Singidava a écrit :About 2007... Do you know why so many wanted to invest in sub-primes anyways (and therefore causing the bubble)? It's because the rating agencies had rated many of those loans way above their real credibility. Why? Simply because the rating agencies get money for good ratings. That's what they're paid for: investment advice. Some people claim that this conflict of interest caused them to give good ratings to poor investments, instabilising the market as a direct result from their greed.
You say the crisis was goverment's fault because they didn't have enough regulations? In that case, did you know that all these regulations were systematically removed to allow the financial market take bigger risks? And the biggest supporters for this removal have been... no one else than (surprise, surprise) the Wall Street lobbyists. This is another way you could claim that it was the Wall Street greed that caused the crisis. To get the short term gains they encouraged massive risk-taking that instabilised the system even further. (Though Bush is at fault too - it was the Rebpublicans that favored these ideas in actual politics. In the end, you could even claim that it's the regular people who are at fault for allowing the politicians to go so far. After all, in a democracy it's not only a people's *right* to vote and influence to the society but a *responsibility*. Of course, that's unfair as normal people generally know little about these issues but it's up to the people of the country to supervise their leaders. No one else can do it for them. If someone did, it wouldn't be a democracy anymore.)
Another thing that made regulating even harder were the "experts at economy" and the advisors the regulators use in general. Actually, not only the experts and advisors but the people who do the regulating themselves... are none other than the very same people who'd profit the most from having the limits removed - those who have strong connections to the Wall Street. The problem is that you can't be a convincing expert on economy unless you have a massive fortune gained at the Wall Street yourself. And these "top experts" are recycled from a high position to position allowing very little new blood to emerge and criticize the system. Though even if they did get criticized, the lobbyists would make sure no one would listen to them.
Honestly, I think I've said this before but... lobbyists - legal corruption. The more money you have the louder voice you'll get. Sadly, this is yet another example of that...
So uh... *ended up writing a rant more than anything*
Your thoughts? Do you agree with the criticism or think it's just exgerrating?
-The increase of subprime loans investments due to ratings agencies "over"rating investments did not cause the housing market bubble, and is a rather big simplification of the subject. Maybe elsewhere in the world where housing bubbles were occurring (it wasn't just the U.S. at the time) ratings agencies had a harmful effect, but certainly not so much in the U.S. that it was the sole cause of creating the bubble. I'll say it was one of the factors causing the bubble to burst though ;P
The cause of the bubble itself has many attributions to it, but ratings agencies over-evaluating an already risky investment that both consumers and financial institutions were intending to get into no matter what? Nah, I don't believe so. If this were true, there should've been an economic crisis in the late 90's since the demand for home ownership increased significantly since the 1980s.
In 'Murica one of the ways you're considered successful after going to college is owning a nice home. It's to be expected that therefore Americans would take a risk of getting into debt no matter what, just to own a nice home.
Housing prices increased every year since 1940ish to 2004ish by 0.7% [adjusting for inflation of course]. If i did the math right in my head...In that period of time, the price of housing increased by 40 something percent. You can say our "peak" of housing prices, our housing bubble, occurred right near/in the middle of the 2000s...But it was built up for quite some time thanks to the American dream
The Taxpayer Relief Act of 1997 was a great tax reform program that allowed a married couple that made 500,000 bucks, or a single person with 250,000 bucks a year be excluded from a capital gains tax when selling a home, every couple of years when actually eligible to do so.
At the time, in any point of the free market of the United States....Housing was the only way to avoid any type of capital gains tax. And btw, those rates are high, were talking 15% for long-term and over 20% of short-term. Very lucrative for anyone wanting to profit from their assets. Because of this lucrative "incentive", the Act made many people buy very expensive, mortgaged houses, and even a second house/another kind of property considered under the category of housing, instead of investing in "typical" assets such as stocks, bonds, etc.
There's also the Federal Bank of Reserves...After the dot com bubble, The Bank of Reserves charged all manners of interest rates to exactly 1% I believe...because they wanted *encourage* people to enter into loans from banks and try to stimulate the economy in some form or way. That's our monetary policy at work in the United States when people are hit by any type of recession.
This changed in 2005, when the Feds decided to spike the interest rate to somewhere around 5%, to discourage borrowing loans and lowering demand for houses. They didn't increase it to around 5% until the 17th time of changing the interest rate in the time period of 2000-2005.
That worked, but they seemed to forget the fact that increasing the interest rate would force banks to increase the monthly payments of an adjustable mortgage. Big trouble for anyone that just bought their homes in the early to mid 2000s, because there were lots of financial reports of foreclosures in 2005/2006.
At least the Feds achieved their goal...they increased housing supply, dropping housing prices...temporarily. However, they couldn't stop speculation investment in real estate for 2005/2006. The quick buying of housing assets drove housing prices up again to form a higher price peak than pre-2005.
Coupled with the fact that many financial institutions invested in an MBS WHILE leveraging in an attempt to commit to a high-risk, high-reward practice, forced the bubble to occur no matter what in the real estate area.
-Not this again xP, it's Wall Street's nature to be greedy. Everyone's in the stock market game to make profits and money by doing their best to make sure their stocks hit the maximum price point they believe investors deem profitable. Wall Street is no different than a single corporation.
That being said, Bush wasn't in office when most of the deregulation acts were passed. The Depository Institutions Deregulation and Monetary Control Act of 1980 allowed similar type banks (such as two investsment banks, or two depository banks) to merge and allowed certain types of banks to set their own interest rates from the governments [which is basically any private entity). This Act was signed and supported by Jimmy Carter, a Democrat. This was an alarming bill being passed because of the merging clauses. This started the whole trend of "financial banks being too big to fail".
The Garn-Saint Germain Depository Institutions Act of 1982 allowed Adjustable-rated mortgages, which basically allowed the interest rate to periodically change as a reflection of the cost to a lender that is borrowing from the credit market. This was hailed as beneficial to a borrower because that reflection of the cost to the lender would force a margin of cost accountability to be accounted for, for both lender, and borrower. If the interest rates rises, it's not good for the borrower, but if the interest rate decreases, it's always good for the borrower. Since such interest rates would be more risky due to its potential volatility, it would allow the lender to spread the interest rate risk to the borrower, ensuring a steady margin of payment. It was much less expensive than a fixed-rate mortgage payment, something that the U.S. picked up from Europe, where adjustable-rated mortgages are(were?) considered the norm.
This was signed by Reagan, a Republican.
Then you have the Gramm-Leach-Bliley Act of 1999, which was the most controversial banking deregulation bill out of all 3 bills. The bill allowed commercial and investment banks and even insurance companies to merge together, finalizing the concept of "banks being too big to fail", and a bill that many economists believe was the direct cause of the subprime loan crisis being allowed to occur. It essentially repealed a large part of the Glass-Steagall Act, which was meant to prevent something like this from happening else another Great Depression might occur.
The bill was signed by Bill Clinton. A Democrat. [Yes I know the bill was proposed by Republicans before you ask
, but the bill got passed after both Democrats in the house/senate and republicans compromised by changing the conditions of this particular bill.]
It's these leaders' jobs to figure out how to make the government run better in the way they see fit through legislation. The "regular" people do not have time to be informed with every single detail and step of the legislative process and what their representative is up to because their lives do not revolve around being on the House/Senate floor listening/debating bills all day. By your logic, I should blame the media for not reporting such 'atrocious' things happening in Congress
, because it's their right AND responsibility to monitor Congressmen and inform the people what's going on in Congress. At least it used to be...then news media became a 24/7 thing ;P
-Yes, like I said, there was a controversey/federal investigation of the agency that directly monitors/regulates the behavior of Wall Street for actually not doing its job due to political sensitivity...I still don't remember if it was the Fed Bank or some other agency
An agency is supposed to carry out its duties imposed by federal law/executive orders, no matter what political party has control of the executive branch of government...Which is what America had in terms of great government running back in the day when it was first founded. This was broken for the first time recently...just can't point my name on which one it was :X
-I'm not going to acknowledge lobbying for the same thing can be said of entirely other types of industries/economic events. It may be an indirect cause of the actions being taken for Wall Street to maximize profit as much as possible, but it is/was not the direct cause of any economical crisis. Still, their influence is no doubt attributable to the actions taken in Congress a long time ago.
Still, I like your assessment ether way because you're looking at all sources that can be attributable to the financial crisis of 2008...I just hope we're in understanding that it's not JUST one main thing that caused the crisis...Lots of mistakes happened in all sides of government since the 80s.
Now, if you don't mind, I'd like to answer more questions...preferably NOT anything economical/political rated
[I'll still answer them but contrary to popular opinion on AAO I'm not too keen on anything related to politics or... ^^]