Wealth & Income Inequality

[oneniltothearsenal]

Due to crash, the market had short term liquidity crisis and people were losing faith in banks. This would typically lead to mass withdrawals which no bank (even those who do no need TARP) couldn't handle. So the govt had to step in and guarantee liquidity and ensure no other bank defaults.

Just one example
So you believe the taxpayers guaranteeing AIG-FP parties owed 100 cents on the dollar was necessary?

You already conceded that there was nothing stopping the gov from saving 4 million family homes so I have no idea why the feck you keep making these meaningless strawman arguments to defend the moronic decision making of literally the most negligent treasury secretary of modern history.

 

[Edgar Allan Pillow]

Just one example
So you believe the taxpayers guaranteeing AIG-FP parties owed 100 cents on the dollar was necessary?

AIG FP were insuring the debt obligations of various counterparties and they just could not make the payout when actually called out. This led to rating downgrade of entire AIG group which in turn meant the Group had liquidity crisis and had to make huge margin adjustments, which would have bankrupted them. If the Govt did not step in, those losses would just cascade out and had to land somewhere else. Though the insurers are protected, the investors are not and these include variety of hedge and pension funds. Plus nobody really knows what the failure of a trillion dollar company would have on markets that were already jittery. And again nobody wanted to find out.

What you don't seem to grash is the need for confidence in the market was the biggest goal at that time and it took loads of taxpayers money to get that done. Was there another way to regain investor confidence in market? Perhaps....but nothing still comes forth.

 

[caid]

Easy to be a armchair citic with benefit of hindsight, eh?

Yes, maintaining the status quo was paramount as the alternative would have been in uncharted territories blindfolded.

We didn't maintain the status quo. It was a shit plan at the time too, no benefit of hindsight needed.

 

[Edgar Allan Pillow]

It was a shit plan at the time too,

It was the only plan at that time. Alternative was uncharted...I repeat myself.

 

[caid]

It was the only plan at that time. Alternative was uncharted...I repeat myself.

So a shit plan that was blatantly going to fail is better than an untested plan (as long as we pretend iceland doesn't exist) that might have worked out better. Gotcha.

 

[Eboue]

edgar scoring a huge victory in the battle of ideas

 

[MTF]

So how are you guys suggesting the bankruptcies of a number of financial institutions over about 2 weeks in Sept should've been handled, without a run on the remaining institutions?

 

[Silva]

So how are you guys suggesting the bankruptcies of a number of financial institutions over about 2 weeks in Sept should've been handled, without a run on the remaining institutions?

subprime mortgages forgiven, shareholders pay for the losses through sale of the banks to the government for pennies on the dollar, the people at the top of the companies who ran the scam go to prison forever

 

[MTF]

subprime mortgages forgiven, shareholders pay for the losses through sale of the banks to the government for pennies on the dollar, the people at the top of the companies who ran the scam go to prison forever

The equity of the firms would be negative in that case.

 

[Eboue]

or you just do the same thing for the banks, add in relief for home owners. then you nationalize the banks, cap compensation at say $500,000 and put in rigorous oversight with actual power. some bankers would leave but how hard do you think it would be to find someone who could match Edgar's abilities and work ethic? give the food truck guy 6 figures and call it a day.

 

[Silva]

The equity of the firms would be negative in that case.

that's fine, they would have been backed by the worlds major governments who can afford to take a loss, most of the banks which failed were based in the richest parts of the world which could most afford to take the loss

 

[Fridge chutney]

cap compensation at say $500,000

For an over/under Eboue maximum wage, I'd have guessed significantly under half a million dollars to be honest.

 

[MTF]

that's fine, they would have been backed by the worlds major governments who can afford to take a loss, most of the banks which failed were based in the richest parts of the world which could most afford to take the loss

I'm saying you're overpaying by giving cents of the dollar, and then writing off a massive chunk of the assets.

Also, is it fair to the people with non-subprime mortgages who still have to make their payments?

 

[MTF]

or you just do the same thing for the banks, add in relief for home owners. then you nationalize the banks, cap compensation at say $500,000 and put in rigorous oversight with actual power. some bankers would leave but how hard do you think it would be to find someone who could match Edgar's abilities and work ethic? give the food truck guy 6 figures and call it a day.

Having the entire banking system directly under the political system is.... fun. We tried a lot of that in Brazil, doesn't quite work out like I think you're envisioning. Private banks are bad enough at assessing risk, public ones tend to be even worse.

 

[Fridge chutney]

The system we live in saw a major crash where the working class taxpayer was disproportionately impacted and impoverished, and that same tax-paying working and middle class bailed out the rich and the corporations with their tax dollars.

That is not an ideal system.

 

[Silva]

Also, is it fair to the people with non-subprime mortgages who still have to make their payments?

I'm one of the people who wants the housing market cashed to be artificially crashed and better distributed so I'd forgive them too

 

[Eboue]

Having the entire banking system directly under the political system is.... fun. We tried a lot of that in Brazil, doesn't quite work out like I think you're envisioning. Private banks are bad enough at assessing risk, public ones tend to be even worse.

I'll take my chances having some accountability as opposed to none.

 

[Abizzz]

Surprised there's still people defending the method of bailouts in 2019. I mean sure, in september 2008 it was more important to keep the system running than to punish the greedy feckers who fecked it up (and that IS what caused it, greedy feckers selling bad loans as good loans), but that's no reason not to do anything after the fact.

But nothing was done... the greedy feckers done the same thing with car/consumer loans since then and no politician cares. "Keep a bit more cash, will ya?"

 

[Silva]

Surprised there's still people defending the method of bailouts in 2019. I mean sure, in september 2008 it was more important to keep the system running than to punish the greedy feckers who fecked it up (and that IS what caused it, greedy feckers selling bad loans as good loans), but that's no reason not to do anything after the fact.

But nothing was done... the greedy feckers done the same thing with car/consumer loans since then and no politician cares. "Keep a bit more cash, will ya?"

We'll be having the same conversation 10 years after the next crash.

 

[oneniltothearsenal]

I'm following this with interest, but as I'm totally unqualified I can't actually add much I'm afraid. I do have a question if that's ok, am I right in remembering that Gordon Brown was an influential advocate for QE and zero interest rates? I don't know if I'm just wrong or maybe read something British bigging up the Brits.

I haven't studied the UK specifics to comment here. I read articles about the UK but most of my research and papers were focused on the US

 

[MTF]

Surprised there's still people defending the method of bailouts in 2019. I mean sure, in september 2008 it was more important to keep the system running than to punish the greedy feckers who fecked it up (and that IS what caused it, greedy feckers selling bad loans as good loans), but that's no reason not to do anything after the fact.

But nothing was done... the greedy feckers done the same thing with car/consumer loans since then and no politician cares. "Keep a bit more cash, will ya?"

I'm defending up to the highlighted point, and beyond that against extreme measures that I don't think stand up in the real world (like forgiving all the mortgages, or flash nationalizing the entire banking system globally).

 

[Silva]

In the UK there's no way to fix the housing crisis that doesn't involve major inflation of the rest of the economy or an artificial crash of the housing market. The level of inflation to fix the housing market would wholly feck the country.

 

[711]

I haven't studied the UK specifics to comment here. I read articles about the UK but most of my research and papers were focused on the US

Thanks, that's kind of answered my question anyway, Brown couldn't have been that influential in the States or you would have known.

It's interesting from a UK point of view, I always regarded Brown as to the left of Blair, quite left-wing in the pre-Corbyn world, and yet he was behind bank bail-outs, bank nationalisations, QE and zero interest rates even so. I suspect if he'd stayed in power he might have done something tax-wise so that those who gained from asset inflation would pay their fair share, but of course we got Cameron and the Tories soon after that, and I'm sure they were quite happy to see their class' wealth increasing.

 

[711]

In the UK there's no way to fix the housing crisis that doesn't involve major inflation of the rest of the economy or an artificial crash of the housing market. The level of inflation to fix the housing market would wholly feck the country.

Tax and build is the answer, but no one wants to be taxed, and no one wants new housing estates near them, so those without houses have to lump it I'm afraid. When pushed they mumble something about brownfield sites, meaning anywhere that's not near them.

I would vote tax and build personally.

 

[oneniltothearsenal]

AIG FP were insuring the debt obligations of various counterparties and they just could not make the payout when actually called out. This led to rating downgrade of entire AIG group which in turn meant the Group had liquidity crisis and had to make huge margin adjustments, which would have bankrupted them. If the Govt did not step in, those losses would just cascade out and had to land somewhere else. Though the insurers are protected, the investors are not and these include variety of hedge and pension funds. Plus nobody really knows what the failure of a trillion dollar company would have on markets that were already jittery. And again nobody wanted to find out.

So this is your argument defending every single bailout? That the taxpayers simply had to guarantee 100% of every single one of these companies obligations or else? (Citi, Bank of America, Wamu, Wachovia, Countrywide, Lehman, Merrill, Morgan). Do you apply that same logic to the bailouts of the auto industry too? Is this line your defense of the hundreds of billions of free taxpayer money that was handed to the big corporations? We had to give these entities hundreds of billions of free money - hence why I called it extortion at the beginning.

That all of these trillions injected into the top of the structure absolutely had to happen before we even thought about saving 4 million people's homes.

Paulson's TARP was fecking the epitome of your "uncharted territory" and the result was a disaster for the poor and working class.

 

[caid]

I'm defending up to the highlighted point, and beyond that against extreme measures that I don't think stand up in the real world (like forgiving all the mortgages, or flash nationalizing the entire banking system globally).

Honestly i dont know what the solution was. The option we took just ... wasn't it. I cant accept that at all. Propping up the banks didn't steady the economy, thousands of business went under, thousands lost their homes. The only thing the extreme cost bought us was the continued existence of failed businesses run by overpaid, incompetent jackasses.

 

[Silva]

Tax and build is the answer, but no one wants to be taxed, and no one wants new housing estates near them, so those without houses have to lump it I'm afraid. When pushed they mumble something about brownfield sites, meaning anywhere that's not near them.

I would vote tax and build personally.

That's part of the solution but it needs more. There's large parts of the UK where the land will cost you more than the bricks and builders, for example, and the houses in those cities would still be very expensive. There's also a distribution problem in housing, with fewer and fewer people owning more and more houses. If we have a major national building program we also have to make sure that the small number of landlords don't just buy them all and keep us over the barrel.

 

[MTF]

Honestly i dont know what the solution was. The option we took just ... wasn't it. I cant accept that at all. Propping up the banks didn't steady the economy, thousands of business went under, thousands lost their homes. The only thing the extreme cost bought us was the continued existence of failed businesses run by overpaid, incompetent jackasses.

I agree that it missed a next step. The banks are a bit more regulated and a bit less levered, but that's about it. They're well capable of blowing up again.

I've actually thought that if banks are going to need to be recurrently bailed out they might as well be nationalized. So I don't think I'm a radical on this topic. My ideal wish is that they were somehow so small individually that they could blow up on bad loans and it wouldn't make a dent on the whole, but that's about as unrealistic as anything else.

 

[711]

That's part of the solution but it needs more. There's large parts of the UK where the land will cost you more than the bricks and builders, for example, and the houses in those cities would still be very expensive. There's also a distribution problem in housing, with fewer and fewer people owning more and more houses. If we have a major national building program we also have to make sure that the small number of landlords don't just buy them all and keep us over the barrel.

Yes I get that, if it's a danger, and with increased supply it may not be, there are options tax and regulation-wise.

 

[oneniltothearsenal]

It was the only plan at that time. Alternative was uncharted...I repeat myself.

Oh ffs, it was the only plan being discussed because thats all they ever wanted to discuss. Paulson instantly got on the phone with his boys at Goldman and Jamie Dimon and that clique basically formulated the plan and never even considered alternatives from any of the economists outside their coterie. As with the Democrats and their "stakeholders at the table" assumptions for health care they already went in knowing what results they wanted for themselves. Dozens of groups of different economists were talking about plenty of alternatives but they got locked out of any elite decision making early on because Dimon and the Goldman boys were Paulson's go-to on speed dial (documented in many books like House of Cards and Street Fighters and Colossal Failure of Common Sense).

Meanwhile of course the financial entities were still greedily profit seeking all the while. You have to be fascinated with the sheer greedy boldness of how Citibank tried to fecking sue the US government to make the US government force Wachovia to sell to Citi purely to benefit Citi against the best interests of Wachovia customers and shareholders. Or how the shite bailout reform rules incentivized Wells Fargo employees to make millions of fake accounts while their negligent CEO gets to walk home with millions.

What they did was "uncharted" also. Let me repeat: The Paulson/Goldman/Dimon plan was uncharted as all feck.

Unless you want to point to a historical precedent in the US where completely unregulated financial services products were created on top of tons of mortgage loans while the barrier between investment banks and commercial banks was eradicated at the same time long standing leveraging rules of 12-1 were eradicated allowing these complete new investment vehicles to spread structural risk throughout the economy due to ratings that were originally created as research institutions switching in the 1990s to a heavily for-profit model and over 80% of mortgages for MBS were written by non-banking entities like Countryside and all the pop-up mortgage lenders that grew out of an unregulated industry. So yeah go search your history for a precedent for that first before trying to dismiss the entire realm of alternatives with this broken logic.

 

[VorZakone]

Why did we get rid of guillotines again?

 

[oneniltothearsenal]

The logic is just mind blowing to me. Its like saying someone breaks all the windows to a store and steals money out of the cash register and you say well asking them for the money back won't fix the broken windows so let's just let them keep the money. Oh and maybe we should give them some free money so they don't break any more windows.

 

[Edgar Allan Pillow]

So this is your argument defending every single bailout? That the taxpayers simply had to guarantee 100% of every single one of these companies obligations or else? (Citi, Bank of America, Wamu, Wachovia, Countrywide, Lehman, Merrill, Morgan). Do you apply that same logic to the bailouts of the auto industry too? Is this line your defense of the hundreds of billions of free taxpayer money that was handed to the big corporations? We had to give these entities hundreds of billions of free money - hence why I called it extortion at the beginning.

That all of these trillions injected into the top of the structure absolutely had to happen before we even thought about saving 4 million people's homes.

Paulson's TARP was fecking the epitome of your "uncharted territory" and the result was a disaster for the poor and working class.

The ripple effect of a AIG or one of the big banks failing would be far greater than any thing before. So, yeah it may be a shit call...but it was the right one. Alternatively more than 4 million taxpayers would have suffered...considerably more. It was lesser of two evils, to put it bluntly.

Oh ffs, it was the only plan being discussed because thats all they ever wanted to discuss. Paulson instantly got on the phone with his boys at Goldman and Jamie Dimon and that clique basically formulated the plan and never even considered alternatives from any of the economists outside their coterie.

Sorry, I don't have a proper reply to conspiracy theories.

 

[oneniltothearsenal]

The ripple effect of a AIG or one of the big banks failing would be far greater than any thing before. So, yeah it may be a shit call...but it was the right one. Alternatively more than 4 million taxpayers would have suffered...considerably more. It was lesser of two evils, to put it bluntly.

Sorry, I don't have a proper reply to conspiracy theories.

That's all you have espoused in this thread.

Your only argument in this thread has been 'even though the status quo crashed the economy and was clearly broken, we had to do everything we could to preserve that status quo' without any evidence, without any data and without any actual logic.

Yes Edgar these three are conspiracy theorists

Two of the most respected Wall Street journalists and Lehman Brothers' former VP giving first hand accounts. You just keep repeating the same cliche bullshit with nothing backing you up.

https://www.nytimes.com/by/kate-kelly
https://www.vanityfair.com/contributor/william-d-cohan
http://www.lawrencegmcdonald.com/colossal-failure/

'lesser of two evils" now you are back on the same false dichotomy I debunked earlier. As if the only choice was between the exact Paulson plan and "doing nothing"

Also wtf are you talking about as if only the 4 million who lost their homes are the only ones who suffered?!? People lost their jobs, their businesses, had their hours cut, had wages cut, had benefits cut all the while all the guilty partners kept their ill gotten wealth, big finance got billions of free money
FFS Pillow you sound so disconnected and isolated from reality up there in your Wall Street Ivory Tower.

 

[Edgar Allan Pillow]

That's all you have espoused in this thread.

Your only argument in this thread has been 'even though the status quo crashed the economy and was clearly broken, we had to do everything we could to preserve that status quo' without any evidence, without any data and without any actual logic.

Yes Edgar these three are conspiracy theorists

Two of the most respected Wall Street journalists and Lehman Brothers' former VP giving first hand accounts. You just keep repeating the same cliche bullshit with nothing backing you up.

https://www.nytimes.com/by/kate-kelly
https://www.vanityfair.com/contributor/william-d-cohan
http://www.lawrencegmcdonald.com/colossal-failure/

'lesser of two evils" now you are back on the same false dichotomy I debunked earlier. As if the only choice was between the exact Paulson plan and "doing nothing"

Also wtf are you talking about as if only the 4 million who lost their homes are the only ones who suffered?!? People lost their jobs, their businesses, had their hours cut, had wages cut, had benefits cut all the while all the guilty partners kept their ill gotten wealth, big finance got billions of free money
FFS Pillow you sound so disconnected and isolated from reality up there in your Wall Street Ivory Tower.

https://www.barrons.com/articles/hank-paulson-looks-backat-the-turmoil-of-2008-1536759000

We dealt with four failing investment non-banks before getting the TARP legislation from Congress: Bear Stearns, Merrill Lynch, Lehman, and AIG. One of them, Merrill Lynch, didn’t take government support because it found a buyer. With Bear we were fortunate to have a well-capitalized buyer inJPMorgan that, importantly, was willing to guarantee the Bear liabilities during the pendency of the shareholder vote.

For Lehman, we had no buyer and we needed one with the willingness and capacity to guarantee its liabilities. Without one, a permissible Fed loan would not have been sufficient or effective to stop a run. To do that, the Fed would have had to inject capital or guarantee liabilities and they had no power to do so. Now, here’s the point that I think a lot of people miss: In the midst of a panic, market participants make their own judgments and a Fed loan to meet a liquidity shortfall wouldn’t prevent a failure if they believed Lehman wasn’t viable or solvent. And no one believed they were.

But a Fed loan was able to prevent an AIG failure and avoid catastrophe because AIG had a portfolio of insurance companies, and these were insurance companies with independent credit ratings, which both the Fed and the market believed had sufficient value to secure a loan and ensure that AIG was viable after receiving a loan to cover a huge liquidity shortfall at the holding company.

Then a couple of months later, after AIG’s losses mounted, it took government capital to restructure and to satisfy the rating agencies that the company was viable and fortunately at the time we had capital.

At the end of the day we got lucky with AIG. If it had failed it would have been an order of magnitude worse than Lehman and the government funds that were put in AIG all came back with a big profit. So it worked out well, but it is really an ugly story.

There were 3 options available to Hank:

1. Retains status quo - This means bailout the struggling institutions in short term and once market stabilizes fix the broken system. This was the safest option having predictable outcomes in mitigating the impact of the turmoil.
2. Let AIG, Freddie and Fannie fail...like Lehmann - This would be disaster as the fear would permeate the market with fear and the ripple effects that would be far far worse than what we have seen. Unchartered territories and frankly it's just gambling with the system. (see interview quote bove)
3. Some other alternative option - I still haven't seen what other viable alternative option Hank had at that time. Even in hindsight, there seems to be no consensus with proper details on what might have been done. Just random theories and speculation.

 

[oneniltothearsenal]

https://www.barrons.com/articles/hank-paulson-looks-backat-the-turmoil-of-2008-1536759000



There were 3 options available to Hank:

1. Retains status quo - This means bailout the struggling institutions in short term and once market stabilizes fix the broken system. This was the safest option having predictable outcomes in mitigating the impact of the turmoil.
2. Let AIG, Freddie and Fannie fail...like Lehmann - This would be disaster as the fear would permeate the market with fear and the ripple effects that would be far far worse than what we have seen. Unchartered territories and frankly it's just gambling with the system. (see interview quote bove)
3. Some other alternative option - I still haven't seen what other viable alternative option Hank had at that time. Even in hindsight, there seems to be no consensus with proper details on what might have been done. Just random theories and speculation.

Mate all you are doing is repeating the fallacious and invalid arguments that were already debunked in my first posts about setting up a false dichotomy. Again, I really question your judgment here in defaulting to the guy who was so clueless he missed the entire crisis as it was happening and then had to lean on Dimon and the Goldman crew (again documented by respectable journalists and a Lehman VP ffs). Your (1) is just a fallacy because a) it was impossible and undesirable to maintain the status quo and b) TARP WAS an uncharted solution.

I'm not wasting my time going around in circles since you just keep repeating the same cliche basic PR misinformation without backing it with anything so I am just going to try one more angle.

Why was the 'entire economy' at risk? Its important to understand why the risk was there to understand the solution. The risk comes because of the unregulated financial services derivatives that were used based on faulty AAA ratings. With these insane unregulated derivatives a ton of institutional investors from AIG-FP (not the same as the insurer) to CalPERS (California's state pension fund) to institutional investors in Dusseldorf would have been at risk. So the risk to the economy comes from the fact that the bullshit spread from the non-bank mortgage lenders (remember it was the mortgage lenders like Countrywide not actual traditional banks that were the problematic lenders) that were packaged into MBS and then chopped up into dozens of derivatives that were all based on the faulty AAA ratings from the compromised ratings agencies.

Where was this risk to the entire economy? It was in all the derivatives based on faulty ratings MBS. Without the vehicle of MBS based derivatives the risk wouldn't be spread. But the main problem with the defaults that sets off the chain reaction begins with individuals (poor, working class and even middle class) not being able to afford the balloon payments on the crap Adjustable Rate Mortgages they got sold.

So, its clear that one alternative that should have been done is to start bottom-up and start bailing out the consumers saving the homes and businesses first. That savings would decrease the defaults continuing and would bolster the commercial and community banks that deserve to be bolstered. T

hen of course some of the financial institutions should have been allowed to fail. That doesn't mean "do nothing" it means that a lot of bond holders and counter-parties should not have been guaranteed 100 cents on the dollar while millions of people lost their homes. T

Then there clearly should have been stronger re-regulations, stronger penalties on all the guilty parties and there should have been massively hearings conducted by Congress regarding the financial system. None of this happened because they didn't want reform, they just wanted the taxpayers to bailout their crashing their economy so they could go back to selfish amoral profit seeking.

Its blindingly obvious to all but uninformed individuals who are drinking the kool-aid that many better options existed for the bottom 80%. The problem is the decisions was obviously done to benefit the top 1% of individuals and corporations first and foremost and allow the bottom to suck up the cost and risk.

 

[Edgar Allan Pillow]

Mate all you are doing is repeating the fallacious and invalid arguments that were already debunked in my first posts about setting up a false dichotomy. Again, I really question your judgment here in defaulting to the guy who was so clueless he missed the entire crisis as it was happening and then had to lean on Dimon and the Goldman crew (again documented by respectable journalists and a Lehman VP ffs). Your (1) is just a fallacy because a) it was impossible and undesirable to maintain the status quo and b) TARP WAS an uncharted solution.

I'm not wasting my time going around in circles since you just keep repeating the same cliche basic PR misinformation without backing it with anything so I am just going to try one more angle.

Why was the 'entire economy' at risk? Its important to understand why the risk was there to understand the solution. The risk comes because of the unregulated financial services derivatives that were used based on faulty AAA ratings. With these insane unregulated derivatives a ton of institutional investors from AIG-FP (not the same as the insurer) to CalPERS (California's state pension fund) to institutional investors in Dusseldorf would have been at risk. So the risk to the economy comes from the fact that the bullshit spread from the non-bank mortgage lenders (remember it was the mortgage lenders like Countrywide not actual traditional banks that were the problematic lenders) that were packaged into MBS and then chopped up into dozens of derivatives that were all based on the faulty AAA ratings from the compromised ratings agencies.

Where was this risk to the entire economy? It was in all the derivatives based on faulty ratings MBS. Without the vehicle of MBS based derivatives the risk wouldn't be spread. But the main problem with the defaults that sets off the chain reaction begins with individuals (poor, working class and even middle class) not being able to afford the balloon payments on the crap Adjustable Rate Mortgages they got sold.

So, its clear that one alternative that should have been done is to start bottom-up and start bailing out the consumers saving the homes and businesses first. That savings would decrease the defaults continuing and would bolster the commercial and community banks that deserve to be bolstered. T

hen of course some of the financial institutions should have been allowed to fail. That doesn't mean "do nothing" it means that a lot of bond holders and counter-parties should not have been guaranteed 100 cents on the dollar while millions of people lost their homes. T

Then there clearly should have been stronger re-regulations, stronger penalties on all the guilty parties and there should have been massively hearings conducted by Congress regarding the financial system. None of this happened because they didn't want reform, they just wanted the taxpayers to bailout their crashing their economy so they could go back to selfish amoral profit seeking.

Its blindingly obvious to all but uninformed individuals who are drinking the kool-aid that many better options existed for the bottom 80%. The problem is the decisions was obviously done to benefit the top 1% of individuals and corporations first and foremost and allow the bottom to suck up the cost and risk.

All you do is be a critic without offering viable alternate. Quite useless in real life.

What should have been done? Come up with an alternative plan for letting AIG fail and society being better , back it up with stats and we'll talk.

 

[oneniltothearsenal]

All you do is be a critic without offering viable alternate. Quite useless in real life.

What should have been done? Come up with an alternative plan for letting AIG fail and society being better , back it up with stats and we'll talk.

Do you even read posts or just repeat catch phrases and buzz words without critical thinking?

"Where was this risk to the entire economy? It was in all the derivatives based on faulty ratings MBS. Without the vehicle of MBS based derivatives the risk wouldn't be spread. But the main problem with the defaults that sets off the chain reaction begins with individuals (poor, working class and even middle class) not being able to afford the balloon payments on the crap Adjustable Rate Mortgages they got sold.

So, its clear that one alternative that should have been done is to start bottom-up and start bailing out the consumers saving the homes and businesses first. That savings would decrease the defaults continuing and would bolster the commercial and community banks that deserve to be bolstered.

Then of course some of the financial institutions should have been allowed to fail. That doesn't mean "do nothing" it means that a lot of bond holders and counter-parties should not have been guaranteed 100 cents on the dollar while millions of people lost their homes.

Then there clearly should have been stronger re-regulations, stronger penalties on all the guilty parties and there should have been massively hearings conducted by Congress regarding the financial system. None of this happened because they didn't want reform, they just wanted the taxpayers to bailout their crashing their economy so they could go back to selfish amoral profit seeking.

Its blindingly obvious to all but uninformed individuals who are drinking the kool-aid that many better options existed for the bottom 80%."

Plenty of obvious solutions there. Anyway you haven't backed up a single thing you asserted with anything while making tons of strawmen and completely ridiculous comments regarding "status quo" that literally make zero sense. I also provided links to a bunch of books that get into everything in depth from economists who studied this for eyars but I have lost hope that you might actually decide to read and educate yourself. I still can't believe you are quoting Hank Paulson who was criminally negligent in his job to allow things to get that bad.

 

[Edgar Allan Pillow]

So, its clear that one alternative that should have been done is to start bottom-up and start bailing out the consumers saving the homes and businesses first. That savings would decrease the defaults continuing and would bolster the commercial and community banks that deserve to be bolstered.

Then of course some of the financial institutions should have been allowed to fail. That doesn't mean "do nothing" it means that a lot of bond holders and counter-parties should not have been guaranteed 100 cents on the dollar while millions of people lost their homes.

Sorry, if I'm harsh...but that naive and shows lack of understanding how macro financial market work. There was no point guaranteeing mortgages while public loses faith in banks. A bank failure would be more severe and broader than just mortgage market. Per latest count the total mortgage market value was at $10 trillion...and what was your proposal....Govt should arrange to repay/write off all mortgages in one broad stroke? Was there any means to at least differentiate which mortgages were in distress due to the crisis and which were not? Very idealistic..but sadly not practical at all.

Then of course some of the financial institutions should have been allowed to fail. That doesn't mean "do nothing" it means that a lot of bond holders and counter-parties should not have been guaranteed 100 cents on the dollar while millions of people lost their homes.

Again, you have no idea on what the impact of letting a BofA or AIG fail. Plenty of AIG investors were pension fund holders for instance. The downstream impact of letting them fail is obvious to anyone who has worked in financial sector industry. Not just Paulson, it was a decision that was replicated across multiple countries. If AIG failed today, I doubt there would be a bailout as the market is stable and the impact can be relatively contained. The cascade effect is quite low. Not in 2008.

 

[MTF]

Why was the 'entire economy' at risk? Its important to understand why the risk was there to understand the solution. The risk comes because of the unregulated financial services derivatives that were used based on faulty AAA ratings. With these insane unregulated derivatives a ton of institutional investors from AIG-FP (not the same as the insurer) to CalPERS (California's state pension fund) to institutional investors in Dusseldorf would have been at risk. So the risk to the economy comes from the fact that the bullshit spread from the non-bank mortgage lenders (remember it was the mortgage lenders like Countrywide not actual traditional banks that were the problematic lenders) that were packaged into MBS and then chopped up into dozens of derivatives that were all based on the faulty AAA ratings from the compromised ratings agencies.

Where was this risk to the entire economy? It was in all the derivatives based on faulty ratings MBS. Without the vehicle of MBS based derivatives the risk wouldn't be spread. But the main problem with the defaults that sets off the chain reaction begins with individuals (poor, working class and even middle class) not being able to afford the balloon payments on the crap Adjustable Rate Mortgages they got sold.

So, its clear that one alternative that should have been done is to start bottom-up and start bailing out the consumers saving the homes and businesses first. That savings would decrease the defaults continuing and would bolster the commercial and community banks that deserve to be bolstered.

Any run on the banking system is a risk to the entire economy, regardless of what assets on the balance sheets are taking the losses. Because if your banks fail then the entire monetary system halts until it can be sorted. Meanwhile transactions aren't processed, be it payroll, b2b transactions, your ATM machine, etc. Every banking crisis of any nature is always initially addressed by the central bank + govt insuring that the banks in question will not go out of business suddenly (be supported, bought-out, etc), regardless if the situation arises from internal or external causes.

The problem with bailing out the loans from the consumer side is that you couldn't do it quickly enough to prevent several banks around the world from failing in the last 2 weeks of Sept '08.