Wall Street is a giant casino where the odds are always going to favor the house.
And yea, I'm an investor but if I could legally pull out all of my IRA and put it into real estate I would. (I can't justify the tax penalty).

It is rife with sweetheart deals, insider trading and outright fraud.

What government oversight there is has been designed to favor government and insider interest at the expense of the small investor.

In many cases it was government regulation, threats and prosecutions which led to the bad mortages being packaged with good ones and sold off. The were compelled by law to issue them so they found a legal way to unload them in bits and pieces into mutual funds that the government thought were big enough to absorb the losses (they werent).

Ill believe they are half serious about enforcing securities law, when they prosecute Jon Corzine. But I suppose by this point he has managed to run the statute of limitations.

I am totally in favor of captitalisim, but that doesn't mean I am on board with the way Wall Street operates now.

Kind of prophetic how government arm twisting and excessive regulation has done exactly the same thing to higher ed, and medical care, as has been done to the stock market.

You know what fueled the 2008 melt down? the Federal Government. They demanded that banks make those loans, they used Freddie and Fannie to buy those loans, and then F&F pushed them out as derivatives for the market to buy.

Because people wanted to invest in real estate. To bad that at the end, they were buying junk level investments. And even good derivatives became less valuable because confidence in them evaporated.

The investment markets are just another distorted market place. When will people realize that sometimes less government is better government? half past never, I'm guessing.

I would guess that 90% of the population does not know (or really care) how Wall Street works or why companies sell stock (ownership shares).

Most are content to bash Wall Street; or to put up statues of defiant little girls to send a message that Wall Street doesn't make women rich (which, in reality, it does). Wall Street has become their bete noir, their symbol of greed and an easy political whipping boy.

And, yes, the 2008 meltdown was caused by government actions, but Wall Street deserves its share of castigation for its actions during the meltdown. Goldman Sachs sold mortgage securities out he front door while buying hedging instruments though the back door, knowing they were selling junk to their customers.

"You know what fueled the 2008 melt down? the Federal Government"

All they had to do was ride herd on the banksters, greedsters, fraudsters, and coked-up sociopaths on Wall Street like they're supposed to do, but no.

They had to make it EASY for them, and then when the whole thing crashed, instead of letting the insane market correct itself, they "saved" everyone.

With our money, of course. Wall Street immediately used the cash to pay bonuses to themselves for being totally awesome. Only one shmuck went to prison for telling the truth. Everyone else skated.

All they had to do was ride herd on the banksters, greedsters, fraudsters, and coked-up sociopaths on Wall Street like they're supposed to do, but no. ~ Gog_Magog_Carpet_Reclaimers at April 4, 2017 12:50 PM

I worked in mortgages just before the meltdown and had a front-row seat for the show.

We got applications from people saying they made $200,000 per year. Their only assets were $200 in a checking account and a 1985 Toyota Corolla. But we were required to take them at their word. Mortgage brokers were encouraging people to lie on their applications. We had a lot of those types of applications and were not allowed to decline them. Bank management decided those loans got sold to Fannie and Freddie with all possible haste.

The government regulators relaxed the standards, not the banks themselves. The Clinton Administriaotn was under pressure to increase lending to minorities and others who did not qualify under the earlier guidelines for loans. The no verification (paperless) loan was a government mandated invite for liars. And they came out of the woodwork like a swarm of roaches. We called the loans liar loans.

Too many people bought too much house and used Adjustable Rate Mortgages (ARMs) to get the lower earlier payments. When the payment schedule adjusted upward, they found themselves unable to make the payments and defaulted.

We knew the applications were junk, but the government forced us to make the loans. So, we sold them to Fannie and Freddie as quickly as possible. Fannie and Freddie turned them into mortgage backed securities and sold them through the brokerage houses. Jim Johnson, head of Fannie Mae, wanted to be a big player on Wall Street and the mortgage instruments gave him his shot.

The A-paper and B-paper tranches were good instruments, but Fannie and Freddie ran out of those and began packaging the C- and D-paper loans. Without a downpayment to lose, people walked from their houses as soon as the value plummeted or the payment schedule adjusted upward.

The ratings agencies had no experience with no downpayment loans, so they rated the paper as A+ because the historic default rate was less than 5%. Unfortunately, that rate was true when you put 15-20% down and a default meant you lost your own money. With no downpayment loans, you just walk away and only lose what you've paid - essentially rent. The default rate skyrocketed.

Barney Frank and Chris Dodd did all they could to protect their mortgage banker friends from regulators who were growing increasingly worried that the frenzied mortgage activity was going to crash hard. Frank later admitted it was a mistake to push homeownership on people not ready for it.

Were some Wall Street folks greedy? Yes. Goldman Sachs sold the collapsing mortgage instruments to customers out the front door while buying hedging instruments at the back door for their own portfolio without warning customers. Did Wall Street cause the crisis? No. Wall Street did what Wall Street does, it bought and sold paper.

There was a symbolic view of progress. If middle class people own homes, it must be good to own a home, so we will make it easier for people to own homes. Also, discrimination is bad, so mortgage discrimination is also bad, even if it makes mortgages riskier (which was never admitted). When I bought my first house in 1985, I needed to put 20% down to avoid paying PMI. Now (and esp before the crash) a first time buyer can put 3.5% down. The banks are not protected from defaults by equity.

"Did Wall Street cause the crisis? No. Wall Street did what Wall Street does, it bought and sold paper."

After it bought and sold our politicians to repeal all rational constraints.

Shame on our leaders. They knew what they were unleashing. Blaming Wall Street is, indeed, only putting part of the blame where it belongs.

There are high-ranking members of government who should be joining the banksters in prison where they can snort detergent and take turns plooking each other.

If you haven't seen this explanation of the fetid tranches that were part and parcel of the meltdown, watch it.

It's funny, in a look-at-that-country-burning-down sort of way.

LOL crap, okay maybe not the full exposition on tranches, but it still made me shudder.

I'd post the Margot Robbie clip but that would just seem gratuitous.

> I worked in mortgages just before
> the meltdown and had a front-row
> seat for the show.

Doooooood! I had no idea. We have GOT to get you out for a beer someday.

Do you regard Big Short highly? Over here it reads like perhaps the finest nonfiction of our generation to date. I've reread it about 5 times and am not done. (It took about 10 readings of Moneyball over 15 years to comprehend the modeling that made it all work, elevating statistical truth over plain outcomes.) A favorite passage from the intro:

A smaller number of people--more than ten, fewer than twenty--made a straightforward bet against the entire multi-trillion-dollar subprime mortgage market and, by extension, the global financial system.,

The Big Short was a great book. I'm a big fan of Michael Lewis'. Living in the Bay Area at when Moneyball was published, I was able to follow the A's and see it played out.

I can't decide who is the better chronicler of current and past events, Michael Lewis or Mark Bowden. Lewis seems to handle complex financial and mathematical issues with an easy and readable style while Bowden covers military and historical events with aplomb.

That said, I found it hard to piece together a linear narrative of the collapse from The Big Short. I've only read it once and you've got a point that multiple readings may be necessary. I'm overdue for another reading of it.

If you want an easy-to-read linear narrative of how the crisis unfolded, I recommend Reckless Endangerment by Gretchen Morgenson and Joshua Rosner.

I wish I could say I foresaw the collapse, and I did in a way, but I never called it out. I expected a correction in housing prices, but didn't see the securitized mortgages collapsing the way they did. Fannie and Freddie being backed by the government fooled me into thinking they could withstand the correction. I don't think very many realized the depth and vastness of the problem until it was too late (Lewis' point in The Big Short).

At least not beforehand; afterward, with the clarity of hindsight, I saw all the clues that had been in front of me the whole time: the liar loans, the heavy reliance on ARMs, the cynicism of the underwriters busy making loans they knew they should have rejected outright, and the speed with which the bank dumped those loans onto the secondary market to keep the bank's mortgage portfolio at a level of risk regarded as safe by the OCC.

Gog, here's an excerpt from a review of Reckless Endangerment that sums up who bought whom:

Jim Johnson, quintessential DC insider used all of these connections in the 90s on behalf of empowering Fannie Mae and eviscerating sound financial practices. Greasing the wheels of powerful polls on banking and finance committees became standard procedure. Finding a sinecure for Barney Frank's boyfriend was a pleasure not a problem (if Frank isn't a criminal it is by a hair's breadth). Libeling the responsible, honest regulators and economists who tried to stop this train-wreck waiting to happen was all in a day's work, and a particular Johnson specialty. ... When the occasional curious congressman tried to uncover Fannie Mae compensation packages, Johnson squashed them as well, more powerful than our own elected officials.

Sadly, all of the corruption above pales in comparison to Chris Dodd's attachment of an amendment that extended government protection to financial agency's other than bank (Fannie Mae, insurance companies, et al) As a result, we not only get to save Fannie and Freddie--we get to pay the legal bills of everyone who is being sued because of their reckless behavior. What did Chris Dodd get? Maximum campaign contributions and a sweetheart mortgage, naturally.

There was a symbolic view of progress. If middle class people own homes, it must be good to own a home, so we will make it easier for people to own homes. ~ cc at April 4, 2017 2:28 PM

Yep. Every president since Johnson has touted rising home ownership rates as a sign of how good and beneficial his policies were. Under Clinton home ownership reached roughly 65%, probably the highest we can reasonably expect. Both Clinton and Bush wanted it to be higher, pushing easy credit policies. Bush did sound a warning about Fannie and Freddie, but when he encountered pushback, he quieted down.

The CRA, amended under Clinton made it easier for housing activists to punish banks that didn't fall into line with the activists' policy of easy credit and commit to having a specific percentage of loans made be CRA loans.

Fannie and Freddie, empowered by bought Congressmen, purchased a steadily increasing number of loans, making more money available for banks to make even more loans, heating up the market and driving up housing prices. Fannie and Freddie securitized those loans into mortgage-backed investments to finance the purchase of even more loans.

Fear of being accused of redlining (literally the drawing of a red line around minority neighborhoods and not loaning on any property inside the red line), drove banks to abandon longstanding credit and risk policies to make loans to minorities. Fannie and Freddie bought those loans first, fueling a demand for them.

Wall Street became hungry for more investment instruments, demanding Fannie and Freddie produce more of these "safe" mortgage-backed instruments. The ratings agencies (Moody's et al) had limited experience with mortgage instruments so they used past default rates (less than 5%) and declared them safe.

We, at the bank, also thought mortgages were safe because, in the past, the mortgage was the last loan defaulted on. But these loans were made with no money down. Suddenly we found ourselves with a portfolio of owned real estate (REO) because people were defaulting on their houses first and cars later, figuring they could live in their cars. By then, it was taking 6-12 months to foreclose on a house after pre-foreclosure (missing 3 months of payments), where in the past it took 60-90 days.

Banks were hiring REO specialists and property managers to manage a rapidly expanding portfolio of owned property, a portfolio they were ill-equipped to handle.