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    (Original post by Fusion)
    If the FED are gonna bail out DTI's and even NDTI's (BS) then they have a duty to make sure their ships are sailing smoothly.
    If you ask me, the best solution would be for the Fed to not bail anyone out. The best way to avoid moral hazard is to never insulate the banks from risk artificially. Of course, this would mean that confidence in the banking system would (rightly) take a hit, and probably spell the end of fractional reserve banking as we know it. But I don't think that would be a bad thing.
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    (Original post by Bismarck)
    Lower interest rates = cost of money lower = more willingness to take risks = more lending to those with a higher chance of defaulting.
    I understand the process, but not the reasoning behind it. It is the banks' fault if they start lending to higher risk consumers.
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    (Original post by Bismarck)
    It's pretty simple. If you could get money for cheaper, then you're more willing to take risks with that money in search of higher returns (and sub prime loans have a potential for much higher returns). I don't see which part of that is hard to understand. Every investor is willing to face a certain level of risk in order to receive a certain level of returns. If the cost of money falls, there's more willingness to take more risks in order to get higher returns. It's just the law of supply and demand in play.
    Yes, that's all very well, but its a bit rich to blame the central bank when your risk taking lands you in trouble.
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    (Original post by Bismarck)
    So the banks were supposed to stand by and do nothing while there rivals increased their holdings and profits? That's usually a good way to go bankrupt. Fact is if the interest rates weren't artificially low, the banks wouldn't have an incentive to be irresponsible with their lending.
    How can their rivals do better? Unless you're referring to multinational banks. In which case, their revenues are not limited to the US, so low rates are less of a problem.

    This still doesn't change the fact that it was the banks who were lending irresponsibly and must take the bulk of the blame. This is just typical of blaming the government for everything and not taking responsibility for actions. Now they come back begging for liquidity. Well screw them - don't bail them out. That should teach them a lesson or two. Of course that would only mess the economy up further, so the Fed is somewhat obliged to help out.
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    (Original post by StraightDrive)
    Okay, seeing as you're clearing not interested in citing any evidence I thought I'd look some up myself.

    http://www.prospect.org/cs/articles?...ubprime_crisis

    "In the current mortgage meltdown, did lenders approve bad loans to comply with CRA, or to make money? The evidence strongly suggests the latter."

    (CRA, of course, referring to the Community Reinvestment Act you blamed earlier)
    While the article has its fair view, I disagree fundamentally with the issues of what part the CRA had in it. I do not blame it entirely on the CRA. However, government manipulation of the money supply, combined with the CRA mandate provided a ripe environment for excesses credit, and easy borrowing.




    I do get what you're saying. You're making a general point about governments having too much power. Sadly that is completely irrelevant to what I asked you. It is a political reality that governments have the power to intervene in markets. I'm simply pointing out that your earlier example of its 'intervention' was actually to deregulate and hence give you exactly what you like.

    You cannot argue for deregulation and then blame the government in its part of the Glass-Steagall repeal for causing subprime because it represented precisely what you are advocating - less government intervention. The banks wanted it. So on the one hand you cry 'too much intervention - this is all the government's fault' and on the other 'too much deregulation - this is clearly the government's fault'. Make your mind up.
    My point it simple. I dislike government intervention, especially under the name 'regulation' since it allows for loopholes and poor quality enforcement in reality. However, I dislike instability even more, and an eighty year old law that was chucked out on a whim can do as much damage as creating a new law out of thin air.

    My ideal is simple. The government enforces accountability and transparency. We the public should be fully aware of everything we are signing onto, or participating in, and facilitating that is a role of the government, just as much as enforcing laws on theft and fraud.
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    (Original post by StraightDrive)
    How can their rivals do better? Unless you're referring to multinational banks. In which case, their revenues are not limited to the US, so low rates are less of a problem.

    This still doesn't change the fact that it was the banks who were lending irresponsibly and must take the bulk of the blame. This is just typical of blaming the government for everything and not taking responsibility for actions. Now they come back begging for liquidity. Well screw them - don't bail them out. That should teach them a lesson or two. Of course that would only mess the economy up further, so the Fed is somewhat obliged to help out.
    The Banks are already regulated, and the point I made earlier still holds that
    a) Regulation is only as good as its regulators and their enforcement competency and
    b) That regulation will never be perfect. The people workign for the profit based corporations will always be smarter and more motivated that the governments agents -money does have a strong pull after all.

    The problem here was the government forcing down interest rates, preventing transparency (after all, who wants to be exposed for creating a fake bubble economy) and encouraged mad lending practices, with Federal Housing authorities helping, in many cases, to facilitate poor quality loans.
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    (Original post by Bismarck)
    Because money was being made from sub-prime mortgages. Any financial institution that wasn't a part of this lending would probably face shareholder lawsuits and have their stock price plummet.

    That makes no sense. It was the central bank's actions that directly caused the irresponsible lending. You can't expect banks to make themselves immune to the laws of economics. Sure, the banks deserve some of the blame, but the fact remains that the government IS directly responsible for this mess. Without the government keeping interest rates artificially low, none of this would happened. That much is a fact.
    It's not a 'law of economics' to follow the herd and lend irresponsibly just because everyone else is. There's clearly a long run payoff to being prudent with loans, so not increasing your risk appetite to the extent you jeopardise the future of the bank is probably a smart move. I still maintain the government takes some blame but the banks take most of the blame.
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    (Original post by SolInvictus)
    While the article has its fair view, I disagree fundamentally with the issues of what part the CRA had in it. I do not blame it entirely on the CRA. However, government manipulation of the money supply, combined with the CRA mandate provided a ripe environment for excesses credit, and easy borrowing.
    1 in 4 subprime loans were CRA forced so I think its fair to say 25% of the blame goes to such policies!




    (Original post by SolInvictus)
    My point it simple. I dislike government intervention, especially under the name 'regulation' since it allows for loopholes and poor quality enforcement in reality. However, I dislike instability even more, and an eighty year old law that was chucked out on a whim can do as much damage as creating a new law out of thin air.
    It wasn't 'on a whim'. The banks were loving it - they lobbied hard for a repeal and got what they wanted. Ironically Citigroup was one of the strongest in favour of the repeal, and is now licking its deep, deep wounds. The crisis basically makes a strong case for such regulation in the first place.


    Of course, the ratings agencies are perhaps the biggest culprits in the whole mess, given their AA+++ ratings to anything coming out of big name investment banks.
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    i'm with you on the ratings agencies straight
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    (Original post by jjbristol)
    i'm with you on the ratings agencies straight
    I agree with this - rating agencies played their part in this whole mess.. At present rating agencies are paid by debt issuers which creates a conflict of interest. But the alternative creates a free-riding problem.
 
 
 
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