I could have sworn I saw a thread on here recently about this documentary (something about seething rage) but my searches are coming up blank. Apologies for a less than stellar OP here but I am sort of at a loss.
This was one of the most depressing things I have seen in a while. Not just the blatant recklessness of the institutions at fault for the economic collapse, but the total lack of accountability for it, the bonuses, the ludicrous lobbying and education cabal that perpetuates the system, the whole thing was painful. Obama, after pledging reforms, went and installed the same people who architected the mess.
I’m not a radical person, but part of me just wants to nuke the entire financial system and start from scratch. Can someone talk me off the ledge here? Realistically, what can we do to make a better system? IS something being done and I just haven’t heard about it?
We have allowed banks to buy up other banks exacerbating the “too big to fail” problem. We gave them trillions of dollars and gave the guys who created the mess huge bonuses.
That is how we remade the system to make it better. We taught those guys a lesson.
Nothing. America is pretty much corrupt beyond redemption; the people profiting from that corruption control the country and will not allow reform. It will continue to get worse and worse and worse until there’s some kind of general collapse, as bad as the Great Depression or worse.
Hell if I know. The bleak prognosis seems to be that the system will likely collapse again, and there isn’t much we can do about it. All the levers of power have been co-opted.
There was a PBS documentary I saw (I forget which one) implying there was almost a collapse in the late 90s, some important financial institution almost went under and politicians had to talk private investors into taking it over and liquidating it or else the consequences would be disasterous.
On the subject of ‘what can be done’, Simon Johnson (MIT profesor and former chief economist at the IMF) talks about how the crisis in the US is no different than the kinds that occur in developing nations like Argentina or Russia. And the solutions are the same. Nationalize the banks, re-regulate them, break up the financial and political power of the oligarchies, then resell the banks to the private sector after they are broken up, their power weakened and their balance sheets cleaned.
But then he talks about how that probably won’t happen in the US since the US can print its own currency to pay off its own debt, and because the US has so much influence in global events that nobody can really force this gov. to do anything it doesn’t want to do.
So he says likely one of two things will happen. We stagger along from crisis and bailout to bailout. Or the system collapses so severely we have to undergo drastic reforms.
Simon Johnson was in Inside Job, and his article is really good. I read it back in 2009, and it has pretty much been a roadmap for what has happened so far.
That sounds like exactly what is happening. TARP was used to recapitalize the banks, and their worst assets (subprime mortgages) were bought by the gov at overvalued price. Money is being lent to the financial industry at near 0% interest.
The last sentence was really telling. And that is exactly what is happening. ‘needing to squeeze someone they go after ordinary working folk until the riots grow too large’. That is what happened in Madison in 2011. There are efforst to cut UI, food stamps, education, health care, pensions, treatment programs, bargaining rights, etc. to make up for the budget shortfall. Politicians are also looking at supply side tax cuts on individuals and businesses as a way to ‘regrow’ the economy while cutting health care and education for everyone else.
I get the impression from Johnson that the solution isn’t ‘that’ hard (break up the political power of the oligarchy, nationalize the banks, clean their assets, break them up, resell them), it is just that the US doesn’t have the political will to implement it.
I really, really try to avoid proclamations of doom but pretty much what he said.
I can’t predict if it will happen tomorrow or 10 years or 20 years from now but it will happen.
Look around at what the government and Wall Street are doing. Used to be they tried to hide their pilfering and take not too much out of the till.
Now it looks like a game of musical chairs and they all know the music won’t play for much longer. It is just short of an outright mugging right now. Those who can are nabbing what they can then hope they have enough to ride it out when the shit hits the fan.
And yet, amazingly, banks have existed for centuries and seen us go from people who think that leaches are a cure-all to having landed on the moon and cured almost every cause of infant mortality there is.
The cause of the recession was that there was a run on the banks and a run on the stock market, all at once. You can try and say that the banks should have been running more conservatively, so that they could weather an attack like that, but really all that means is that they’ll be holding an even larger slice of the economy when a run on the bank happens that’s larger than the amount that was protected against, and you’ll get an even larger recession.
None of this has anything to do with shady financing, lobbying, or anything else. The closest thing there was, on the part of the banks, to causing the recession was the wide use of adjustable rate mortgages. The amount of money that the banks had out on loan but suddenly couldn’t collect on when the housing market crashed was certainly significant, but not so much that they couldn’t have weathered it if there hadn’t been a run on the bank.
If you go through an entire industry and hundreds of companies with an eye out for wrong doing, you’re going to find a few things that you can tout as evil in front of a camera. And yeah, probably a lot of that is stuff that’s of questionable practice. The point would remain that you’re looking at a small and insignificant portion of everything the banking industry does, and that none of it is actually connected to the financial crisis.
I don’t know that I totally buy your argument, but its beside the point for me. I’m really not interested in pointing fingers about who caused the recession. What I am more interested in, as a result of watching this movie, is just how fucked up the American financial institution is. This is not “a small and insignificant portion of everything the banking industry does,” this was (at the time) the 5 largest financial institutions in America, along with the largest insurance company in America (AIG) lining their pockets with billions of dollars.
There is a section that talks about how Lehman Brothers et al realized that the subprime mortgages getting bought and sold as derivatives were junk, and started betting against them by buying AIG insurance policies that paid them off if the borrowers defaulted. And they did this, while they were encouraging customers to buy the junk derivatives. When confronted about it in congressional hearings, none of them seemed to think anything was wrong with that.
One of the guys prominently featured (I forget his name) spent years running one of these large firms, pocketing hundreds of millions of dollars in bonuses based on paper earnings from these ultra-dodgy consolidated mortgage packages, then sold his company’s stock (tax-free) to take a post at the white house, where he fought attempts to regulate the very ultra-dodgy shit he had just spend the past few years making his money.
The film details how people tried to warn the Federal Reserve and others about the crisis and nobody did anything. And why would they? Everyone involved in their little circle was making gobs of money, why would any of them rock the boat? And when it comes time to pay the piper, look who gets left holding the bag. It is really just sickening.
Banks have existed for centuries yes but they had nothing (read that again) like our financial system today. Options? Futures? ETFs? Dark Pools? The list is a long one.
Originally economies were barter economies (I’ll give you 20 loaves of bread for that sheep). We moved on to currency (this was a good thing). The currency itself had a real value (made out of metal that had an innate value). Then we moved to paper currency but it was backed by something of value. We dropped that (and I will say there was good reason for that too…I am not arguing for a return to the gold standard or barter economies).
However, what we are left with is an illusion. If I give you $1 for a loaf of bread it is because we both agree that piece of paper has a certain value. Fine so far. You can turn around and use that dollar to by something else because they agree it has the same value.
The recent recession was not a “run on the banks”. It was a bubble. All the wealth was on paper. As long as no one pointed out the Emperor had no clothes everyone made money.
Of course there was not actual value underlying it. Sooner or later everyone had to realize they had a lot of dollars “on paper” (i.e. not actual money) that were worthless because there was nothing backing it up. You can say your home appreciates in price by 10% per year but why? Is it really more valuable? It only goes up as long as people are willing to play that game (they buy it and say it appreciates 12% per year). Eventually that house of cards comes crashing down.
I’ll have to look for the cite but I read recently that just before the bubble burst 40% of the US economy was on Wall Street. Not that we were making anything. Just funny money. Everyone just claimed they had money.
The recession tells the story. I forget the figure but some tens of trillions of dollars went poof overnight (or near enough). Where’d it go?
“Fine,” you might say. “Market correction,” you might say. “Working as it should, free markets rock,” you might say.
But what has changed?
A big part of the problem was “too big to fail” banks that had to be bailed out. Have we fixed that? Nope, they are bigger today than before this recent recession started.
Have we fixed housing? Nope, banks are running so roughshod over the system they are taking people’s houses who have paid their mortgages (and otherwise not doing their legal obligations) and the courts are rubber stamping the lot. Are the banks being held accountable?
Wall Street tanked the economy. Name ONE person who was held accountable. ONE. Madoff went to jail for a Ponzi scheme and he only got nailed because he ripped off other rich people.
Name a CEO and their cronies who suffered. Tell me how they kept taking record bonuses year after year while this happened? I recall people here arguing that “they had contracts and those must be honored”. Well, how many people had agreements for pensions that went poof. Why wasn’t the money they legally earned and were promised forthcoming?
Look at wages the last ten years. Stagnant.
Look at government debt. Skyrocketing.
Look at unemployment. So high for so long they are dropping people off the roles who have just dropped out because they cannot find a job to make the numbers not look so bad.
Look at the overt and blatant attempts of big business to kill unions.
Look at the rich managing to continue a tax break we cannot afford. Consider they would be going back to slightly higher rates that were in effect at the beginning of Bush’s term but rates still lower than they have been almost for the last 50 years. Lower than when Reagan was in office.
Look at the shipping of jobs overseas.
Pretty sure I am missing more in this rant but what do you need?
These are not little, minor whines. These are BIG things. These are structural things. These are things that have been going on for years.
Do you think this pace can be maintained indefinitely?
The impression I got from the film was that a big part of the recession was that our financial system was altered so that it incorporated a very high level of risk (shady, high risk loans rated as AAA as an example), but was unable to handle all but the smallest risk (due to overleveraging, large derivative markets, etc). Sooner or later the bubble had to pop and all that risk would come crashing down which ground the financial system to a stop because everyone had toxic assets and nobody could sell them or weather the financial pain of possessing them.
How would a run on the banks cause the problem? That seems more like a side effect.
I think something is being done, but could, and arguably should, be scaled up faster.
Shareholder-owned western-style banks and corporations, with their emphasis on indirect passive ownership and debt financing is being shown to be the root cause of most of our financial crises. From the speculation that led to the crash of 1929 to the S&L crisis of the '80s to the Great Recession, banks and debt financing have been at the forefront.
Two banking systems that have shown greater resilience. Member-owned or public-owned banks such as credit unions (PDF), or the Bank of North Dakota. And Islamic banks which focus on equity financing and did not invest in derivatives and other toxic assets.
Quote from the above PDF:
While these systems may be less profitable, they are far more accountable and stable. And since a large share of the profits by traditional banks seem to be merely paper profits, I would say the other systems do a better job at creating real wealth that is less likely to vanish overnight.
A system which combines the two establishing member-owned banks based on Islamic finance principles would create a better financial sector than the New York/London model.
And another, but related front, major advances are occurring in the evolution of corporate governance and accountancy into total organizational accountability, not just the controls over financial statements. Sarbannes-Oxley made internal controls and audits as important as financial auditing and accounting. Social accounting initiatives are coming of age as well - the same level financial accounting was in the 1920’s and internal auditing was in the 1990’s. Since those initiatives are not reinventing the wheel, they are scaling up faster than the previous ones. Denmark already requires mandatory CSR reporting.
Unfortunately, New York and London are blocking most major initiatives or reforms occurring from the top down which would break their hold on the markets.
Most legislatures and governments are useless in opposing the traditional finance community, often deeply in their pockets. (Goldman Sachs has how many ex-employees in the US government?)
Any substantial reform will have to occur from the bottom up through grass root coalitions where groups like UK Uncut may make the difference. It will mostly likely happen in Europe first, where it is easier to hold governments accountable, and thus the banks and corporations.
How long for, or if, such a reform movement jumps across the pond? If health care is any indication, about 30 to 40 years. Hopefully Facebook and Twitter will speed that up a bit.
The bankers and CEOs are hoping that GDP growth will return to normal and take any wind out of the sails for change, but unless that growth also returns unemployment to normal levels, and leads to increases in real wages for most, those winds will get stronger. I doubt we will reap a whirlwind, but I think the days of Wall Street’s and London’s hegemony are coming to an end.
I give it two years. This will be the major issue in the next presidential race, and true reformers will smash any establishment candidates. Walker woke up the tiger that was lulling itself to sleep after seeing how the health care debate played out. The key there is to build a 50-state strategy like Dean and Obama did, and keep it built, not dismantle it as soon as the election is over, or cave under when the opposition strikes allies such as ACORN. But that strategy has to be from the bottom up as well. The top has shown no interest in doing so, and the DLC never will.
Actually, there was nothing wrong with our banking system until Phil Gramm and the Republicans passed legislation in the 80s that overturned Glass-Stegall, the laws that were set in place following the Great Depression to prevent bank assets from being used in high-risk financial instruments (like derivatives). The fact is the US economy could easily have handled economic effects of the worthless mortgages the banks were piling up via Adjustable Rate Mortgages, but they couldn’t cover the bets that were being made on the bundled mortgages by the financial markets, which inflated the capital at risk by orders of magnitude. And that was the problem.
Think of it this way. Banks have a kind of license to make money, they can take in deposits and make money on it from loaning out the money and collecting interest and fees for depositors (increasingly, from fees nowadays). Financial firms like Shearson-Lehman are more like gamblers than banks. They make bets on what will happen in the future in financial markets. They need capital (chips) to back up those loans. They would LOOOOVE to get their hands on all that money banks have. But prior to the repeal of Glass-Steagall, banks were prevented by law from doing business with the gamblers.
Phil Gramm and the Republicans, bought and paid for stooges for the gamblers, changed all that. The banks were able to do business with the gamblers, the gamblers created financial instruments called derivatives that allowed them to lay down bets on the success or failure of bank loans, and they made big bets, won for a time, then lost big time, and presto! Great recession.
All that would be needed to prevent this from happening again is the return of Glass Steagall or something like it. Good luck with that. With the Citizens United decision money is more powerful than ever in Washington. The gamblers own the government. We are fucking screwed.
The cause of the depression was not a run on banks.That was a symptom of very serious fundamental problems. That was not the cause.
The redistribution of income preceding the depression was as bad as it is today. The extension of credit with almost no backing was another cause. Allowing banks to keep less and less of the depositors cash on hand made banks vulnerable. Allowing banks to bet the wealth of the bank was big problem. Glass \Steagal separated the investment part from the deposits. But the bankers made it so they could actually risk the banks assets in financial deals. that did not work out so well.
I’ve not seen the documentary and am posting just to say Thank you to most of the Dopers who’ve posted before me in this thread. You’re arguing a correct rationalist position, unlike previous SDMB threads where many Dopers were looking for one minor regulation to tweak, rather than understanding that we’ve developed a wholly flawed financial model, based on wanton “hyper-efficiency” and untamed greed.
Credit derivatives weren’t the only problem, but are a good place to focus for understanding. At its peak, there were $62 trillion (That’s Trillion with a T) of (nominal-value) credit derivatives outstanding, most of that speculative, much of it issued by AIG whose exposure thus exceeded its capital by several orders of magnitude. Bonuses paid to AIG’s traders (whose shenaningans led to huge taxpayer losses) totaled billions of dollars IIRC.
As someone else mentioned, the LTCM failure of 1998 should have served as a warning of the perils of financial “hyper-efficiency.” Recall that LTCM’s failing model had been designed by Nobel Prize winners. :smack:
In this brief post I won’t try to explain the problem further, let alone offer a solution. First step is to agree that there are major systemic problems. It’s good to see Dopers in this thread agree. Too bad policy-makers in government do not.
Worse than that, the demand for supposedly safe high returning mortgage instruments spurred the mortgage companies to write ever-increasing numbers of these, which made the problem much worse. And thanks to Wes for mentioning leveraging, which made the problem much worse, just as it did, in a different way, in 1929.
The underlying problem was that it was in the financial industry’s best interest, short term, to take on ever increasing amounts of risk to be competitive. Sure the rating agencies failed, but they were set up to fail, and the banks wanted the ratings they got. The only way to prevent this is to have a player with no money in the game stopping abuses, in other words the government.
By the way, Sage Rat, the market tanking is a symptom of a recession, not the cause.
What would happen if a real reformist came in from out of nowhere and promised (and meant it) a whole slew of reforms from a populist base? Would he (if running as an indie) not be able to buck the inertia of the two established parties and/or be painted by them as a crazy renegade, or would he (running on one of the two parties’ tickets) be co-opted by the party groupthink and/or be automatically dismissed by half the electorate as one of “them”? Or would they just put a bullet through his head/publish embarrassing videos of him (her) and be done with it? If a Democrat would Obama have spoiled things for him in a boy-who-cried-wolf kind of way and thus not sufficiently fire up the base?
Even if a true reformer won the ticket, don’t expect any help from Congress. You’ll see the same performance. Repubs say “Hell no! That’ll damage the economy!” Democrats would water things down to nothing. A few people might jump ship in either direction, but at the end of the day, nothing of any real import happens. I just can’t tell if it’s unscripted or choreographed.
As I mentioned in the xtisme’s thread, the problem is not the occupant of the White House, but Congress.
I would not mind seeing a challenge from a progressive independent (such as Russ Feingold and Howard Dean,) but unless that populist reform wave also sweeps enough representatives with them, they will not accomplish much.
If the economy takes another nose dive, I could see that happening. I would rather not pay that price for it to occur though.
I disagree. Obama could have put people in place who could at least ATTEMPT to enact some sort of reform. Instead he installed (or reupped) the same people who flew the plane into the mountain. Had he been serious about his campaign promises to reform the system, he would not have done that.