who would have thought it!

Yes, but they bought subprime loans onto their own porrtfolios in order to encourage subprime lending. It was a result of Bush cabinet and Congressional pressure (and legislation I believe) in 2005 to get more of the population into private housing.

FoFP

Reply to
M Holmes
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Clinton gets the blame here:

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Although it's possible that Bush just built on what his predecessor had done.

Reply to
Anthony Cunningham

I put that down to poor risktaking management....a one off using a business model which assumed LIBOR would always be lower than what mortgage rates were.

Reply to
BigGirlsBlouse

The article suggests that Bush tried to put it right, but was defeated by Democrats in Congress `every time he tried'. So, still `Clinton Democrats' to blame, then. This is the Spectator we're talking about. Similarly, it could be said that Clinton's push to increase home ownership was purest Thatcherism, transported Stateside...

Reply to
Sam Nelson

But, with regulation, couldn't fractional reserve banking be abolished or at least the multiplier reduced?

Reply to
Mark

I think there's plenty of blame to go round for everyone.

Starting with Mike Holmes.

Reply to
Anthony Cunningham
Reply to
Anthony Cunningham

A common enough view. I don't concur with it.

But one thing is becoming apparent when she said "It's no use controlling borrowing (+ lending) in this country because since we have abandoned exchange controls the punterz will just borrow it overseas" she was making the error of assuming all overseas borrowing and lending institutions have acceptable standards of probity.

But what to do about it?

Bring back exchange controls and the £50 / year "V" form amount?

Derek

Reply to
Derek Geldard

Sure, but wouldn't it be simpler to remove the bankers' protection from being prosecuted under fraud laws? After the first few were jailed, les autres would be encouraged.

FoFP

Reply to
M Holmes

Interesting a lot blame Thatcher, Reagan. The 1987 bubble was pretty small in comparison.

A substantial blame lies at the door of Alan Greenspan. Mr Magoo merely kept pouring petrol on the bubble fire and transferring it to other asset classes, from margined stocks to vastly higher margined real estate. Add to that the watering down of account reporting & the elephant in the room of off balance debt from GM to Consumer Goods.

Monday to this Friday has probably seen Lehmans CDS rocking the market. I am more interested in how the markets fare through to next Friday. I wonder if, likewise, JPM under BAC has a shed load to unwind, although I wonder if that has already been going on?

UK & USA economy were caught in a trap of 1$ of spend creating only

0.75$ of local economic growth, which became 0.50$ which became 0.25$

- requiring ever more consumption to get growth. Much of that spending came from housing debt & general debt, but it is not really sustainable.

I recall the lending tree advert in the USA of the indebted american, quite funny.

Bush's next television announcement "I am in Dubai, sod you!!".

Reply to
js.b1

It's stupid to blame politicians for this bubble. If they'd (tried to) prevent it from happening they'd have been hounded from office and someone who would "relax the rules" would have been elected in their place.

A really skillful (read really lucky) politician could possibly have softened the blow in the UK. Tony Blair, after the last election, and Gordon Brown could have implemented extremely unpopular measures and, it's just possible we'd be applauding them now - although far more likely their backbenchers, seeing their support eroding and no sign of the bubble ending would have replaced them before the crunch and we'd be in exactly the same mess now.

It's possible the initial seeds of this crash were sown by Thatcher and Reagan. But they were elected because they promised to sow those seeds.

Tim.

Reply to
Tim Woodall

There's a school of thought (in longwave circles) that the 1987 crash was the primary crash in the longwave and that this is the secondary one (which should have happened in 1998 but has beeen delayed by one business cycle due to Greenspan/Brown constantly cutting rates to try to keep the bubble going). The primary crash represents the switch from inflation to disinflation and the (worse) secondary crash represents the switch from disinflation to deflation.

Exactly so, with Brown and Bernanke his co-conspirators. Mervyn King admitted last year that he and Brown had deliberately goosed the housing market with rate cuts in 2005 to prevent a recession.

Yup.

I wonder how the nationalisation of the Icelandic banks will play out in CDS markets?

Is this an effect of malinvestment? I have to say that the Austrian analysis of the credit cycle looks a lot more plausible than the attempts of neo-Keynesians and monetarists. Yet the governments listen only to those two.

Maybe they just want to hear advice that says that the government should ride to the rescue using shiploads of taxpayer cash rather than advice that says "Stay the hell out of it!"

Not seen that one. Is it on YouTube?

FoFP

Reply to
M Holmes

Both would be fine by me.

Reply to
Mark

Indeed.

The creation of land shortages by builder hoarding & government simply created the conditions for a bubble - set it up & sit back.

It should be.

It was a genuine television advert with an american walking around his large house, jetski, suburban 4x4... only to then say how he was up to his NECK in debt, no savings, and needed to refinance desperately :-)

It was distinctly amusing, 2000-2001 as I recall.

GE capital should have run after it "you have the dream, but everything will breakdown before its paid for - so buy maintenance cover plans now".

Ah, I guess AIG is penning that one as I type...

Reply to
js.b1

That's hardly a fair description of how FRB works, and to call it fraud seems at best a bit harsh, and at worst downright slanderous.

In principle, if loads of people deposit lots of money in the bank, the bank in turn could lend *the lot* out to loads of other people. FRB actually *limits* that by saying they've got to keep some of it (a fraction) back as reserves, in case some of the depositors want their money back. This keeping back of reserves is what makes it possible to offer on-demand (instant access) deposit facilities. If the bank took only term deposits, and matched its lending schedules to the deposit ones, it could get away with keeping much smaller reserves.

It gets a little complicated when their depositors and borrowers are not totally disjoint sets. Then some of the deposited money

*is* some of the lent out money. Most people don't tend to keep serious cash under their floorboards, but in various banking institutions. If everybody kept their money in the same bank, or alternatively if you don't look at any one bank but at the whole banking system, then it gets pretty close to a situation where not some but virtually *all* the lent out money is some of the deposited money.

Ultimately we get to the stage where all the original "real" money is tied up in reserves, and the bank has deposits of N times that amount, and has made loans of N-1 times that amount (where 1/N is the reserve fraction).

At all times its assets and liabilities balance: assets = loans + reserves = (N-1)*R + R; liabilities = deposits = N*R.

Where exactly in all of this lies the fraud you allege?

OK, so (lets's say N) the bank is charging interest on 11 times as much money as "really exists", but at the same time it is also paying out interest on 12 times as much as "exists". So what?

How do *you* think banking should work? Should banks not lend at all? If they should lend, should they refuse to accept as deposits any money which they (somehow) know to have been lent, be it by themselves or by any other lender (and in the latter case how would they know it's lent and not "real"?)? Or if they should accept it, should they somehow mark it as not to be lent again?

Reply to
Ronald Raygun

I see nothing wrong with FRB - managed prudently and as a tool along with interest rates.

The problem was the change through 1980 v 1995-2000s for credit scoring to be pretty much "a posteri than a priori". In the past you had to prove good credit - which meant both high earnings AND sound evidence of financial management. The change was to give the maximum possible credit to a cat, then adjust interest rate & impose fees on default. That way you ensure maximum uptake of credit & thus maximum future profit is ensured - but eventually maximum risk. The risk is not just sub-prime mortgages but a recession snowballing into secured loans, credit cards, car finance, then through stocks into insurers & pension funds.

This came from the 1960s American shopping malls - build the malls and they will come because of the credit cards & expansion of the credit industry. A very much engineered synergy. However it has become mules to hang debt around as the West has become a cost-story and the East the growth-story.

I suspect G7 will produce waves of interest rate cuts like before, and re-inflation of the bubble not to previous levels but potentially higher. Politicians know it is an easy way to be "seen as the hero" and GBs smirk perhaps hides his plan to duplicate Greenspanomics of

1998 1999 2001 2003 2005. Governments have been hiding M3 for some time for good reason - it is all about stopping "Japan deflation happening here". Unfortunately the bigger you make the bubble the more difficult it is to keep it inflated AND the less growth you create in the West as the entire economy refocuses around housing like California Realtors did.

A case of the bubble is too big to let it deflate. So re-inflate it as we have done so many times since 1998. The piper is put off to another year, perhaps another government - same taxpayers different day. Banks are a proxy for the state. A service sector does not an economy make, even China's 5yr plan is to diversify into service from manufacturing as they do not want to bear the risk.

Reply to
js.b1

The trouble is that if the banks then lose R out of the (N-1)*R they've loaned, all of the "real" cash in the system is wiped out. That leverage is compounded when the banks are effectively lending money to hedge funds which are themselves levered at 60 to 1 in order to maximise profits (and hitherto, losses).

A bubble might still be possible without this multiplication of deposits and leverage, but i'd bet good money it'd be very much harder to get one started and impossible to blow one quite so large.

FoFP

Reply to
M Holmes

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