Only a dogmatic right winger could say that with a straight face. And in the later sentence you proved it. You're so convinced it couldn't have been the free market, you are willing to accept any explanation for the economic collapse that pinned most of the blame on the government.

And it's categorically absurd. Yes, absolutely, the gov't played a role, but the overwhelming majority of the collapse was due to derivatives and CDOs. The only conceivable explanation for the gov't being the primary root cause is either they didn't regulate as they should have, which actually ends up being the antithesis of your argument because it advocates gov't taking a much more involved role from here on out, or it's because of initiatives by the gov't to increase homeownership by giving loans out to people who had little chance to pay it back. Of the later, the simple fact of the matter is the vast majority of the subprime loans were given out by subprime lenders, not Fannie and Freddie, before Fannie and Freddie entered into that market. Even when considering in the end all subprime loans including Fannie and Freddie, the odds of default on subprime loans were several fold higher with subprime lenders than Fannie/Freddie.

And why did CDOs containing subprime loans get pushed up into investment vehicles that could be purchased by retirement programs like 401k, etc., which fueled their growth? Fannie and Freddie backed loans and non-Fannie/Freddie backed loans were both in funds rated AAA by ratings agencies that were not regulated by the US gov't. Instead, they were paid by the investment houses that gave them the investment funds to rate in the first place. No gov't agency put a gun to their head and made them slap lipstick on those pigs.

Absolutely, Fannie and Freddie helped to legitimize subprime lending, but the simple fact of the matter is Fannie and Freddie were late to the subprime game. They even thought that they almost had to in order to, survey says, COMPETE THE MORTGAGE MARKET! Oh yes, that's right, they were compelled to enter into these dangerous loans because they were losing market share to the Countrywide's of the mortgage industry. While gov't certainly liked the idea of the result in increased home ownership rates this would cause, no gov't agency put a gun to their heads to issue subprime loans specifically. They chose to jump into those waters.

The Great Recession is in the end more about what happens when the free market, particularly the financial sector, isn't regulated effectively. I don't blame the financial industry for inventing derivatives and CDOs. Both instruments can be used to reduce risk for all parties involved, and potentially to the entire system. But they inadvertently created a system that led to its own collapse because no entity watched over the system as a whole. How could the investment banks have known they comprised entities that should any of them fail, they would cause the entire system to collapse because of the intricate web of these CDOs and derivatives? How could they possibly know AIG was overextended on derivatives? They simply aren't equipped or structured to know this. But some entity should have, and the ONLY possible answer is the gov't. I'm even sympathetic to the view the gov't as is cannot possibly do this, but that means we need to fashion a gov't that can. It's the only answer.

>> ^lantern53:

Now Wall St. may have fouled up but it was the US gov't which was holding the gun to it's head. Only a gov't could foul things up this badly.

Repealing Glass-Steagall got government out of the market, and was a huge mistake.

That's like blaming the water for a flood when the guy up the river dynamited the dam. Who repealed Glass-Steagall? AIG? The "banks"? Nope. It was government - who had a specific objective in doing so. That is government interference in the market.

The video gets that one thing right. After the Great Depression the imposition of Glass Steagall created an environment where the banking system couldn't go nuts. That is a great example of GOOD government. Government is fine when it sets up a set of basic, fair rules and then just stays out of everyone's business and lets the market run itself.

But leftists (both in the GOP and Democrat party) have been jonesing for more and more "social engineering" power for a long time. They look out on the world and see 'unfairness' (as they define it) and want to use the power of government to change the system into something they think is better. But as with all tyrants and meddlers in misery - they forget (or choose to ignore) the sad history that is the result of such thinking. Poverty, oppression, and death.

Government constantly interfering in the private sector has created an environment of uncertainty and patronage where businesses are more beholden to whoever holds political office than to their customers. If you want to stop the 'offenses' of Wall Street - then you have to slap down government first. Reduce thier size, scope, power, influence, and ability to interfere. When government loses power, it will flow back to people who have the ability to control the market with their buying dollars.

Well - the video gets one thing right. Repealing Glass-Steagall was a horrible mistake. Where they get it wrong is that it was not 'banks' or 'Wall Street' that was pushing for it.

Glass Stegall's repeal is a long story that begins with Jimmy Carter and ended with Bill Clinton. They leaned hard on banks because they wanted more poor folks owning houses. But the dang awful truth was that the poor folks just couldn't actually AFFORD to pay for those homes, and banks weren't in the business of giving them houses for nothing.

So Congress (with both the GOP and Democrats) began pushing for a change. It is very true that there were companies (notably AIG) who also pushed for this because they saw a way they could profit from it. But "banks" did not want this at all. They were forced into it. Once the housing bubble started they had to start in with the sub-primes just to compete but a lot of them knew it was very risky. But for a while it seemed to be working and everyone was making money hand over fist. And it has to be said also that CONSUMERS weren't exactly ethical either. Many people bought homes they knew they couldn't pay for just to make a quick buck.

That's the history and fact. Glass Steagall didn't go away because of evil banks. It went away because of governmetn social engineering. So bring it back already! Oh - yeah - that would interfere with Obama's CURRENT PRACTICE of forcing banks to give away more loans in minority communities...

http://www.investors.com/NewsAndAnalysis/Article/577794/201107081851/DOJ-Begins-Bank-Witch-Hunt.aspx

The real problem is government. Get the government OUT of the market. Establish a simple set of basic, fair guidelines and then tell government to get out of everyone's way. Glass Steagall would have never been repealed without a corrupt government pushing for it.

The thumbnail image for this video has been updated - thumbnail added by Lawdeedaw.

Never forget.

http://videosift.com/video/Greenspan-Destroys-Deregulation-in-16-Seconds>> ^marinara:

did you know right before AIG went under, they bought a japanese insurance agency. so now USA taxpayers going to pay for stuff just like we're seeing. (since we own AIG)

did you know right before AIG went under, they bought a japanese insurance agency. so now USA taxpayers going to pay for stuff just like we're seeing. (since we own AIG)

The thumbnail image for this video has been updated - thumbnail added by vaporlock.

The thumbnail image for this video has been updated - thumbnail added by vaporlock.

There is a two-way contractual system The bank agrees to loan, taking on all the risks associated with such load. The borrow does the same. ... You say the borrower should check his account, but that is barely his job: whereas it is the job of the banks.

I'm having a tough time conjoining these two bits here. We both agree that the loan is a two-way contract where the bank agrees to lend, and the borrower agrees to borrow - and that both parties agree to the risks involved. And yet there is this second bit here where you say that it is 'barely the job' of the borrower to check his balance and manage his end of the contract. If someone agrees to a contract that carries the risk of bankruptcy, homelessness, or financial ruin then to say it is 'barely' thier job to check the account comes off to me as insanely negligent.

I'd be interested to hear your explanation for all the banks that are doing just fine because they didn't buy into the mortgage scheme. I've heard radio interviews where they simply say that they didn't lend to anyone who couldn't be reasonably expected to pay for it. How did they escape your Catch-22?

Depends on the bank. Peeling back the onion that is the banking industry is complex, but back in the 90s the ones that were really pushing for the repeal of Glass-Steagall were not 'banks' in the sense that most people think about them. They were large, multi-national financial institutions and insurance companies - AIG being the principle player. These kinds of big money houses saw a way to make profit on the buying & selling of mortgages as financial packages WITHIN the financial industry itself. Effectively, the customer getting the loan was utterly irrelevant to these big players. They were interested in the financial packaging - not the loans themselves.

So when the law was changed, it allowed them to throughput mortgages within their own organizations. Historically, Glass-Steagall made it illegal for a financial house like AIG to buy & sell mortgages from banks that it owned or partnered with. But after the change, they could pool all the loans together and market them as a product. They started putting pressure on the smaller players to churn out more debt. There were banks that didn't play the game, but it was tough becuase all through the late 90s and early 00s, people were making money hand over fist the sl-easy way.

I have no doubt that there were politicians who pushed for easier mortgages to please their vocal minority constituents, but the people who stood most to gain were the wall street big money handlers. In your estimation, which of these groups tends to get their way in politics most readily? And therefor, which of these groups is more to blame?

Your question is this... Who is more to blame - the person MAKING A BRIBE or the person TAKING THE BRIBE? My answer is that the person TAKING THE BRIBE bears the greater guilt. All the bribes in the world are worthless if the other guy doesn't TAKE it. Businesses have no power to pass laws. That power rests in Congress. They are the stewards. They are the gatekeepers. They are the ones that are given public trust to only pass good laws, and to guard against this kind of crap.

Sadly - this is what happens when you allow a strong, central government to exist. I remember VERY clearly in the 90s that when AIG, Barney Frank, and a bunch of other guys were strong-arming the repeal of Glass-Stegall they were VERY insistent and persuasive that they were doing a really GOOD thing. It was going to lower the cost of housing. It was going to get more poor people into homes. It was going to make a lot of money for the middle-class, and ease the burden of the poor. In fact, the "repeal Glass-Stegall" guys were vociferious in accusing those OPPOSING their plan of being evil, selfish, cruel, and racist. And until October of 2008, who could really argue with them?

Government should have known better. Glass-Steagall was made a law SPECIFICALLY to prevent housing market collapses like this. It was implemented as a direct result of similar shenanigans which caused the Great Depression and the crash of the 20s. But because government people were wanting votes and conduct 'social engineering', they changed the laws. AIG didn't change the laws. Government did. They bear the ultimate responsibility.

In no way does this absolve folks like AIG. Quite frankly, the federal bailout is a massive crime aginst the people. It dumped money into financial houses to shield them from the consequences of their stupidity. The banks should have been allowed to fail. When this kind of thing happens, you let the chips fall and then the system rebuilds itself. And it does so rather quickly when government isn't there screwing things up like they did in the 30s.

These borrowers knowingly made bad loans to people who didn't understand the contract

In the early 90s the banks were arguing AGAINST repealing Glass-Stegall. Politicians partnered with some big finaincal houses like AIG and started accusing mid-size & small banks of racism ala "red-lining" to grease the political skids for a repeal. In most instances there was no racism of any kind. Banks simply did not give loans to people that couldn't afford them. But poor, urban areas had higher percentages of minority populations - and so out whips the race card...

I lived in the 70s and 80s. I know how hard it was to get even a 30-year loan in those days. But literally overnight banks had to start giving out loans to people who traditionally would not qualify. Instead of making money on the interest of the LOAN, banks were expected to make profit by bundling & selling the mortgage. The government promise was that if things went sour on the borrower end, Freddie Mac & Fannie Mae would paper it over. It worked fine for about a decade. But you can't sustain a market when your only customers are poor people in homes they can't afford and property flippers taking out 2+ extra mortgages more than they can realistically pay for.

The bank's job isn't to be your daddy, or to lecture you about whether you should or shouldn't get a loan. If a person walks into a bank, then as long as they qualify under the rules which are established by government then the bank doesn't have much choice. When people qualify, the bank issues the loan or they open themselves to discrimination lawsuits. It's a Catch-22.

Your outrage should more properly be targeted at the government. Have them re-institute Glass-Stegall. Force them to tighten up the requirements on who can/can't get a loan. Make it so people who shouldn't get loans CAN'T get them and that banks aren't allowed to do it. Join the rest of us racist, evil, red-lining conservatives who think loans should only be given to those who can actually afford to pay them off. But prepare yourself for a tongue-lashing from every neo-liberal leftist group under the sun, because clearly your bean-counting logic is pure neo-con white hatred, right? Oh - and especially prepare yourself to get excoriated by guys like Barney Frank who was one of the principle engineers of this whole "UFFOWDABLE HOWSEING!" mess.

I've said it before and I'll say it again, gambling is a shitty metaphor for credit default swaps.

The only thing that credit default swaps do is create a mechanism for transferring risk. To state the obvious to obscenity, it doesn't force anyone to take that risk, certis parabis it doesn't inflate the overall amount of risk that banks or lenders take on and then resell unless there are willing 3rd parties people to take on that risk from them.

The fact is, credit default swaps were a financial innovation. Anyone who makes any form of investment from 'risk-free' government bonds to venture capital is exposed to some degree of risk, and just like how most industries producing physical goods specialise in products, it makes sense that those who are particularly good at analyzing risk would be given the opportunity to analyse good investments and take on that risk for them if they were confident that they would not fail, or vice versa.

THAT was where the problem started. Simply put, the likes of AIG did not correctly factor in the probability of house prices falling. They sucked at what they were supposed to specialise in. In the end moral hazard, ultimately the critical importance of a massive international insurer among other financial firms in keeping the world economy puttering along was what required them to be bailed out.

Ironically though it turned out that while companies like AIG were terrible at risk management - government regulation, prudential supervision and policies for dealing with delinquent banks were worse, which ultimately meant the buck was passed down to taxpayers and so on ...

Now, how you can turn those simple facts on their head and blame a financial instrument that is designed to manage risk is beyond me.

It's like blaming a seatbelt you didn't use in a car accident.

@blankfist, since you seem to want my thoughts on this (but for some reason, wanted to edit the comment to look like you were just clearing your throat), I'll give you my rebuttal.

I'll take his three points in reverse order.

#3 about regulatory uncertainty is one of these universal conservative economic fantasies. There's no evidence that this really has any kind of macroeconomic effect. Certainly the usual conservative and business advocacy groups always get a laundry list of businessmen to all line up and say how they won't be able to function if they have to pay compensation to workers injured on the job, have to check to see if the products they produce are poisonous or otherwise unsafe, can't dump toxic chemicals into lakes and rivers, can't use slave labor, etc, etc. They always fight against efforts to stop them from being able to leverage negative market externalities for extra profit.

#2 The Yahoo Finance link itself debunks this, because what Schiff says is a flat-out lie. Here's what that link says:

In contrast to Schiff's warning, the law does the following, according to Reuters:

“The bill would set up an "orderly liquidation" process that the government could use in emergencies, instead of bankruptcy or bailouts, to dismantle firms on the verge of collapse.

“The goal is to end the idea that some firms are 'too big to fail' and avoid a repeat of 2008, when the Bush administration bailed out AIG and other firms but not Lehman Brothers. Lehman's subsequent bankruptcy froze capital markets.

“Under the new rule, firms would have to have 'funeral plans' that describe how they could be shut down quickly.”

Liberal critics also question whether the bill addresses "Too Big to Fail", but they're talking about limits on the overall size of banks.

#1 I've covered this fantasy of Schiff's about the nature of the crisis before. Here are two quick points I always make, which you never respond to: low interest rates don't create moral hazard, and Fannie and Freddie weren't even remotely the biggest players in the subprime mortgage-backed security space, much less the chief source of moral hazard.

All the moral hazard was created by the financial industry thinking it had found a way to insulate itself from the risks involved in bad mortgages using CDO's and CDS's -- without relying on government backing of any kind.

I'm happy to go into much more depth on #1 if you like, but you've never really demonstrated that you have any interest in listening to what I have to say on the topic with anything like an open mind.

Oh, and liberals agree that this bill doesn't really do enough in addressing the underlying problems that led to the crisis (the real ones). Basically, they say there's not enough rating agency reform, no leverage caps on investment banks, no Glass-Steagall separation of traditional and investment banks, no commitment to break up banks that grow beyond a certain size, etc.

In fact, from what I've read, the strongest part of this bill is exactly the part Schiff lied about -- it should prevent future Congresses from being forced to do taxpayer-funded bailouts. Instead, it'll be like the standard FDIC process for failed banks, only scaled up to deal with corporations of this size and complexity. Under that process, the bank shareholders, owners, and management get wiped out and fired, but the bank's creditors and depositors are made whole. The bank fails, but it doesn't take a huge chunk of the economy with it when it goes.

Here are a couple that I have run into tonight:

http://videosift.com/video/Financial-Bailout-Was-A-Lie-The-Real-News-Covers-AIG
http://videosift.com/video/TED-Talks-Rory-Sutherland-On-The-Importance-Of-Small-Things

Wait... [Ackbar]It's a TRAP![/Ackbar] Germany just forwarded the bill to AIG which the US implicitly guarantees. Oh well...

I guess those sorts of brilliant plans only work in Greece. I preferred it when they just asked us to run up the beach with machine guns.

@Stormsinger...

Wasn't my point that some regulation is necessary and deregulation (while generally beneficial) can be harmful

Wasn't debating you there. I was just laying out the mortgage crisis as I see it. Some regulation is good. Glass-Steagall was a good law that kept financial houses from being insular one-stop-shops. It is an example of proper government involvement in the market (one of the few). G/S was enacted because of the Great Depression. You think we'd have learned our lesson and not messed with it...

My point was to make sure everyone does not overlook WHY G/S was repealed. Many people put sole blame for it on banks & financial houses. That is wrong. Only some financial houses (AIG particularly) wanted to do this crap, but MOST did not. The key factor was that GOVERNMENT wanted the law repealed to change the financial rules and force banks to make more loans to people who it would formerly be ILLEGAL to give loans too. Government did this thinking that it was a good thing that would create more taxpayers & wealth. Well, for a while they were right. But as we know it was unsustainable in the long run. The blame does not like wholly on banks. They were just operating in the environment that government created. Good banks didn't undertake too much risk, but with competitors making money hand over fist in the late 90s through mid 2008 it was a tough sell.