Meltdown 2008 Quotes

Credit default swaps were in large part responsible for the melt down of the economy of 2008 and the Great Recession thereafter. A credit default swap was one of the favorite derivatives that became popular. Is an insurance policy that a company will pay off its bonds and not go bankrupt. It is a cross between an insurance mechanism and a stock exchange type security mechanism, and through heavy lobbying, escaped any kind of regulation. It cost a company no money to write a credit default swap, and they were paid to do so. As long as business and the economy was good, it was a terrific business but there was no way of ever knowing how much risk they were taking. So companies who wrote credit default swaps did not have to have the money to pay to back them up. When that happened in 2008, even the largest insurance company in the world collapsed because of the risk of having to pay the credit default swap and the U. S. Government had to take over the insurance company. In 2010, the Obama administration passed a financial reform bill that began to regulate credit default swaps. Buffet, the American who had made the most money in financial securities, realized the great danger not only to the company, but to the entire national economy. Most of the rest of the financial institutions, could make large amounts of money without have to have much capital as long as things went well. So credit default swaps began to exceed the other financial instruments in activity. Neither the Federal Reserve or the other government regulatory agencies chose to regulate these risky instruments nor even to require that they be publicly disclosed -- See {637987}, {637986} and {637992}.

AIG was America’s largest insurance company. It failed and the Federal Government in a massive bailout took over the company.

Leveraged means that the company is not investing all its own money and has borrowed some or much in a highly leveraged situation. He, and most corporate executives, used to be very wary of corporations being highly leveraged. However towards the end of the 20th century the CEO’s—ironically especially in banks and financial companies who should have known better, tended to get away from this worry, and led their companies to very highly leveraged situations. When the Meltdown of 2008 hit, most were so highly leveraged that they became insolvent very quickly and the Great Recession followed.

The Treasure Officials had a reason for bailing out the bondholders. They were afraid that if bank bondholders and owners took big losses at that time, it would “spook” the financial markets and cause even worse panics than then existed. The political pressure would be to bail out the financial institutions which would have lost much more money after the “spooking”. So it was, they argued, less cost to the taxpayer to bail out the bondholders at the beginning and save the bailout costs later. Some argued that there was no reason to bail out the richest people in America if they lose a lot of money so it is not an issue of bail out now or later. History shoed that the financial leaders did have the clout to force the government to bail them out however. There are some who wanted to have a showdown with the wealth banks and other financial institutions and let them go bankrupt and then the economy would right itself. No one really knows for sure which is why Economics is called the “dismal science”—See {596873}.

This warning was a decade before the Meltdown of 2008, but was not heeded by any of the politicians. As a result a number of the companies that made all those risky decisions assumed that if something went terribly wrong the government would not let them fail. Unfortunately, they were right and the taxpayers spent billions to prevent companies from failing. After the meltdown all the politicians vowed to end the too big to fail concept, but while some improvements were made, the Congress could not come to agreement, and the markets and a number of companies think that they are still too big to fail. This is particularly true for Defense Contractors where the government has and probably will in the future, protect irresponsible companies from failure if they are the only company that makes needed weapons and other equipment.

In the Meltdown of 2008, the American Auto Companies were in dire straights and faced bankruptcy with no certainty that the industry could stay alive., They were running out of money and President Obama decided to make loans, take stock and control and force modernizing on the industry. As a result, and with some Toyota mismanagement, the companies returned to profitability and paid back their government loans early and as a result the bailout had not cost the taxpayers any money. Creditors however were outraged that the lost their preferred advantage had their been a bankruptcy.

Sovereign credit substitution is where the government, one way or another, assumes and guarantees the debts of private corporations. This is an elegant way of saying: “taxpayer bailouts”

The Senator asked Justice Department officials if the reason that there had been no prosecutions of any major financial figures associated with the Meltdown of 2008 and the Great Recession is that they were “too big to jail.” This appears to be the first public official to use this phrase. See {637991} for the Attorney General’s sad but truthful reply.

Volker was trying to reform the excesses of the banking industry in the aftermath of the Great Recession where the banks had to be bailed out by the American taxpayers.

During this crises, the taxpayers of America had to bail out most of the largest banks in the country whose profligate investment strategy had squandered their depositors and other customers money as a result of the spiral to reap higher and higher profits until they collapsed with the executives making millions in bonuses when their banks were losing money. They put millions of people out of work, and their greedy policies crashed the housing market and then the same banks evicted millions of families when the banks foreclosed on their mortgages with thousands of bank officers committing felonies in the foreclosure processes. This was to Blankfiein and many of the other leading bankers, “God’s Work”.

Barry Bonds was a star professional baseball player whose accomplishments were aided by taking illegal drugs. He lied about his use of drugs, and the Department made a very large effort over years to finally prosecute him. However during that time there were almost no prosecutions of the thousands of bankers and financiers who had lied, cheated, forged legal documents and in the process almost permanently ruined the American economy—the Great Recession of 2008. The Justice Department claimed that white collar cases are very complex and take longer to prepare prosecutions. Critics claimed that there are so many law breakers, that the government does not want to prosecute all the felons, but just go after a few, and this is easier if time has gone by and public anger has receded or been forgotten.

What made the situation worse at the time that the same big banks who got government bailouts to prevent failure and received the 0.75 percent rate, turned around and lent the money to the students not only charging them 9 times what they paid for the money, but also getting a government guarantee that the loans would be repaid and/or government prohibition of students going bankrupt and discharging their debt like any other American in financial difficulty. So the banks made huge profits and yet took no risk—a strange notion in capitalism.

At this time it was 6 years after the Home Financing Crisis and the Meltdown of 2008 and despite tens of thousands of law violations by the bank, the Justice Department was finally finishing their investigations and requiring some penalties. Other negotiations with other banks were in progress, but no bank executives were going to jail for the millions they handled fraudulently, whereas a burglar who stole household goods would do jail time.

There was concern that there might be a housing bubble developing with consequent overpricing of houses. The bubble broke and when it did, it was sudden and dramatic with the Meltdown of 2008

Geithner, the Treasury Secretary immediately after the Meltdown of 2008, facing complete collapse of our financial system, among other ameliorations, advocated and implemented many subsidies to bail out the banks most of whom had been greedy, foolish and often dishonest. He even allowed banks to use taxpayer money to pay bonuses to Bank executives who had brought the bank to ruin being a cause of the crisis. However, the banks not only survived but recovered and made huge profits while many of the taxpayers whose funds were used to help the banks were still struggling to make ends meet and it was they who received little, if any, government assistant.

Greenspan was not the amoral fool that this quotation makes him seem. Despite the fact that he was the most important financial officer of the country, he had an ideological faith that a free market was self-corrective in a democracy. The financial industry would police itself he believed. He also trusted the self interest of the financial corporations to restrain them from getting too greedy -- {637989}. He and many others were wrong and most Americans paid the price.

Born thought that her agency was responsible for regulating the new esoteric financial products—derivatives including credit default swaps—for otherwise there would be no regulation at all of financial products that could dwarf the stock and bond market. Summers persuaded her to back off. When the Meltdown of 2008 hit, the huge derivative exposure of the large banks and some insurance companies was so great that it was one of the major causes for the meltdown of the entire banking system. Summers, normally a great economist not only called this one wrong, but later, along with most other government and private economists ignored a very explicit warning—See {637168}, {637986}, and {620038}.

In the Great Recession thousands of bank executives of the banks that received government bailouts committed fraud and perjury providing false information under oath and foreclosing on mortgages illegally. There were so many bank felons that the Justice Department decided not to prosecute any of them and let the Banks pay relatively small fines instead. Then the banks paid the crooked employees bonuses. Paul was one of the few members of Congress who favored prosecution of all the guilty bankers regardless of the number.