To me the question has always been, why did previously sane bankers go insane?

[Phoebe Loosinhouse]

and forsake all formerly accepted standards of underwriting? I personally think the answer is because some sharpie somewhere told them they would be able to slice and dice the loans into tranches and that they would never be held personally accountable because the suckers buying the bonds would be left holding the bag. If some idiot was standing there with their hands out, waiting to buy bad loans, who would care about previous underwriting standards? You wouldn't. Plus you would make some great bucks in the meantime on points, fees, etc.

Now, why would the bondholders be standing there waiting to buy bonds that they don't particularly care about whether the underlying loan is worthy or not? Because, if they buy a credit default swap, they might make more money if the bond defaults!

I think that what I have just described is a sweeping and encompassing fraud that covered our entire financial markets and I think that everyone knew exactly what was happening and did not give a shit because vast amounts of money were made at every single step in the process. The person who got NO benefit is the American taxpayer who is left to revitalize the carcass of the banking system. I absolutely call for some DOJ investigations and prosecutions of the financial swindles that occurred in this multi-pronged scheme.

[ipfilter]

1. A lot of the blame is to be laid at the feet of the bond rating

agencies. They were giving this crap AAA ratings even when they knew better. The greed and fraud was systemic.

[Phoebe Loosinhouse]

2. Agreed. Now, why did they do that "even when they knew better"?

What reward was so compelling that they would negate their reason for existing?

[ipfilter]

4. Fraud.

And a complicit SEC. There's lots of money to be made when everyone is breaking the law and the cops are in on it.

[Blue_Tires]

16. uhhh....greed?

and thinking the good times would never end (and even when they did, that they wouldn't get into trouble)

[MannyGoldstein]

3. Why Does A Dog Lick Its Private Parts?

Because it *can*.

Banks were deregulated by the Republican Congress and Bill Clinton (who handed the signing pen to the CEO of CitiGroup). That plus securitization of loans (i.e., the entity who gave the loan was not responsible what happened later on) caused this catastrophe.

[uponit7771]

19. Did Moodys, Fitch and S&P KNOW these securities didn't have a standard valuation? If so they should

...go to jail but if they were being lied to by the banks then the banks CEO should got to jail cause they had to sign the 10k.

[chascarrillo]

5. To quote the immortal Cyndi Lauper, "Money changes everything"

[AngryAmish]

7. That was a cover song

[WeDidIt]

6. I can sum it up in a single character

$

[Phoebe Loosinhouse]

8. I also love the shifting the blame to the American consumer.

They're not the ones who threw out the underwriting standards. They're not the ones who designed "Pick-a-Pay" loans. They're not the ones who gave 100% loans to investors. They're not the ones who gave out 125% equity lines.

It's like blaming the dog for eating a box of treats spilled onto the floor. Bad dog! You know better! (I know, the very best, most well-behaved dogs did not eat the treats and they feel very good about themselves.)

[Jennicut]

9. One word: Greed

[WinkyDink]

12. Seems fairly obvious to me!

[Still Sensible]

10. Because they were out of ways to sustain their

rate(s) of revenue growth. They had to 'invent' ways to make more money to avoid seeing their revenue growth rate flatten out... so that their stock price would rise. They loosened their standards for lending, invented creative ARMs, created the whole "derivatives" plan, and loosened credit card marketing and approval beyond sane practices (with the increased default rate built into the business model). Then, to protect themselves at the expense of the defaults they knew would come, they got Congress to significantly tighten up bankruptcy regulations. All of this to create growth at the expense of sound policy. Of course, the one that threw the whole scheme over the abyss was the derivatives, whereby multiple middlemen were claiming value on the same assets.

[Phoebe Loosinhouse]

11. Great summary!

The very first law I would pass in a new financial regulation package would be one outlawing the situation where entities who did not even own the underlying asset were purchasing default swaps.

Should your neighbor allowed to purchase fire insurance on your house? Does anything at all about that strike you as just a little . . . strange? Why would your neighbor want to anyway? Unless, your neighbor knew that you liked to store gasoline and firecrackers right next to the kerosene stove that you habitually forgot about turning off.

What I am trying to say here is that there had to be a general "on the street" knowledge that the bonds were bad or why were third parties trying to bet against them? Despite the bond ratings? Makes my spidey sense tingle.

[Still Sensible]

15. Agreed

That is what is most disappointing about the Congress. They couldn't have been blind to what was happening (or going to happen). But, having been the ones that allowed deregulation to the point that this scheme was legal, they would have had to admit they screwed up if they were to have any hope of passing regulations to fix/prevent the problem. They chose to "let it ride." Of course now there will indeed be new regulations anyway.

[Yavin4]

13. This Is The Culture of Greed

First, this was fraud. Banks were acting as insurance companies without following the regulations that insurance companies have to follow, such as keeping a fund to cover claims. So, the idea that "they didn't know or understand what was going on" is just riduculous. Knowingly engaging in activities to defraud investors is fraud.

Seond, they did this because Wall Street has become the culture of insatiable greed. For 99% of Americans, $500K per year is an exceptional salary, even in NYC. To Wall Street, these are poverty wages. These people have lost all connection with reality, and more to that point, they cry that the salaries are needed to retain talent. Ha! They don't say that when it comes to sending IT jobs to India, now do they?

[Phoebe Loosinhouse]

14. The same kind of "talent" that Fagin was always on the lookout for.

The talent that seamlessly separates one's wallet from oneself.

[RagAss]

22. Amen. I wish them all Hell on Earth !

[unblock]

17. it's all about the leverage

people get so wrapped up in the particular securities involved, oh, they didn't understand the risks. bull.
it's all very basic. banks that were once leveraged 12-1 decided that times were good and recessions didn't exist any more so they went up to 36-1.

so much leverage that a 3% drop would wipe out the company's net worth. but they didn't see that, they only saw that a 3% rise would double the company's net worth.

worse, the herd mentality got everyone suckered into the same deal, so that when the mortgage market dried up, it screwed EEEEVryone. as an economy, we had no diversification against a bad mortgage market.

it has NOTHING to do with the fact that very few people understand jump sticky z bonds. it's a major red herring that simply plays well in the media. a convenient scapegoat, if you will.



one of the hallmarks of any bubble is that, because people are irrationally valuing something, the normal business cycle is extended. houses kept going up not because the business cycle had been repealed, but because people simply got irrational. it then becomes self-fulfilling, people see that housing prices are continuing to rise so they take it as evidence that down is no longer possible, which in turn extends the buying and the price increases.

another hallmark of any bubble is that they eventually burst.

[BrklynLiberal]

18. GREED> Unadulterated, pure malevolent greed....aided and abetted by BushCo and its minions

[Laelth]

20. They were never sane. They have always been greedy.

All that changed was that their industry was deregulated.

The United States is a LIBERAL Country.

:dem:

-Laelth

[KT2000]

21. Can you imagine

the competition between the CEOs for getting the best deal - bonuses, stock options, golden parachutes and the perks that define them to the public.
As long as they were posting the huge profits and growth - they were big shots.
They all wanted to be the biggest players.
It turned into an orgy.
That's why they need to be held accountable and relieved of their assets.

[RagAss]

23. To me the question is ....how we let it happen.?

[Phoebe Loosinhouse]

24. We are a trusting and simple people

too busy putting food on our families to notice what the big players are doing with OUR money.

Some of us still had a childlike belief that SOMEONE SOMEWHERE (banking regulators, the SEC, the FDIC, 401K Trustees?) was looking out for the interest of the depositor, the shareholder and the bondholder of these crooked enterprises. Ooops! Wrong again.

The incalculable cost is the loss of trust in the markets and the system. I know lots of people running around and making lots of different accounts in smaller banks, credit unions and the like due to the mistrust they now feel in a system they believe to be gamed.

[RagAss]

25. Well said, Phoebe !