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Question about Banking Crisis of 08.

Purch
Posts: 64
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5/31/2012 3:31:17 PM
Posted: 4 years ago
I'm new here so sorry if I created this topic in the wrong forum. However, I've recently been reading much farther into the financial crisis in 2008 and have questions focused on the administrations that preceded it. Considering I grew up in New York, you should understand if I say my knowledge of the crisis used to be limited only to what I heard around me which could basically be summed up as Bush's Policies led directly to the recession . However, over the past year I've taken a genuine interest in politics and contemporary American history, which led me to realize that most of the problems we face aren't simplistic enough to just place blame on something as general as "Bush's Policies".

Watching documentaries including Inside Job and Inside the Meltdown whiles also reading articles (Which were based more on the role of Bernake and Paulson) exposed me to the intricate problems created through investment banking, Bad mortgages, Bad loans, Bad Credit, Fraud, Toxic assets, derivatives and so on which led to Bank failures which ultimately led to to a loss in investor confidence and the whole situation which threatened our financial system.

So naturally I assumed that a lack of Bank regulation was the key reason for the Crisis. And then as I researched more and learned about things like Reagan's and Bush Seniors de-regulation policies on Banks and Bill Clinton's repeal of Glass Steagall it seemed like rather than just a problem that developed during H.W's term it was a problem that was being developed over the span of nearly 3 decades.
So my question is the following, how much of an effect did the administrations of Reagan, Bush Sr., Clinton And H.W have on the eventual corruption and de-regulation of the banking system/Wall street? A general explanation of each administrations role and impact would be suffice.
In the councils of government, we must guard against the acquisition of unwarranted influence, whether sought or unsought, by the military-industrial complex. The potential for the disastrous rise of misplaced power exists and will persist.
-Dwight D. Eisenhower

Every gun that is made, every warship launched, every rocket fired, signifies in the final sense a theft from those who hunger and are not fed, those who are cold and are not clothed.
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Stephen_Hawkins
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5/31/2012 3:34:28 PM
Posted: 4 years ago
You won't get a comprehensive, simple answer, because according to some too much regulation was the problem, and others the lack of it was the problem. So you're going to have major problems from the offset.
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16kadams
Posts: 10,497
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5/31/2012 3:36:23 PM
Posted: 4 years ago
lolz the regulation caused the problem. This is a good article:
http://www.thefreemanonline.org...

Also this site should overall enlighten you: http://www.econlib.org...
https://www.youtube.com...
https://rekonomics.wordpress.com...
"A trend is a trend, but the question is, will it bend? Will it alter its course through some unforeseen force and come to a premature end?" -- Alec Cairncross
Contra
Posts: 3,941
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5/31/2012 3:46:55 PM
Posted: 4 years ago
I have also seen Inside Job. Very good documentary.

Yes, lack of regulation, and financial deregulation caused the crisis.

Lack of regulation in derivatives caused huge collapses in the financial markets. The lack of regulation in the mortgage industry caused many subprime mortgages to go bad, which in turn caused CDO's to go bad as well, and since many people used their homes as backup money, when the market went bad (large part because of deregulation of subprime loans) student loans and other loans went bad. When banks got into the mess, they called in loans from consumers, and the large financial credit crunch and high debts from consumers caused demand to slow causing also a recession with all the above factors hurting as well.

Further proof of this was recently, when JP Morgan had a mini collapse and lost $2 billion because of derivatives.

The repeal of Glass Stegall under Clinton, the deregulation of housing under Carter, the deregulation of banks and S&L institutions under Reagan/ Bush 41, and the failure to do anything and extra tax cuts under Bush caused the crisis.
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Purch
Posts: 64
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5/31/2012 4:53:42 PM
Posted: 4 years ago
At 5/31/2012 3:36:23 PM, 16kadams wrote:
lolz the regulation caused the problem. This is a good article:
http://www.thefreemanonline.org...

Good article and definitely a perspective I considered seeing that I've been a pretty outspoken Ron Paul supporter from time to time. In fact I was just reading the other day End the Fed his novel, and this article happened to touch on some of the problems I personally have with an institution like the Fed in which bankers are put in charge of regulating the private economy and yet that institution gets regulated less than Wall street. The Fed Especially screwed up with their artificially low interest rates which contributed greatly to the housing market bubble.

That being said in terms of institutions to blame the Fed is very high up on that list. However, a lot of the business practices utilized by banks especially prior to 08 seemed way to risky, especially considering organizations had retirement funds invested in these stocks and banks themselves wrote off risky investments as "Safe" to investors. Which is why when they testified before congresses they were drilled about their practice of selling extremely toxic assets to investors when they openly knew the dangers of these investments and not caring because they made a profit either way.

Also credit agencies gave 2A ratings to Bear Stearns and Lehman Brothers the week before they failed whiles they gave F Mae and F Mac a triple A credit rating before they got taking over by the government.

It seems like there's a lot of blame to be spread around the more I look into it.
In the councils of government, we must guard against the acquisition of unwarranted influence, whether sought or unsought, by the military-industrial complex. The potential for the disastrous rise of misplaced power exists and will persist.
-Dwight D. Eisenhower

Every gun that is made, every warship launched, every rocket fired, signifies in the final sense a theft from those who hunger and are not fed, those who are cold and are not clothed.
-Dwight D. Eisenhower
Wnope
Posts: 6,924
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5/31/2012 8:12:07 PM
Posted: 4 years ago
At 5/31/2012 4:53:42 PM, Purch wrote:
At 5/31/2012 3:36:23 PM, 16kadams wrote:
lolz the regulation caused the problem. This is a good article:
http://www.thefreemanonline.org...

Good article and definitely a perspective I considered seeing that I've been a pretty outspoken Ron Paul supporter from time to time. In fact I was just reading the other day End the Fed his novel, and this article happened to touch on some of the problems I personally have with an institution like the Fed in which bankers are put in charge of regulating the private economy and yet that institution gets regulated less than Wall street. The Fed Especially screwed up with their artificially low interest rates which contributed greatly to the housing market bubble.

That being said in terms of institutions to blame the Fed is very high up on that list. However, a lot of the business practices utilized by banks especially prior to 08 seemed way to risky, especially considering organizations had retirement funds invested in these stocks and banks themselves wrote off risky investments as "Safe" to investors. Which is why when they testified before congresses they were drilled about their practice of selling extremely toxic assets to investors when they openly knew the dangers of these investments and not caring because they made a profit either way.

Also credit agencies gave 2A ratings to Bear Stearns and Lehman Brothers the week before they failed whiles they gave F Mae and F Mac a triple A credit rating before they got taking over by the government.

It seems like there's a lot of blame to be spread around the more I look into it.

The Fed has had bad policy for quite some time, but would you be against the Fed's existence if they only pursued counter-cyclical policies (reducing inflation and decreasing deflation)? The problem was they were pro-cyclical, and so they stimulated markets that were over-stimulated.