Don't be an idiot investor!

10 Replies

@Account Closed

I don't really want to stay up with this. But, you do realize that Mr. Dimon, et al. feel that it is their right to gamble totally unregulated while still being backed by the tax payer if their bets fail?  That is insanity.  Remember, the definition of insanity.  Doing the same thing over and over and expecting a different result.  Well, what has happened since the meltdown with regard to regulation.  Absolutely nothing.  And when regulation is even mentioned they bring up the same old worn out arguments such as what you are pointing at that "legislation will seriously undercut the integrity of the capital markets."  Sorry, but that is just horse manure.  We are fools to expect them to "self regulate."  For what they did to the economy we should have dragged them down Wall Street and tarred and feathered them, then thrown them out of the country.

End of rant.

@David W. I agree. You're preaching to the choir. The gov't doesn't do their job efficiently, effectively and sometimes not at all.   This rewards unethical behaviors...those taking advantage of the lack of regulation.

The crash had nothing to do with investors.

The basis of the crash was when Clinton made race a part of the application for a loan, if an institution denied too many low income families, which unfortunately include a disproportionate amount of the black population, the financial institution could be prosecuted. Not only that, but lending to the poor also became a qualification for take overs and mergers, if you had not lent enough to the poor, then a take over would be blocked.

So in one stroke, ability to repay took second place to other things.

Mortgages were then made, packaged up into so called bonds and sold to investors (not re investors, but people like pensions companies etc).

In 2006 a lot of these packaged mortgages were found to have deficiencies, eg people not repaying, and the investors holding these investments started disposing of them.

Banks were asking accountancy firms in the City of London and Wall Street to start unpacking each one of these instruments to redo e paperwork and pull out the bad loans and then repackage them.

The Banks were offering in London £50,000 to redo one of these bonds (for a better word) and offer insurance on the bond after it was repackaged, the auditing and accountancy firms asked for £250,000 per bond and no insurance. 

Investors took fright, and what caused the banking meltdowns, especially outside the U.S. Were that banks had been used to borrowing large amounts of rotating credit on 90 day terms and lending on 25 year mortgages.

When investors started taking fright over the underperforming bonds, they also pulled their lines of 90 day credits to many banks. Which in turn caused governments across the world to have to provide that funding.

RE investors got shafted because as the country went into recession, people couldn't make rents, landlords could not make their mortgage payments.

Here's the thing you will disagree with me about - everyone blames bankers, everyone calls their behavior criminal, yet what was so virtuous about re investors and individuals putting in what Jay calls Liar Loans? What about the people who were cajoling the appraiser to give a higher price ontheproperty to borrow a little bit more?

If the banks were criminal in lending the money, then people who shorted the banks in the end are criminal of fraud.

As for those "bankers" all getting bonuses, nothing was ever further than the truth. I am told with great authority from friends in the City that within weeks of Lehmans going down, nearly everyone associated with these bonds had been let go, both in the City of London and Wall Street, and it has since become known, that many of those traders and bankers who were expecting bonuses, not only had the bonus cancelled, but are now in lots of lawsuits up and down both the U.S. And UK to recover previous bonuses that were paid in previous years.

James, look up the Community Reinvestment Act, Clinton being the cause is pretty funny and the ability to repay has never taken a back seat to that logic. Those bonds found a home with investors willing to accept the underwriting, the quality was misrepresented basically. 

Jon, any way to give a link to the article or enlarge it, can't read it, it's smaller than the fine print on an Tylenol bottle. 

Seems to me that brokerages rolled over, not fighting in exchange for personal exemptions and paying fines, protect the King! However, there have been or still are some individuals being held personally liable, it's not over yet! And yes, I'd rather see 10 to 20 years in prison than a hundred million dollar fine. Strip the individuals of ill gotten gains and the suits won't be so quick to connive. :) 

Ability to pay did take a back seat. That's why there was a crash. It's self evident, there would be no crash if people were able to repay their loans.

The mixing of merchant banks and retail banks (another Clinton change and Gordon Brown in the UK) exacerbated the whole problem, because central banks now had to prop up merchant bank losses to protect the retail banking sector. And as shown, when a bank gets into problems, eg Northern Rock, very quickly you get a run on the bank.

Painting the populist picture that the banks caused this is disingenuous at best. Nope, politicians as per normal were at the bottom of it.