How Did the US Blow It?

[Saz]

[eynon81]

[eynon81]

[Saz]

[Saz]

[eynon81]

http://www.investinganswers.com/financi ... paper-4479

http://www.investopedia.com/terms/b/bad-paper.asp

[Saz]

So it inflated the market for poorly securities? Haha, that's literally the exact opposite of what happened. Banks of all sizes were exposed when mortgages went bad precisely because these were investment grade securities. The agencies f**k up, game them great ratings, and then banks were FORCED to invest in them because there are limits in who and how much can be invested in non-investment grade securities. This is why smaller banks went under in large part. Without the resources or scale to invest in high yield and diversify, they are forced to keep a larger portfolio of investment grade assets. Before the crash, this meant more MBSs. If anything hybridization reduced the impacts of MBS because banks could now have better capital ratios which allows them to go after more high yield products without putting the institution at risk.

So now that I see your point, it's completely backwards and again lends credence to the argument that glass stegall a repeal helped mitigate the crisis. It's hilarious how the simplest talking point is always the ones that ends up being espoused by you guys. It's a lack of nuance really. There were many things that made the crisis possible, then inevitable. Repealing glass stegall was not one of those things.

[eynon81]

[Saz]

You are missing the point here. Obviously, no one knew these were bad. We know that with hindsight, but at the time every agency was giving these securities fantastic ratings, and they were one of the few classes of investment grade products thriving before the crisis.

You still never clarified what you mean by inflated the market for bad paper. No one thought or knew these were bad. The market wasn't inflated by anything to do with glass stegall, or anything financial institutions did. The market was inflated by ratings agencies giving these bad securities good ratings. That happened, because the market (correctly) assumed that since the government was encouraging these loans, the government was also supporting them. That's what inflated the market. Nothing banks did, and nothing to do with glass stegall.

I'm not sure how you can agree with the community investment act point I made, and then turn around and blame the banks. It says in plain English on the first page of the wiki exactly how this bubble was started. By Clinton, not by repeali glass stegall but by reforming the CIA and forcing banks to lend to bad borrowers, while signalingb to the market these are sound securities backed by the government via Fannie and Freddie.

When it all went tits up at least the hybrid institutions were able to survive the initial panic until the government stepped in. Non hybrid institutions fell like cards though. They were less exposed in part because they could make riskier high yield investments rather than having to hold a higher ratio of investment grade securities, which pre crisis meant MBS for most insitituons.

[eynon81]