothing wrong or did not add fuel to the fire? Where did I say deregulation had zero effect? Point that out.

Relax bro. I am worried that you might have an aneurysm or something.

 

King,

I haven't read it yet, but I am tempted to make it an NSFW reading recommendation based on your high praise.

That having been said, it's a delicate balance...I have always (and still do, though to a lesser extent as of late) been on the side of the banks. I think if you look at the roots (IMHO, the Community Reinvestment Act of 1977...exacerbated by Henry Cisneros under Clinton) of the housing crisis, you cannot ignore the incentives were manufactured with the intent to "trap" the uninformed. I personally choose to approach things with a "fool me once shame on you, fool me twice shame on me" attitude. This is why I can't let "poor" people off-the-hook. As much fraud and boiler-rooming as there was, you still needed someone to buy it up. I've had some experiences with people who literally weren't making $1000/month yet had mortgages in the $950/month range.

Again, not disagreeing that AIG and the like are responsible. Just reminding that it takes two to tango.

 
Edmundo Braverman:
Midas Mulligan Magoo:
I haven't read it yet, but I am tempted to make it an NSFW reading recommendation based on your high praise.

You fucking goof. Griftopia was my book recommendation in the last episode. Keep up, for fuck's sake.

Now, now Eddy. Play nice with your friends or take a time out. :)

"Despite a voluminous and often fervent literature on 'income distribution', the cold fact is that most income is not distributed: it is earned." -Thomas Sowell
 
levelworm:
It all started from one hundred years ago, when Corporate America was given birth at around 1900-1940.

Are you high? What does this even mean? When corporate American was given birth over a 40 year span? That's why our country is in the shitter? You must be joking....or something

If I had asked people what they wanted, they would have said faster horses - Henry Ford
 
happypantsmcgee:
levelworm:
It all started from one hundred years ago, when Corporate America was given birth at around 1900-1940.

Are you high? What does this even mean? When corporate American was given birth over a 40 year span? That's why our country is in the shitter? You must be joking....or something

Half-joking actually. I said 1900-1940 as I do not know the exact year and probably it doesn't exist, since it's somekind of progressive.

 
Best Response

I want to comment, and I know it won't be popular to say what I'm about to say, but I don't care.

It's the bankers fault, 100 percent. I'm saying this as someone who is interested in getting into finance, too. Right now I'm just starting out in trying to break into the CFA and have read the ethics portion. A lot of it boils down to this: "You are getting a professional designation as an expert in your field. You have an obligation to represent yourself completely faithfully to people who do not have the level of expertise that you do." For every guy who bought too much house there was a professional lender selling him that house. The onus is on the expert because HE KNOWS BETTER. Yeah there may have been a few malicious buyers out there, but the average public is dumber than a box of rocks when it comes to finance (or even math). Try explaining NPV or time value of money to little John Q Public.

And, right now, many of the banks are abusing the legal system to get people out of there homes using 'rocket dockets' in Florida. It may be legal but it's not ethical - and the finance industry needs to hold itself to the absolutely highest standards of integrity.

Here's a guy who sat in on some of the rocket docket cases and what is going on there is absolutely apalling. Matt Taibbi: Courts Helping Banks Screw Over Homeowners http://www.rollingstone.com/politics/news/17390/232611?RS_show_page=0

 

Anthony is right, this probably couldn't get out of control if it didn't exist in the first place. The government created a breeding ground for profit and greed.

monkeysama, people need to be responsible for themselves and the onus shouldn't be on someone else to determine if you are responsible enough to own a home. The average person might not be a genius and therefor would likely have difficulty understanding NPV and time value of money, but you don't have to be a rocket scientist to know you can't afford a $950 per month mortgage if you don't make $950 per month.

Not everyone who purchased a house during the time period is a victim. Many people purchased homes in an effort to flip them and make money...some got stuck and now feel they were taken advantage of so it's okay for them to just walk away and not service their obligations. Granted this is their choice and they will suffer the consequences of bankruptcy, etc. but it's disingenuous for them to claim that they are these helpless victims who were bent over the edge of the bed and pounded on by the big bad bankers..

Regards

"The trouble with our liberal friends is not that they're ignorant, it's just that they know so much that isn't so." - Ronald Reagan
 

Wow, I never thought a user like The King would snap. But he sure has.

I am with you 100% guy, Ritholtz has been pointing out this stuff for ages, even before he wrote Bailout Nation.

Guys on here seem to forget how rich BB MDs got during those years. Heck there is still some posts from 2007/2008 I think on here just look at how things were different.

 

the financial crisis was and is solely the responsibility of the government.

banks are just players in the system and they play to optimize their gain, due to moral hazard the individual players cannot be expected to show self imposed restraint, that's why we have regulation in place.

the same applies to poor people.

to put it in simpler terms.

if you build a massive tower and rest the entire tower on a steak. then leave your dog at the bottom of the tower with the steak. the dog will eat the steak and fuck the tower up.

but that's not the dog's fault its ur fucking fault for leaving the dog with the steak.

amen.

 
boutiquebank4life:
ITT: Liberal idiot reads something and decides to cum on everyone's face with his idiotic newfound opinions on what really happened.

Not sure what's liberal about being anti-bailout and wanting the free markets to actually work. Oh wait, I can't actually take your opinion seriously because you're a prospective monkey making an ad hominem attack. How about adding something substantive to the conversation since I've got it all wrong, apparently.

 

Government decided it wanted everyone to own a home and live outside their means

Mortgages are given out to people who probably shouldn't be getting them

Banks develop securitization (CDO's, MBS etc) that in effect allow diversification from idiosyncratic risks and create credit enhancement so that all these mortgages that are written out actually have an investor base (as many pension funds can only invest in AAA), and therefore the senior tranches of CDO's achieved this. The securitization process is a beatiful thing, however, it depends on being able to forecast default correlations which as we saw we got wrong.

The burst of the housing bubble brought defaults as mortgage owners got into negative equity and couldnt refinance anymore.

The huge leverage in the system brought on a huge sell off. Think about it, if you have 100m of assets and 10m of own equity involved (10x leverage), and your assets fall by 5%, your equity has basically reduced to 5m, and to maintain the same leverage ratio you have to sell off 50m of your assets.

When i look at the above, how can you not blame the government, the banks merely followed their lead and did what any firm in a capitalist society would have done. They in my eyes succeeded doing what the government inherently forced them to do.

 
derivstrader:
Government decided it wanted everyone to own a home and live outside their means

Mortgages are given out to people who probably shouldn't be getting them

Banks develop securitization (CDO's, MBS etc) that in effect allow diversification from idiosyncratic risks and create credit enhancement so that all these mortgages that are written out actually have an investor base (as many pension funds can only invest in AAA), and therefore the senior tranches of CDO's achieved this. The securitization process is a beatiful thing, however, it depends on being able to forecast default correlations which as we saw we got wrong.

The burst of the housing bubble brought defaults as mortgage owners got into negative equity and couldnt refinance anymore.

The huge leverage in the system brought on a huge sell off. Think about it, if you have 100m of assets and 10m of own equity involved (10x leverage), and your assets fall by 5%, your equity has basically reduced to 5m, and to maintain the same leverage ratio you have to sell off 50m of your assets.

When i look at the above, how can you not blame the government, the banks merely followed their lead and did what any firm in a capitalist society would have done. They in my eyes succeeded doing what the government inherently forced them to do.

Right, but the lenders and the banks knew they were packaging garbage and not only continued doing it, but did it more and more aggressively, leveraging themselves to absolutely absurd levels. They didn't actually think the shit was AAA. The whole thing was one giant game of hot potato. Make as much money as possible in the short-term and don't be the last one holding the garbage in the end. Oh, and buy a ton of CDS from AIG to protect yourself (all the while AIG was writing CDS it could never possibly cover, also for purposes of making as much money in the short-term as possible.) But yeah, all of that is clearly the fault of the government. That's like saying that if I sold you an automatic rifle in NYC and you shot up 300 people on a subway platform that its all my fault because I sold you the illegal weapon. Yes, selling you the gun was illegal, but you took it to a whole 'nother level of insanity by killing 300 people. Actually, to take it further, it'd be like if you did this, you claimed that it was my fault, and then everyone in NYC had to give you massive sums of money to clean up the bodies.

 

[quote=mr1234]@TheKing: You'll like this

]

Interesting, I'm watching right now.

How about this: banks are only allowed to foreclose on 1 percent of houses in any state in any quarter. Just thinking out loud given the hearings today on foreclosures.

 
loki276:
I blame the first government to create a separate legal identity between a company and its owners, although saying that this was beneficial for research-intensive industries

That would be the Dutch, about 400 years ago, when they created corporations to shield the owners of shipping companies. Ships were routinely lost at sea, and the shipping companies wanted to limit their liability to the value of the individual ship and its cargo. That way the families of the deceased crew members couldn't come after the company owners.

 

I think to take it a step further you have to blame a single idea: "Housing prices ALWAYS go up"

Basically no scenario was considered where housing prices stopped going up and the people who had no business getting a jumbo mortgage could no longer flip the house to get out. So if you believe that, it doesn't matter if a bunch of people cannot afford their mortgage because you will either get it all paid back after a sale or repossess it and sell it at no loss (or a profit).

A lot of institutional investors were just plain wrong about this fact. Were the rating agencies colluding to fix the ratings, clearly that seems to be the case. Did sophisticated investors know the ratings were bullshit? Some did, particularly in the US. Regardless did people still believe that prices would continue to rise even though the ratings were garbage? Yes.

The entire system was predicated on this single assumption. To me, it's not a matter of banks being evil, but of banks being stupid. Should AIG have been able to fail and the discount window closed to fake deposit banks? We'd have had nearly every non-deposit holding investment bank fail (including GS) if that had been the case. If you want to talk about a sinister collusion of governments and business it was in those decisions. Everything that led up to that was just bad credit policy, which is on the people that owned the paper. So to me its clearly more on the banks and retarded fund managers left holding the paper than it is on the homeowners or even the mortgage originators because they did not do or were not interested in any due diligence.

Blaming consumers for consuming is just an easier intellectual hurdle for the masses.

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