Commercial banks have always invested in more than just money markets and CD's. Since the beginning of time they have invested in small busineses, large businesses, homes, etc. through loans (which is effectively selling puts). The bank borrows from you at 1% on a 1 day rate, and lends it out at a higher rate on a term rate (5-30 years). One could view this as a form of prop trading or prop investing. One could view it as speculative. It basically is.
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Too Big to Fail
- Thread starter foo
- Start date
Commercial banks have always invested in more than just money markets and CD's. Since the beginning of time they have invested in small busineses, large businesses, homes, etc. through loans (which is effectively selling puts). The bank borrows from you at 1% on a 1 day rate, and lends it out at a higher rate on a term rate (5-30 years). One could view this as a form of prop trading or prop investing. One could view it as speculative. It basically is.
Bernanke would be a good choice for the cowardly lion if there was a remake of the Wizard of Oz.
The entire mess was orchestrated by voters.
There is no business case for 30-year, 20% down mortgages - those are completely unnatural and do not exist without taxpayer backstop. As long as the housing sector is based on such mortgages, or even worse ones, we will continue to bounce from one bailout to another.
This is already the second mortgage-fostered crisis in 30 years - how often does this have to happen before we dispense with the myth of the "ownership society" and/or move to classify McMansions as the public housing they truly are?
We need to get back to traditional, free market mortgages - meaning 50% down (yes, 50%), interest-only, balloon payment after 5 years.
There is no business case for 30-year, 20% down mortgages - those are completely unnatural and do not exist without taxpayer backstop. As long as the housing sector is based on such mortgages, or even worse ones, we will continue to bounce from one bailout to another.
This is already the second mortgage-fostered crisis in 30 years - how often does this have to happen before we dispense with the myth of the "ownership society" and/or move to classify McMansions as the public housing they truly are?
We need to get back to traditional, free market mortgages - meaning 50% down (yes, 50%), interest-only, balloon payment after 5 years.
Quote from foo:
Bankers aren't nearly as bright/responsible as many people think they are...
I've weighed on your thread subject time and again, so I won't go into my views about the bank bailout in general. But I will address your quote here.
You're right. Left to their own devices the banks, and really our financial systems will take greed to the extreme. Even if they count on the gov't bailing them out, the banks would still be stupid and greedy with other people's money.
So what is the moral? We need to keep regulation of the financial industry at the forefront of our concerns. And yes, repeal of Glass-Steagall was a big reason the meltdown was as extreme as it was. I was never a fan of more regulations, and held a Republican view on that. I guess I underestimated the stupidity and greed of Wall Street. How can anyone argue that the problem in America is that we have too much regulation? Regulation is a necessary evil. To ignore that is to ignore the facts
Quote from olias:
I've weighed on your thread subject time and again, so I won't go into my views about the bank bailout in general. But I will address your quote here.
You're right. Left to their own devices the banks, and really our financial systems will take greed to the extreme. Even if they count on the gov't bailing them out, the banks would still be stupid and greedy with other people's money.
So what is the moral? We need to keep regulation of the financial industry at the forefront of our concerns. And yes, repeal of Glass-Steagall was a big reason the meltdown was as extreme as it was. I was never a fan of more regulations, and held a Republican view on that. I guess I underestimated the stupidity and greed of Wall Street. How can anyone argue that the problem in America is that we have too much regulation? Regulation is a necessary evil. To ignore that is to ignore the facts
Exactly...now we have the difficult task of who we can find to regulate them efficiently....any ideas as wall street is able to run circles around the current regulators with ease.
I agree that there needs to be more of an equity cushion in the mortgage market and then -- and only then -- can it stop being such a heavily subsidized and speculative business.
But why would you post a rigid structure 50%, interest only, balloon at five years ... and pretend that is revealed religion. Phase out the subsidies and see at what terms the market settles in at. It likely will be tiered with smaller mortgage companies taking more risk (30% down, 20 year term) and larger ones coming in closer to your formula with lower rates.
But the point is ... why dictate?
But why would you post a rigid structure 50%, interest only, balloon at five years ... and pretend that is revealed religion. Phase out the subsidies and see at what terms the market settles in at. It likely will be tiered with smaller mortgage companies taking more risk (30% down, 20 year term) and larger ones coming in closer to your formula with lower rates.
But the point is ... why dictate?
Quote from Random.Capital:
We need to get back to traditional, free market mortgages - meaning 50% down (yes, 50%), interest-only, balloon payment after 5 years.
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Quote from jokepie:
A corporation is a collection of hundreds or not thousands of individuals with families and houses and dependents. No Corporation can be blamed, but the Culture that is supported by the market regulations.
What happened in financial world is no different in the Auto or for that matter in any industry.
What was wrong is that Lehman was forced in bankrupty and about 30K people lost jobs and sat on Unemployment benefits increasing more debt that ever. These people had families.
There is only a 1-2% individuals in these corporations that make most o fthe money, thats just the nature of the beast and its no bodys right to JUDGE. Most of these people have worked hard over 30 years to get where they are.
Anyways. will anything change..not anytime soon.
You are sort of right. We can't blame the countless individual employees at these banks. Just the ones that consciously decided to buy the risky "toxic" assets. No one forced them to make these bad choices and it doesn't matter how hard they worked to get there they still F'ed up. Wells Fargo given the same opportunities made the RIGHT decisions.
Quote from foo:
I guess I am in the camp that peoples deposits should not be a part of any speculative activities of the bank and then backed by the gov't which ulitimately leads back to the tax-payer if these bankers gambles go bad.....which is exactly what happened---------I believe it is really that simple.
When all of this happened I felt the same way. Then i started really thinking about what it would mean if banks were required to keep peoples deposits safe in cash so that they would be able to cover all deposits if there was a run on the bank. Then I realized this would never work. Banks get the money they lend out for loans, credit cards, etc. (all of which are speculative) from the deposits made by their customers. If they had to keep it all as cash then there would be no credit at all. If there was no credit, the banks would not be earning the interest on those loans and would have to make their money solely on bank fees. People would go back to stuffing mattresses and all the banks would close. Not to mention that if no one had any credit people would stop purchasing companies couldn't operate and our economy would ultimately be destroyed.
Quote from olias:
We need to keep regulation of the financial industry at the forefront of our concerns. And yes, repeal of Glass-Steagall was a big reason the meltdown was as extreme as it was. I was never a fan of more regulations, and held a Republican view on that. I guess I underestimated the stupidity and greed of Wall Street. How can anyone argue that the problem in America is that we have too much regulation? Regulation is a necessary evil. To ignore that is to ignore the facts
I don't think they need "regulated" in the traditional sense of setting up some new government agency to constantly change the rules by which they operate. There should however be some legislative restriction put on them though about how liquid they need to remain and the types of risk they can take on.
Whatever we do we have to be careful that any limitations or regulations that we place on them doesn't trigger another "credit crunch". If we come in and suddenly say they need to keep 50% or more of deposits as cash but at the time they are only at say 25% then they will be forced to completely stop lending until they reach OVER that 50% mark. This means that in the meantime credit will be frozen and we will once again be in economic trouble.
Quote from Swan Noir:
But why would you post a rigid structure 50%, interest only, balloon at five years ... and pretend that is revealed religion. Phase out the subsidies and see at what terms the market settles in at.
I am not advocating mortgage requirements be set like that, I'm describing where they will end up if you let the market do it's thing. This isn't based on "revealed religion", it's based on market history, which has already shown us the equilibrium point bounces around 50-70% down, balloon payment after 3 to 7 years.