Want to get an understanding of what happened with the housing market and the financial meltdown of 2007 and 2008? Go see the movie "The Big Short" or read the book of the same name on which the movie was based. It's a brutal expose' of the games that were played in the financial markets to create the housing boom that led to the housing crash.
We're far enough removed from the tragedy that the movie was entertaining and had a number of funny moments.
At the same time the events of that time were tragic and it was criminal what people throughout major companies and the agencies - both public and private - created to monitor did.
Some thoughts.
1. Why did it happen?
The financial markets encourage greed. The goal is quick money not steady, stable results. Maximize profits, make money each quarter.
Money is lent based on numbers - what is your credit score. Money is no longer lent based on evaluation of risk. Did you know that if you don't borrow money and just save up, you don't get a credit score? A person can have a million dollars in savings and have done no borrowing and they won't get a loan because they don't have a credit score.
Government permitted and even encouraged what was going on. The tax code encourages spending and rewards taking out bigger mortgages. Regulators were asleep at the switch or even complicit in overlooking the fraudulent trading of mortgages on the bond market. Politicians enjoyed the benefit of a booming housing market and how that helped the economy.
2. What becomes more frustrating is that no one went to jail for what happened.
Clearly companies selling the mortgage bonds were at the very least negligent, more likely they knowingly sold bad investments to their customers. The lack of integrity in the dealing between parties and on behalf of the rating companies and regulators was atrocious.
In the early part of the decade, when the "Dot Com" bubble burst, the Bush Administration investigated and prosecuted many top level executives. Companies were destroyed by Government action in the process.
During the Bush Administration, when the first two years of the debacle occurred, the Administration and the Democrat controlled Congress focused on bailing out big companies and protecting the organizations that created this mess rather than helping the little guys who were really suffering.
Under the Obama Administration this approach continued plus there was not a single prosecution. I am not happy the Bush Administration did not prosecute anyone but I can understand the focus was on trying to mitigate the calamity as it was happening, even if I disagree with how they were trying to do that. But the Obama Administration had the luxury of being able to investigate after the fact and no one was prosecuted. (It should not surprise you to learn that the Obama campaign in 2008 received significantly more money from Wall Street than the McCain campaign did.)
We're far enough removed from the tragedy that the movie was entertaining and had a number of funny moments.
At the same time the events of that time were tragic and it was criminal what people throughout major companies and the agencies - both public and private - created to monitor did.
Some thoughts.
1. Why did it happen?
The financial markets encourage greed. The goal is quick money not steady, stable results. Maximize profits, make money each quarter.
Money is lent based on numbers - what is your credit score. Money is no longer lent based on evaluation of risk. Did you know that if you don't borrow money and just save up, you don't get a credit score? A person can have a million dollars in savings and have done no borrowing and they won't get a loan because they don't have a credit score.
Government permitted and even encouraged what was going on. The tax code encourages spending and rewards taking out bigger mortgages. Regulators were asleep at the switch or even complicit in overlooking the fraudulent trading of mortgages on the bond market. Politicians enjoyed the benefit of a booming housing market and how that helped the economy.
2. What becomes more frustrating is that no one went to jail for what happened.
Clearly companies selling the mortgage bonds were at the very least negligent, more likely they knowingly sold bad investments to their customers. The lack of integrity in the dealing between parties and on behalf of the rating companies and regulators was atrocious.
In the early part of the decade, when the "Dot Com" bubble burst, the Bush Administration investigated and prosecuted many top level executives. Companies were destroyed by Government action in the process.
During the Bush Administration, when the first two years of the debacle occurred, the Administration and the Democrat controlled Congress focused on bailing out big companies and protecting the organizations that created this mess rather than helping the little guys who were really suffering.
Under the Obama Administration this approach continued plus there was not a single prosecution. I am not happy the Bush Administration did not prosecute anyone but I can understand the focus was on trying to mitigate the calamity as it was happening, even if I disagree with how they were trying to do that. But the Obama Administration had the luxury of being able to investigate after the fact and no one was prosecuted. (It should not surprise you to learn that the Obama campaign in 2008 received significantly more money from Wall Street than the McCain campaign did.)
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