2008 Financial Crisis

[Furrowed Brow]

In the thread How Does Socialism Work? the question of the financial crisis of 2008 and the culpability of the banking system was raised.

Alan Greenspan was probably the main perpetrator behind the 2008 crisis, but not because he blocked additional regulation of the derivatives markets. If there hadn't been an artificial increase in home ownership, there would not have been any prevalent excess in lending and there would not have been any of these bad, subprime loans that the collateralized debt obligations consisted of. Greenspan, Bernanke and Yellen (all of whom are economists) are to be blamed for following the Keynesian prescription of easy money and low interest rates.

Here is a link to the film Inside Job narrated by Matt Damon. This is a link to the film Meltdown. A presentation by Jeffrey Friedman, and a Tedx talk by Brian Westbury, and here is a film Financial Crisis Since 3500 BCE. There is plenty more material that covers the subject from different sides of the debate.

Did the banking system collapse because of inherent contradictions of capitalism, poor regulation, too much regulation, too big to fail banks, lack of ethics, greed, excessive risk, psychopathics bankers, reliance on a defunct economic models, Keynsian economists, central banks, government policy, low interest rates, Alan Greenspan or what?

If Jesus designed the banking system what would it look like?

[Furrowed Brow]

My position on the financial crisis is that the finance sector had grown too large as a percentage of GDP of several of the world’s major economies. The debt levels were unsustainable. The banking and financial sectors carried on regardless facilitating the rise in debt for short term profits and bonuses. So greed and excessive risk were part of the problem. But it was also a systemic problem. Improvements in productivity had not found its way into workers wages since around the 1970s, the problem exacerbated by manufacturing jobs moving to low labour cost countries like China. In real terms wages stagnated. Standards of living were maintained by taking on more debt leading to the financialisation of economies - which banks profited from. A large well paid workforce with little need for finance is not what the banking industry want. It may not be a conspiracy but it is not inconvenient for the financial sector that wages were stagnant. Low interest rates were a means to sell product to subprime clients - if they had been more cautious they could have refused to sell of course - but they didn’t because that is the nature of short term irrational greed. Like going to a bar and blaming the cheap price of drinks on your hangover. Bank bonuses were not paid for the best ideas of keeping people out of debt - there was no incentive not to guzzle. Did banks make egregious choices motivated by short termism - do bears do their thing in the woods? Short term reckless behaviour trumped long term rations self interest. The hope to own your own home has always been there, it is the banks (the financially sophisticated) loose with loans that turned hoped into demand. And as one financial observer Mike Maloney pointed out in 2005, when the bubble burst the banks would end up owning the country. It was not simply confidence in a property bull market but the confidence they could not loose if the market fell. What undid the banks was their own exuberance and junk valued as AAA, and the fear of the unknown liabilities lurking in the derivative markets. A class of financial products the banks had invented to get around regulation.

[Divine Insight]

If Jesus designed the banking system what would it look like?

There wouldn't be a banking system if Jesus was in charge of things. There wouldn't be any need for money at all. Jesus preached behaviors that would naturally lead to a socialistic society, not a socialistic "economy". There would be no need for money at all.

And therefore there would be no such things as banks, bankers, loans, or interest rates, etc.

The problem with asking what banking system Jesus would "design" is that Jesus won't put up with any behaviors he doesn't approve of.

Jesus represents a totalitarian dictatorship. You either agree with his totalitarian dictatorship and live as he teaches, or you are cast into everlasting punishment on the charges that you aren't "righteous".

So Jesus represents the ultimate socialistic communism and totalitarian dictatorship. There is no need for money in his system because if a person is greedy and refuses to share everything they have with the rest of society they are deemed to be guilty of the sin of personal pride and vanity and are cast into the lake of fire.

Only the children who are willing to "play nice" and freely share everything they have can enter into his kingdom.

Jesus is the ultimate totalitarian dictator who demands voluntary socialism and communism.

This may seem like a horrible thing to those who are selfish and greedy, but for the children who don't have any problem with "playing nice", they actually see Jesus as their "savior" who will save them from the greedy bullies who refuse to "play nice" and aren't willing share everything they have with others.

No money required to live in the kingdom of Jesus. It won't do you any good there anyway. It's just a waste of paper.

[bluethread]

My position on the financial crisis is that the finance sector had grown too large as a percentage of GDP of several of the world’s major economies. The debt levels were unsustainable. The banking and financial sectors carried on regardless facilitating the rise in debt for short term profits and bonuses. So greed and excessive risk were part of the problem. . . .

There is plenty of blame to go around. That said, the only reason one needs to look at that labyrinth of factors is because the government is not only attempting to micromanage the economy, but also do so as a means of social engineering. There is nothing, apart from the government, that requires people to borrow money from or invest in large banks. Also, there is nothing, other than the government, that requires banks to make bad loans. So, the root cause of the government bailout of the big banks is the government encouraging people to borrow money from big banks, the government requiring those banks to make bad loans, and the government assuring investors that there is little or no risk involved in investing in big banks. Maybe the problem is that people depend on government too much, don't you think?

[bluethread]

If Jesus designed the banking system what would it look like?

There wouldn't be a banking system if Jesus was in charge of things. There wouldn't be any need for money at all. Jesus preached behaviors that would naturally lead to a socialistic society, not a socialistic "economy". There would be no need for money at all.

And therefore there would be no such things as banks, bankers, loans, or interest rates, etc.

There is no justification for this view at all. Yeshua spoke of personal morality, not governmental economic policies. Even if these draconian presumptions were true, that would not preclude the need for a medium of exchange. Whenever goods or services are exchanged, money is involved. It need not be currency. It can be a gift certificate, a contract to buy or sell, or even the goods and services themselves. Until this latter is properly understood, everything else said in this regard is just hog wash. No, that is not quite true. Hog wash is useful as a medium of exchange, ie money.

https://s.yimg.com/fz/api/res/1.2/RX4Pd ... h-blue.jpg

[Divine Insight]

If Jesus designed the banking system what would it look like?

There wouldn't be a banking system if Jesus was in charge of things. There wouldn't be any need for money at all. Jesus preached behaviors that would naturally lead to a socialistic society, not a socialistic "economy". There would be no need for money at all.

And therefore there would be no such things as banks, bankers, loans, or interest rates, etc.

There is no justification for this view at all. Yeshua spoke of personal morality, not governmental economic policies. Even if these draconian presumptions were true, that would not preclude the need for a medium of exchange. Whenever goods or services are exchanged, money is involved. It need not be currency. It can be a gift certificate, a contract to buy or sell, or even the goods and services themselves. Until this latter is properly understood, everything else said in this regard is just hog wash. No, that is not quite true. Hog wash is useful as a medium of exchange, ie money.

https://s.yimg.com/fz/api/res/1.2/RX4Pd ... h-blue.jpg

Why would there be any need to keep track of who owes what to whom?

According to the teachings of Jesus you are supposed to give everything you have to the poor, this would include your services.

Matthew 19:
[16] And, behold, one came and said unto him, Good Master, what good thing shall I do, that I may have eternal life?
[17] And he said unto him, Why callest thou me good? there is none good but one, that is, God: but if thou wilt enter into life, keep the commandments.
[18] He saith unto him, Which? Jesus said, Thou shalt do no murder, Thou shalt not commit adultery, Thou shalt not steal, Thou shalt not bear false witness,
[19] Honour thy father and thy mother: and, Thou shalt love thy neighbour as thyself.
[20] The young man saith unto him, All these things have I kept from my youth up: what lack I yet?
[21] Jesus said unto him, If thou wilt be perfect, go and sell that thou hast, and give to the poor, and thou shalt have treasure in heaven: and come and follow me.

Apparently you aren't permitted to own anything in heaven. So there won't be any need for any banks or record-keeping of who owes what.

Everyone is to give to the poor.

And since, in heaven, everyone is poor, (since no one is permitted to own anything) then everyone simply shares with everyone else at all times.

It's the ultimate socialism and communism. Everyone lives in a commune where everything belongs to everyone.

That's what heaven is. It's a totalitarian dictatorship where Jesus is the dictator and everyone lives in his "perfect" socialism.

If you don't like pure socialism then it's unlikely that you would like living under the totalitarian dictatorship of Jesus.

[Furrowed Brow]

There is plenty of blame to go around.

True.

That said, the only reason one needs to look at that labyrinth of factors is because the government is not only attempting to micromanage the economy,

Probably more myth than true.

There is nothing, apart from the government, that requires people to borrow money from or invest in large banks.

Not sure what you mean but there are plenty off material conditions that nudge people to want to own their own home, and for most people the only way to do that is by going into debt with a bank. A major reason people want to buy is they are fed uo with paying rent. Usually to someone who has already gone to the bank for the loan that bought the roof over the renters head. In the UK the idea of buying a house as an investment that will rise in value was an invention of the banks that started in the 1930s. Before that people bought to live in a house or they bought to rent it out, but the idea the house would gain in value was a banking invention. And of course the idea that a house is an investment is another major reasons folk want to buy. Also many buyers go through agents who hook them up with the "best deal", or they will go to the banks they are aware of and who dominate the market i.e. big banks.

Also, there is nothing, other than the government, that requires banks to make bad loans.

False. Government did not force banks to pay the high commission to agents, and they did not create the conflict of interest where the agent represented the seller whilst selling finance to the buyer. Also the majority of subprime loans were made by firms not subject to the Community Reinvestment Act. Link 1. And the Bush administration had weakened this act. then there was the conflict of interest of the credit agencies that falsely credited junk as AAA, and the junk was invented by the banks as way to get around regulation and offload risk. Until they weren't the banking industry thought Credit Default Swaps were a marvellous idea. The derivative market connected the subprime bad debt to global financial markets and the access to these markets made the subprime loans look a much safer bet than they were. And somehow the banks and finance markets convinced themselves of the sense of highly complex financial instruments it later turns out they did not really understand. None of that can be blamed on government. The low interest rate policy pursued by the Fed contributed to a bubble,....the Fed is not government, The trillions of dollars of toxic debt built up by the bank explained away as "the government made us do it" is just not a sustainable. It may be true the banks were increasingly reckless because they were too big too fail and knew government would bail them out. So government played a role. But that is not government forcing banks to be reckless.

A couple of counter examples as to how banks bad loans and failures can be shown to be nothing to do with government...quite the reverse. Iceland's banking system collapsed because of massive deregulation and privatisation of what were three small state owned banks. Back in the 1990s BCCI collapsed. This was a sorry tale of malfeasance with complicit auditors. The point is banks fail without government help.

So did the banks chase subprime debt because government forced the issue or did they chase it because it was the next new market and other markets were saturated...and they badly miscalculated. I think the evidence point to the latter not the former.

So, the root cause of the government bailout of the big banks is the government encouraging people to borrow money from big banks, the government requiring those banks to make bad loans,

I think you need to be more specific as to exactly how they induced people to take out loans and forced banks to accept these loans. Which policies and legislation are you referring to? There seems to be a few myths on the subject.

..and the government assuring investors that there is little or no risk involved in investing in big banks.

On this point I'm not sure what the US government said publicly and what assurance they gave either implicit or explicit. In the UK there is the general idea that our savings are safe due to the FCSC scheme, and I guess the government are complicit in perpetuating the sense of safety, but 2008 was a problem of bad loans, misfeasance, and bail outs. The next banking collapse will be solved with bail ins like Cyprus and investments will be at much greater risk.