Yup. It was in the interests of suitably qualified people to not speak up. A few did, but there was still money to be made in the bubble before it broke, and people were hanging on trying not to miss out on that.
Eg if a bank decided to avoid playing that game, their shareholders would say "Why are you losing us money?".
Same as every other bubble really.
+1
Which is why it's stupid to just blame the bankers.
It was the bankers who made the main decisions to screw it up. Maybe stronger regulation would have helped calm them down and stop them being quite so dim - does anybody have better ideas?
It isn't as simple as that.
Because commoditisation of loans wasn't fraudulent.
Precisely.
I think it's a generalisation of the commercial principle, that if you have a contract with someone providing you a service, they can sell that obligation on to someone else [1]. It's like companies buying up bad debts - and the worse of those just send the heavies around to collect.
[1] because you signed the contract with that clause in it. Personally I think the selling on of debts should be banned by law.
Agreed commoditisation itself isn't fraudulent. But it is fraudulent if the seller misrepresents the risky loans as safe loans in order to inflate their perceived value. Isn't that what happened, on the whole?
No, but giving them triple A ratings ...was..
+1
There is a total inevitability about EVERYTHING that is happening.
Greed and stupidity. As societies get more affluent it means that people become prey to the greedy and stupid, and get that way themselves.
EVERYTHING has been about how to get rich quick without dong any work, and how governments could make this happen.
Socialsim, banking deregulation, housing boom, the EU, - its all part of it. One huge global Ponzi scheme that would last forever as long as there were 5% more of everything including people every year, and unlimited access to resources too cheap to worry about.
Guess what?
There wasn't.
No? Very few ever admit they're wrong when it comes to their jobs. One institution starts lending to dodgy clients etc, and the rest follow like sheep to avoid losing market share. Before it's been proved such lending was viable in the long term. They're now being ultra cautious and won't lend on what would once have been considered safe. So have swung too far the other way. Again, all like sheep. FFS, they are paid vast sums to be professionals. To know what is viable or not. It's not rocket science.
What they did was INSURE the risk.
That's fine, that can turn a bad debt into a good one, as the insurance company pays out on default.
What happened then was that the insurance companies crashed..AIG anyone?
At that point, it was as always with a boom/bust..the money has been lost already, and its just a question of who takes the losses.
The original borrowers couldn't. They were broke.
The banks and insurance companies should have. And their shareholders. But they said 'if we go so does every single government budget there ever was, and most international trade' so the governments ripped off the savers and honest taxpayers and gave the money to the banks.
Its an unholy alliance between banks and governments both of whom are essentially bust, raiding piggy banks to keep the thing from collapsing.
At least until it can collapse in a controlled demolition.
It seems the dodgy loans were packaged up with better stuff and sold as a package. The package was rated according to the best item within it. So, crap plus an A rated item meant the package was A rated.
I don't know who was issuing the ratings, or saying it was OK to do that. *They* are they ones who shafted us.
I'd suggest you find out about true socialism. Not that you'll find it being practised anywhere.
Yes it is. Insuring a tanker is not insurance as you and I know it either.
well indeed, yes.
That's like saying Stalin wasn't a true communist, or Mao Tse tung.
It may be true, but for all practical purposes...
No it wasn't.
W-e-e-e-e-e-e-e-llll. Various Governments, particularly in the USA, said that Banks should lend money to lower income groups so they could buy homes. The Banks were well aware that these borrowers were less likely to repay the loans, so they came up with the scheme of repackaging the high risk loans with medium and low risk loans, the idea being that the risk level of the entire package would be acceptable. What actually happened was that the high risk loans "poisoned" the entire package. This was amplified by the less than marvellous idea of some banks of bundling the packages of loans up into larger packages and selling them on. This made it impossible to price the bundles of loans since nobody really knew what was in them. People plucked prices out of the air.
The whole situation was amplified by the fact that the mortgage brokers were earning money by selling mortgages to people who would subsequently default and the ridiculous idea of "self-certifying" mortgages. IMO, virtually everyone involved is to blame, not just the Banks.
And the real, underlying problem that has made the economic meltdown so bad is the fact that most (all?) Western governments have been spending more money than they collected in taxes for decades, and making up the difference by borrowing the money, in the hope that continued economic growth would allow them to pay off those debts. This scheme (which is similar to the Martingale "doubling up" gambling strategy) was doomed to ultimate failure the moment economic growth slowed. In this case it was the Banks that caused the slowdown, but the real problem is the underlying sovereign debt. It could have been anything that triggered the collapse. The bankers may have pushed us in, but governments dug the hole.
And that's even worse in the Eurozone, where countries cannot inflate their debts away. IMO, the euro is doomed.
Yet you seem to keep saying the banks weren't responsible.
No, what I keep doing is contradicting your incorrect assertion that the banks were solely responsible.
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