Trump and the big banks

banks and their social function



bank failures


Glass-Steagall, and its repeal





repeal again?   so soon?



How odd.


3 responses

  1. I think you’re missing a big factor if the banking crisis – the requirement that banks make loans to questionable lenders in the name of affordable housing. This was foisted upon them by Congress and championed by the very Barney Frank for which the Dodd-Frank bill was named. The banks then packaged these bad loans together into debt instruments, which somehow got AAA ratings (since no one believed everyone would default on their loan at once), and were sold to eager fixed income buyers who were looking for something that paid better rates since the Federal Reserve had kept the interest rates at banks down for so long.

    The banks also bought some of these debt instruments, then bought “insurance policies” from each other called collateralized debt obligations (CDOs)that were supposed to pay them if the debt investments failed, making them nearly risk free. The issue was that the same banks paid for these CDOs by selling the same CDOs to others, believing there was no way housing could decline in price, and therefore there was no way they would ever need to pay. In the end they formed a circular firing squad where everyone was owed a bunch of money but also were supposed to receive a bunch of money. I wonder if they had all simply forgiven each other’s CDOs if they would have found out that they were all essentially even.

  2. Thanks for your comment. You’re right that the government wanted the banks to increase home mortgage lending, arguing that owning a home produced greater economic and social stability. But the banks were hardly innocent. They made tons of mortgage loans without any evidence of the borrower’s ability to repay (so-called liar’s loans). They browbeat the ratings agencies, pitting one against the other, into giving AAA ratings to terrible CDOs. Sometimes they even submitted one slate of securities to the ratings agencies and substituted inferior names in the actual product after getting the rating. Proprietary bank traders have also been indicted for trying to illegally manipulate all sorts of commodity markets–which I read as saying they were terrible traders, so the only way they could make money was to cheat.

  3. I think there was lots of blame to go around. There were also the borrowers who bought way more house than they could afford because they figured they could just sell for a big profit before the balloon mortgage came due, and some who even bought several houses as “investments” with nothing down. Some then trashed the place on their way out since they thought it was unfair they were being tossed from a place on which they were no longer paying the mortgage, sometime having lived rent free for months, despite having had hundreds of thousands of dollars being forgiven. Probably the only innocent ones were those of us buying far less home than we could be qualified for who ended up paying for the losses of the big banks through our taxes.

Leave a Reply

%d bloggers like this: