Comments about ‘Norbert Michel: The real reason for the 2008 financial collapse’

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Published: Sunday, Sept. 15 2013 12:00 a.m. MDT

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Ranch
Here, UT

Once again, I'm left wondering if I'm reading the Deseret News. An article one can agree with.

glendenbg
Salt Lake City, UT

It's intriguing to read an op-ed about the financial crash that manages to not mention in any way the extraordinary malfeasance of the financial sector. David Smick, author of The World Is Curved, argued:

“Instead of engaging in risk management, the traditional role of bankers, the new bankers engaged in risk dispersion, thinking they had discovered “riskless risk” with the added benefit of enormous profits."

And:

"Securitization contributes one other huge weakness to today’s financial system: The bankers who engage in lending are no longer tied to the risk of the borrower. The lender no longer has the incentive to avoid dangerous risk at all costs because the risk, when cut up into pieces, is quickly shoved out the lender’s door to be packaged with pieces of other risk and to be sold as investment to the unknowing global financial community."

Regulators didn't reign in the financial monster, but blaming regulators without also blaming the banking industry is like blaming the fire department for not saving your house while ignoring the arsonist who set the fire.

Roger Terry
Happy Valley, UT

Fascinating straw-man argument by the Heritage Foundation, that bastion of economic wisdom. I followed the meltdown of our financial system in 2008 very closely. I don't recall ever hearing that the government's decision to not bail out Lehman Brothers precipitated the crisis. It seemed rather clear at the time that Wall Street's reckless investment in speculative financial instruments called derivatives is what led to the mess. Unfortunately, the derivatives market is still largely unregulated and trading is not transparent at all. This market, by some accounts, is as large as $1.4 quadrillion. The notional value is pegged at about $700 trillion, or ten times the size of the world economy, much larger than it was in 2008. Apparently we didn't learn anything from past mistakes. Because of this, Forbes magazine is predicting another meltdown.

As a side note, the conservative history rewrite that claims the bailout of Wall Street was not necessary is a fairy tale. Necessary, yes. Savory, no. Sort of like taking nasty-tasting medicine. You gotta do what you gotta do. But it's better than letting the patient slip into physical collapse.

one vote
Salt Lake City, UT

The total failure of the financial system and the end of liquidity caused by the banks gambling and hedge fund leveraging, would not have been a good thing. This is revisionist spinning hoping to ignore the facts and reality. We do need to break up the financial institutions and regulate the risky gambling now to prevent this catastrophe from happening again. The Feds policy is correct and that is why the gold bubble burst.

one old man
Ogden, UT

More conservative drivel trying to cast blame for the mess away from the conservatives who caused it.

Twin Lights
Louisville, KY

Roger Terry has it right.

Any way you look at it, the failure of Lehman was a seminal event. It may less have been the government's decision not to save it than the fact that a second big investment house (after Bear Sterns) was in deep trouble. I recall the mood was very dark when the news about Lehman broke.

It highlighted exactly how risky the derivative markets were and how little the quants at these firms actually understood. We were just beginning to understand that unwinding this mess would be huge and complex. The question on everyone's mind was "how deep might this problem go"?

Effective regulation was not present in the derivatives markets. Those in charge thought that the markets would take care of themselves. They did. Markets are self-regulating. Left to their own devices they will punish the "bad" and reward the "good". But there is no limit on the amount of collateral damage.

Regulation inherently makes markets less efficient and skews profits. But it also can rein in excess and prevent some of the worst problems.

Effective regulation would have allowed us to avoid much of this mess.

Howard Beal
Provo, UT

I'm not sure where Lehman Brothers and Bear Stearns fits in but this is how I remember it.

Government debt going up because of the Bush tax cuts and two unfunded wars.

Gasoline prices went sky high that summer and hurt a lot of people.

Real estate values going sky high, people getting second and third mortgages, buying lots of stuff they didn't need (me included) and then boom, the real estate bubble burst and homes were 1/2 or 2/3 the value almost instantly. People had personal debt that was sky high but could no longer use their house to refinance this debt. Freddie and Fannie and a lot of banks making loans to people they knew couldn't afford the loans if things went south.

Predictably the stock market crashed hurting investors of all levels.

Over time property values went way down causing local governments to suffer anything from bankruptcy, to budget cuts to stagnate wages for their employees.

The government and businesses retracted just making things worse. Bush tax cuts continued, along with more stimulus and more debt.

Many people weren't individually prepared for this downturn.

procuradorfiscal
Tooele, UT

Re: ". . . the main driver behind the whole financial crisis: investing an enormous sum of borrowed money in worthless securities."

Which is, of course, tied directly to liberal-directed government intervention in the marketplace, in the form of a "thumb on the scale" in favor of deranged borrowing practices, intended to buy off greedy constituencies on both sides of the lending-borrowing merry-go-round.

That the US economy, which is so closely tied to the well-being of real people is so dependent on this ponzi-like liberal scam is scary, indeed.

wrz
Pheonix, AZ

"Lehman's failure was caused by the main driver behind the whole financial crisis: investing an enormous sum of borrowed money in worthless securities."

All well and good... but the real question is, how did those worthless securities get to be worthless? We know the answer... Worthless securities arose from the issuing of sub-prime mortgages to people who couldn't afford, and didn't intend, to continue to make monthly mortgage payments. And of course, the banks issuing sub-primes weren't a bit concerned because they calculated that the asset held as security for the sub-prime would increase in value forever and could be disposed of at a profit. Well, they miscalculated. The Wall Street and finance quants weren't as smart as they thought they were.

Then the question comes... who is responsible for allowing sub-primes in the first place... And the answer... Senate Finance Committee Chair, Chris Dodd, and in the House Finance Chair Barney frank. Notice they have both quit their positions in the Senate and House.

Twin Lights
Louisville, KY

Roger Terry has it right.

Any way you look at it, the failure of Lehman was a seminal event. It may less have been the government's decision not to save it than the fact that a second big investment house (after Bear Sterns) was in deep trouble. I recall the mood was very dark when the news about Lehman broke.

It highlighted exactly how risky the derivative markets were and how little the quants at these firms actually understood. We were just beginning to understand that unwinding this mess would be huge and complex. The question on everyone's mind was "how deep might this problem go"?

Effective regulation was not present in the derivatives markets. Those in charge thought that the markets would take care of themselves. They did. Markets are self-regulating. Left to their own devices they will punish the "bad" and reward the "good". But there is no limit on the amount of collateral damage.

Regulation inherently makes markets less efficient and skews profits. But it also can rein in excess and prevent some of the worst problems.

Effective regulation would have allowed us to avoid much of this mess.

LDS Liberal
Farmington, UT

The real reason for the 2008 financial collapse?

A: George Walker Bush

Alfred
Pheonix, AZ

@LDS Liberal:
"The real reason for the 2008 financial collapse? A: George Walker Bush."

True. Bush is responsible for every bad thing that has happened to this country. He's even responsible for the wars in Iraq and Afghanistan continuing for the last five years while Obama was lounging in the White House with his feet on the Resolute Desk. And, of course, he is responsible for raising the national debt by almost $7 trillion over the last five years... a debt increase that exceeds all the increases by all the former presidents combined.

Eric Samuelsen
Provo, UT

Thanks to Twin Lights and Roger Terry for their sensible responses to this article.

2 bits
Cottonwood Heights, UT

@LDS Liberal,
If the only reason for the 2008 financial collapse was George Walker Bush... why didn't the markets collapse when he took office, or after 9/11, or after Iraq, or when he was re-elected?

Why did the market wait till he was a year from leaving office (and it was obvious that Democrats were going to take over)?

These are some important questions to answer IF your theory that Bush was the only reason for the collapse is right.

I think the lenders gave mortgages to people who couldn't pay, AND the people who took mortgages they knew they couldn't afford, need to take SOME responsibility for it (not just Bush).

But blaming it all on one man (Bush) is classic behavior for a politico like you.

Twin Lights
Louisville, KY

Let us be clear than neither Bush nor Obama are the principal cause of the crash. Nor are Senators Frank or Dodd.

This new market mechanism built up over time. It was ignored by successive administrations on the theory that the markets would take care of themselves.

It is an outgrowth of the laissez-faire banking and financial market concepts endorsed by Reagan, Bush I, Clinton, Bush II, and Obama.

Plenty of blame for everyone - Democrat or Republican. No need to try to hoard it for one party or the other . . .

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