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Top Ten Real Causes Of The Crisis

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Unlike every other private businesses, big banks knew they would never be allowed to go bust

i am not sure that this even entered their heads prior to the crisis.

i am pretty sure that now they know it is true...

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Maybe he should add financially illiterate financial journalists to the list:

"9) US politicians’ promotion of homeownership among groups shunned by lenders. This involved legislation and the use of the state-chartered Fannie Mae and Freddie Mac to promote and securitise sub-prime mortgages. While dodgy loans were eventually embraced by Wall Street, their origin lay in Washington."

By definition, subprime in the US refers to mortgages that are not eligible for purchase from Fannie Mae and Freddie Mac. This whole line of thinking is completely bogus nonsense argued by paid shills for the banks that the financial crisis was caused by too much regulation rather than not enough.

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In my opinion, the interaction of Sterling with the Euro was also highly relevant - but... on the whole, this article seems to cover most of the bases.

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Maybe he should add financially illiterate financial journalists to the list:

"9) US politicians' promotion of homeownership among groups shunned by lenders. This involved legislation and the use of the state-chartered Fannie Mae and Freddie Mac to promote and securitise sub-prime mortgages. While dodgy loans were eventually embraced by Wall Street, their origin lay in Washington."

By definition, subprime in the US refers to mortgages that are not eligible for purchase from Fannie Mae and Freddie Mac. This whole line of thinking is completely bogus nonsense argued by paid shills for the banks that the financial crisis was caused by too much regulation rather than not enough.

Is that still the case?

New York Times 1999

In a move that could help increase home ownership rates among minorities and low-income consumers, the Fannie Mae Corporation is easing the credit requirements on loans that it will purchase from banks and other lenders. The action, which will begin as a pilot program involving 24 banks in 15 markets -- including the New York metropolitan region -- will encourage those banks to extend home mortgages to individuals whose credit is generally not good enough to qualify for conventional loans. Fannie Mae officials say they hope to make it a nationwide program by next spring.

Fannie Mae, the nation's biggest underwriter of home mortgages, has been under increasing pressure from the Clinton Administration to expand mortgage loans among low and moderate income people and felt pressure from stock holders to maintain its phenomenal growth in profits.

In addition, banks, thrift institutions and mortgage companies have been pressing Fannie Mae to help them make more loans to so-called subprime borrowers. These borrowers whose incomes, credit ratings and savings are not good enough to qualify for conventional loans, can only get loans from finance companies that charge much higher interest rates -- anywhere from three to four percentage points higher than conventional loans.

There is a much better article on this that has been posted here before, but I can't find it now.

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Where does he mention fraud on a grand scale?

Yes.

Thing is, taking your savings, and putting on the favourite running in the 3-30 at Newmarket is not seen as a crime.........

................ probably in the same way car theft is not theft........rather, taking it without the owners consent.

The rot runs deep.

Edited by nixy

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Looks like this chap has it pretty much bang on today. What do you guys think?

http://www.cityam.com/news-and-analysis/allister-heath/the-top-ten-real-causes-the-crisis

His cause #1 is absolutely correct: loose monetary policy.

But I'd put as causes number 2 and 3 the failure of the opposition (2) and the press (3) for not criticizing that loose monetary policy, and warn the nation about it.

Yes, all his other causes make sense too, but #1 was the main source of it all.

The author is a City professional, and went for the technical causes, forgetting the political-economic aspects (opposition, media and ultimately the nation/voters.

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The author is a City professional, and went for the technical causes, forgetting the political-economic aspects (opposition, media and ultimately the nation/voters.

Good point.

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His cause #1 is absolutely correct: loose monetary policy.

But I'd put as causes number 2 and 3 the failure of the opposition (2) and the press (3) for not criticizing that loose monetary policy, and warn the nation about it.

Yes, all his other causes make sense too, but #1 was the main source of it all.

The author is a City professional, and went for the technical causes, forgetting the political-economic aspects (opposition, media and ultimately the nation/voters.

Totally agree. But maybe the lack of opposition was because they all had their snouts in the trough too??! :ph34r:

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Totally agree. But maybe the lack of opposition was because they all had their snouts in the trough too??! :ph34r:

I agree that they all were profiting from it, and happy about it. But its was a stupid strategy long term. Don't over-estimate them. It was a huge c0ck-up. The Tories/elites have most of their money invested in Britain. A global crisis is bad for them too. They just did not see it coming, or the magnitude of it.

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I don't disagree.

Deliberate, deniable fraud on a monumental scale was missing from the list as mentioned.

My only point of contention is that wherever government comes into the picture it is blamed only for meddling, not for failure of regulation.

It's a bit rich to blame depositors for failure to guage the stability of banks when they assumed they were dealing with legal, regulated businesses. I don't feel that I should be expected to be a financial guru and auditor any more than I should know all the intricacies of a condensing boiler for example.

There are proper and desireable roles for the state.

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I don't disagree.

Deliberate, deniable fraud on a monumental scale was missing from the list as mentioned.

My only point of contention is that wherever government comes into the picture it is blamed only for meddling, not for failure of regulation.

It's a bit rich to blame depositors for failure to guage the stability of banks when they assumed they were dealing with legal, regulated businesses. I don't feel that I should be expected to be a financial guru and auditor any more than I should know all the intricacies of a condensing boiler for example.

There are proper and desireable roles for the state.

Exactly. For a democracy to work we depend on the opposition and the press keeping a close eye on the government. All three failed.

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To me, it is utter ****** in majority: simply acting as an apologist article that could well have been written by such as Angela Knight!

The man is trying to adjust the core realities to suit the cause: his cause and the venal exploitative City spivs.

Let's take it point by point:

1) Loose, ultra-interventionist monetary policy from central banks that kept stepping in whenever growth slowed or the stock market fell. Interest rates were kept too low; the belief was that as long as consumer prices didn’t surge, the economy would be stable. The money supply and credit exploded, and investors became complacent, fuelling bubbles.

The highlighted bit is the biggest load of nonsense ever!

If Government (UK) had not have taken away B of E's regulatory interventionist powers, and ceded same to the FSA (An untried, incompetent and shambolic agency, trying to both organise itself and take on total regulation for ALL UK financial services), then B of E could have stepped in early and invoked such as The Corset or Special Deposits, regime.

Unfortunately, as Hard Eddy George admitted to the Commons Select Committee in March 2008 (Source) the Bank fuelled the out-of-control consumer credit boom and HPI by not only failing to intervene, but actually doing the reverse!

2) Global imbalances, exacerbated by government intervention: nationalised savings, forex manipulation and sovereign wealth funds in China, Japan and the Middle East, combined with unfunded state pensions and profligate governments in the West. Asia did all the saving and financed budget and trade deficits in the West, which spent too much and didn’t produce enough. Asia purchased trillions of Western assets, especially bonds, pushing down yields and pumping the world full of cheap money.

******!

The US government (The worst) had been financing its twin deficits since the early 1970s on Petro Dollars (Excess OPEC producer state's cash surpluses as a result of OPEC hiking crude by factor X 4: and Japanese, Korean and later Chinese trade imbalances.

It wasn't excess intervention: it was far too little!

3) There was no bankruptcy code for failed multinational banking groups. Regulatory stupidity meant that they were treated like ordinary firms: the choice was either a disorganised collapse, or a bail-out. Other network industries – airports, nuclear plants – have long operated under special bankruptcy codes, ensuring an orderly wind-down and handover of assets. Unlike every other private businesses, big banks knew they would never be allowed to go bust. So they took too many risks and leveraged themselves to the hilt, to maximise returns on capital (and hence profit and pay); while lending criteria were slowly loosened.

Try telling this yet further load of utter crap to say Paul Volcker (Ex head of the Federal Reserve) and read the history of the collapse of Continental Illinois Bank in the 1980s.

4) Bondholders knew they would be bailed out. This meant that shareholders had access to cheap, state-insured credit. This promoted leverage to maximise upside; debtholders didn’t care.

Like the High Risk Latin American Euro-Bond Market bond holders were not in the late 1970s? :lol:

5) Depositors knew they would be bailed out by the state so didn’t monitor banks’ soundness. Property investors convinced themselves prices would never fall. Financially illiterate consumers borrowed recklessly.

Sometime, check out the FDIC upper compensation limits: furthermore, there was no guarantee on depositors in the UK, until after the event!

6) Intellectual errors concerning the modelling of risk, the power of diversification, default chances, complete markets, liquidity and the existence of bubbles. These were caused by the neo-classical general equilibrium paradigm prevalent in universities, central banks and the private sector.

Boy!

This clown loves putting meaningless large words together into what he thinks are sentences which actually mean something!

What a total self-important tosser!

He should read some financial history sometime: and study the "Risk Modelling" of the "Genius" economists and Nobel Laureates Myron Scholes and Robert C Merton and the collapse of LTCM.

For intellectual, modelling, paradigm and neo-classical (Is the f****** writing about effing art? Is this Brian Sewell in disguise? :lol: ) read venal, grasping, greedy, thieving, dishonest financial bastards.

And Fractional Reserve Banking: plus arcane and insane derivative products.

7) One result of 6) was that firms were forced to follow mark-to-market accounting rules. Liquidity problems became a solvency crisis.

When it was already far too late: and banks, by LACK of proper regulation and oversight, had for far too many years been carrying delinquent debt and Non-Performing Loans, on the damned ASSET side of their balance sheets!

8) As a result of 3)-7), institutions held insufficient capital and the wrong kind of capital, a problem compounded by off-balance sheet vehicles. These arrangements were all approved of by international regulators, the Basel accords and accounting rules.

Nope, well this is becoming boring!

But WRONG AGAIN!

Because of Fractional Reserve Lending and the habit of borrowing capital on the global interbank market on a day-to-day and week-to-week etc basis, rather than the traditional and prudent strategy of building up reserves from profit, slowly and taking in funds from depositors, when the sh!t hit the fan and the interbank lenders called their cash, the banks were left with no pants!

9) US politicians’ promotion of homeownership among groups shunned by lenders. This involved legislation and the use of the state-chartered Fannie Mae and Freddie Mac to promote and securitise sub-prime mortgages. While dodgy loans were eventually embraced by Wall Street, their origin lay in Washington.

Partially right. Heaven be praised.

But the cheer leader was neither Freddie nor Fannie : it was ACORN.

10) Other errors: AIG misused credit default swaps, writing insurance against losses yet not keeping enough capital to make good on its promises. Credit rating agencies – whose number was limited by regulators – failed miserably.

Boring I know so apologies. But WRONG again!

AIG over-wrote their underwriting.

Go back and evaluate what killed the Lloyd's market in London after 200 years of stability and success.

Greed: incompetence: and failure to make adequate provision against written risk.

Once again. LACK of proper oversight and regulation.

Perhaps the only upside to this is that the publishers give this rag away: so, when you run out of Andrex..................

:lol::lol:

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To me, it is utter ****** in majority: simply acting as an apologist article that could well have been written by such as Angela Knight!

The man is trying to adjust the core realities to suit the cause: his cause and the venal exploitative City spivs.

+1. I voted no and was going to pull it apart bit by bit but you have made such a good job of it there's no need.

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Once again. LACK of proper oversight and regulation.

/quote]

I rather thought that was what he was saying - until it came to the point where some consequences should be paid, where they stepped in extremely forcefully.

Loose till someone 'important' can lose, then socialise the debt.

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It's a bit rich to blame depositors for failure to guage the stability of banks when they assumed they were dealing with legal, regulated businesses. I don't feel that I should be expected to be a financial guru and auditor any more than I should know all the intricacies of a condensing boiler for example.

There are proper and desireable roles for the state.

Maybe if the state wasn't so consistently corrupt and incompetent, we might let it do more. However back in the real world, all of us should take more personal responsibility.

.

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Exactly. For a democracy to work we depend on the opposition and the press keeping a close eye on the government. All three failed.

There were plenty of voices on the right sounding the alarm. However our primarily left wing media didn't give them airtime. The high ups in the Conservative party were so focused on being popular that they joined in, with all unpalatable truths hushed up (best not scare the horses).

.

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I don't disagree.

Deliberate, deniable fraud on a monumental scale was missing from the list as mentioned.

My only point of contention is that wherever government comes into the picture it is blamed only for meddling, not for failure of regulation.

It's a bit rich to blame depositors for failure to guage the stability of banks when they assumed they were dealing with legal, regulated businesses. I don't feel that I should be expected to be a financial guru and auditor any more than I should know all the intricacies of a condensing boiler for example.

There are proper and desireable roles for the state.

Good point.

Why should every depositor* have to excercise due diligance? Adam Smith would suggest we should use a limited number of specialists, to prevent us all having to do duplicate work. The problem is, the specialists were no good.

*speculators yes, investors yes, depositors no.

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...By definition, subprime in the US refers to mortgages that are not eligible for purchase from Fannie Mae and Freddie Mac. This whole line of thinking is completely bogus nonsense argued by paid shills for the banks that the financial crisis was caused by too much regulation rather than not enough.

fair comment. this newspaper mostly exists to verbally, ahem, perform fellatio on the City. it's still not an awful list, mind.

i quite like his idea that if you create a financial regulatory system in which it's possible for banks to promote fraud & behave irresponsibly then the poor little darlings can't be blamed for doing exactly that...

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1) China creating a undemocratic factory state which churns out products without raising their currency or raising internal costs as it should.

2) The above causing a demand for investment grade debt and lowering the standards and rates for everybody else.

3) With such an amazing demand what could feed the beast.....residential mortgages!

4) 3+2 = low rates = rising prices UK and US happy days....rising prices 10% per year+ is not good.

5) Mortgages become packaged + fraud to feed the beast = governments think they are doing brilliantly

6) Money is free no money = no problem as mortgages are more about the mortgage investor than the person taking out the mortgage.

7) Government dont want to spoil the party they dont bother regulating.

8) They refuse to believe that the music has stopped and step into banks with the publics money.

9) They refuse to believe that for the UK having a property bubble is a bad thing and give public money to property owners as well.

10) With houses too expensive and any business with a property requirement too expensive the country grinds to a halt. The high prices and more realistic risk management = gridlock. People looking for houses fundamentally cannot lie and borrow more than before, people looking to invest still have comedy rents and failing business vendors sitting on low rate loans and demanding high prices for their businesses.

option 1) Raise rates/legislation to spoil the party causing massive crash = get voted out . 2) Increase money supply/ lower rates/ incentives etc = social disorder inflation = get voted out.

In either scenario its looking more like they are leaving it too late as already people are starting to think that labour are not totally to blame.

Edited by Fromage Frais

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To me, it is utter ****** in majority: simply acting as an apologist article that could well have been written by such as Angela Knight!

The man is trying to adjust the core realities to suit the cause: his cause and the venal exploitative City spivs.

Let's take it point by point:

You sound like you are also biased.

The highlighted bit is the biggest load of nonsense ever!

If Government (UK) had not have taken away B of E's regulatory interventionist powers, and ceded same to the FSA (An untried, incompetent and shambolic agency, trying to both organise itself and take on total regulation for ALL UK financial services), then B of E could have stepped in early and invoked such as The Corset or Special Deposits, regime.

Unfortunately, as Hard Eddy George admitted to the Commons Select Committee in March 2008 (Source) the Bank fuelled the out-of-control consumer credit boom and HPI by not only failing to intervene, but actually doing the reverse!

"Could have stepped in early"

And based on the expansionary policy of the fed (and in turn the BoE) over the last decade or so, they probably wouldn't have.

******!

The US government (The worst) had been financing its twin deficits since the early 1970s on Petro Dollars (Excess OPEC producer state's cash surpluses as a result of OPEC hiking crude by factor X 4: and Japanese, Korean and later Chinese trade imbalances.

It wasn't excess intervention: it was far too little!

Probably true. Hard to imagine how this could have gone differently though.

Try telling this yet further load of utter crap to say Paul Volcker (Ex head of the Federal Reserve) and read the history of the collapse of Continental Illinois Bank in the 1980s.

Continental Illinois Bank is hardly a multinational banking group.

Like the High Risk Latin American Euro-Bond Market bond holders were not in the late 1970s? :lol:

This comment is nonsense and compares apples and oranges. Emerging market debt has always been considered as highly risky, whereas senior bank debt was considered nearly risk free. Hence why one traded at 100 bp and the other at 1000 bp.

Sometime, check out the FDIC upper compensation limits: furthermore, there was no guarantee on depositors in the UK, until after the event!

True, but common sense would suggest he was referring to the base guarantee of £35k or whatever it was.

Boy!

This clown loves putting meaningless large words together into what he thinks are sentences which actually mean something!

What a total self-important tosser!

He should read some financial history sometime: and study the "Risk Modelling" of the "Genius" economists and Nobel Laureates Myron Scholes and Robert C Merton and the collapse of LTCM.

For intellectual, modelling, paradigm and neo-classical (Is the f****** writing about effing art? Is this Brian Sewell in disguise? :lol: ) read venal, grasping, greedy, thieving, dishonest financial bastards.

And Fractional Reserve Banking: plus arcane and insane derivative products.

This bit is so full of hyperbole it's almost unreadable. I'm not too interested in economic theory, but clearly a major cause of the credit crisis was over reliance on the statistical assumptions underlying structured credit, VAR modelling etc.

When it was already far too late: and banks, by LACK of proper regulation and oversight, had for far too many years been carrying delinquent debt and Non-Performing Loans, on the damned ASSET side of their balance sheets!

Maybe. I don't have a clear view on the MTM issue. But your reference to the "asset side of the balance sheet" suggests you don't really understand what you are on about. Bank liabilities are in the main retail deposits and wholesale debt funding, and nothing to do with the MTM issue (spread adjustments aside). Clearly it's all about the marking of assets.

Nope, well this is becoming boring!

But WRONG AGAIN!

Because of Fractional Reserve Lending and the habit of borrowing capital on the global interbank market on a day-to-day and week-to-week etc basis, rather than the traditional and prudent strategy of building up reserves from profit, slowly and taking in funds from depositors, when the sh!t hit the fan and the interbank lenders called their cash, the banks were left with no pants!

Again showing your lack of understanding financial institutions. The point he is making is that banks were not holding sufficient high quality and liquid solvency capital. Interbank lending is a financing / liquidity issue (see previous point) and nothing to do with solvency capital.

Partially right. Heaven be praised.

But the cheer leader was neither Freddie nor Fannie : it was ACORN.

Maybe, but you can advocate all you like if no one is prepared to take on the risk. The role of the state sponsored risk conduits is key.

----------------------------------------------------------

Boring I know so apologies. But WRONG again!

AIG over-wrote their underwriting.

Go back and evaluate what killed the Lloyd's market in London after 200 years of stability and success.

Greed: incompetence: and failure to make adequate provision against written risk.

Once again. LACK of proper oversight and regulation.

Perhaps the only upside to this is that the publishers give this rag away: so, when you run out of Andrex..................

:lol: :lol:

----------------------------------------------------------

A confused and illiterate comment. The reasons for the collapse of AIG and the Lloyds crisis are actually the same - excessive underwriting of mispriced risk and unlimited liability.

----------------------------------------------------------

LACK of proper oversight and regulation

----------------------------------------------------------

Correct :rolleyes: .

In general whilst the Ed of CityAM is unashamedly a Tory and pro-city, he is generally well balanced and rational. He does miss bringing some of the social issues around credit, as noted by others on this thread, although I would like to highlight this comment:

"Financially illiterate consumers borrowed recklessly"

Your post however is an incongruous rant which serves nobody in understanding the failings of modern finance.

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  • 312 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?


      • down 5% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%



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