BBC2 now - Inside Job.
Discussion
Eric Mc said:
Watch the programme.
Read Gillian Tett's book "Fool's Gold".
Then come back and tell us that the financial industry was not responsible for what happened.
Big short is also good and so is Liars Poker both by Michael Lewis. Theyre not really pointy finger pieces, more just accounts of various people involved in the industry, including his own stint as solomon brothers bond trader. Theyre enjoyable reads and it shows how people think.Read Gillian Tett's book "Fool's Gold".
Then come back and tell us that the financial industry was not responsible for what happened.
Northern Munkee said:
You haven't watched the programme have you.
I challenge you to watch it, then come back, tell us what you think then.
I have watched it. I also spent several years in a Credit Derivatives Front Office team. There's nothing in that documentary that even shocks me in the slightest. Now what i can't remember is whether it was Moodys or S&P who would regularly send us requests to price a product for them because they didn't understand it properly or couldn't write the spreadsheet for it!I challenge you to watch it, then come back, tell us what you think then.
Should they have been lending to "stupid poor people"?
The ultimate decsion as to who they decide to lend money to rests absolutely and entirely in the hands of the lender. They have the power to say "No". In earlier eras they would always and did always say "No" to such loan applicants.
The financial industry made a conscious and collective decision to start lending to high risk borrowers. No one made them do it (although in the US the Federal Government did plauy a part in encouraging such behaviour).
Therefore I cannot see way the finance industry cannot be placed as the prime culprit in this debacle. Of course, the poor and feckless shouldn't have borrowed. But they shouldn'ty have even been in a position where they COULD borrow in the first place.
The ultimate decsion as to who they decide to lend money to rests absolutely and entirely in the hands of the lender. They have the power to say "No". In earlier eras they would always and did always say "No" to such loan applicants.
The financial industry made a conscious and collective decision to start lending to high risk borrowers. No one made them do it (although in the US the Federal Government did plauy a part in encouraging such behaviour).
Therefore I cannot see way the finance industry cannot be placed as the prime culprit in this debacle. Of course, the poor and feckless shouldn't have borrowed. But they shouldn'ty have even been in a position where they COULD borrow in the first place.
mattviatura said:
Credit,as with many other products, was artificially cheap for too long.
Consumers lapped it up.
House prices were not going to go up for ever, no market ever has. Ever.
Re-mortgaging to fund a Mercedes-Benz is a very foolish thing to do.
Although far from blameless it wasn't just the financial services industry.
Takes two to tango. Its clear from books like I just mentioned, some one was buying these CDO's and cheap credit deals, and buying big. Demand was there, even when it looked like it was going down the pan. You cant blame the banks entirely for simply supplying what was in demand, even if they did artificially develop that demand by passing stuff off as AAA.Consumers lapped it up.
House prices were not going to go up for ever, no market ever has. Ever.
Re-mortgaging to fund a Mercedes-Benz is a very foolish thing to do.
Although far from blameless it wasn't just the financial services industry.
Eric Mc said:
Of course, the poor and feckless shouldn't have borrowed. But they shouldn'ty have even been in a position where they COULD borrow in the first place.
A regulatory failure, No?I'm not trying to absolve the financial services industry of blame, they got it very, very wrong and some people should be inside for what went on. But it wasn't JUST them.
Eric Mc said:
Therefore I cannot see way the finance industry cannot be placed as the prime culprit in this debacle. Of course, the poor and feckless shouldn't have borrowed. But they shouldn'ty have even been in a position where they COULD borrow in the first place.
Agree with your sentiments on this. And in the UK, Brown's light touch regulation effectively gave the likes of HBoS the go-ahead for crazy mortgage lending. Not ALL the banks got caught up in the lending frenzy and therefore it would not make sense to tar the whole industry.Otispunkmeyer said:
Takes two to tango. Its clear from books like I just mentioned, some one was buying these CDO's and cheap credit deals, and buying big. Demand was there, even when it looked like it was going down the pan. You cant blame the banks entirely for simply supplying what was in demand, even if they did artificially develop that demand by passing stuff off as AAA.
I wonder if the words - morals
ethics
probity
prudence
ever passed the lips of any of the people who were making these lending decisions.
Or had the profit and bonus motive become so overwhelmingly huge that any other criteria simply never crossed anyone's minds?
mattviatura said:
A regulatory failure, No?
I'm not trying to absolve the financial services industry of blame, they got it very, very wrong and some people should be inside for what went on. But it wasn't JUST them.
What I'm saying is that it USED to be them. Something changed in the 1980s. Have a guess as to what.I'm not trying to absolve the financial services industry of blame, they got it very, very wrong and some people should be inside for what went on. But it wasn't JUST them.
fido said:
I have watched it. I also spent several years in a Credit Derivatives Front Office team. There's nothing in that documentary that even shocks me in the slightest. Now what i can't remember is whether it was Moodys or S&P who would regularly send us requests to price a product for them because they didn't understand it properly or couldn't write the spreadsheet for it!
Oh the irony!el stovey said:
The lenders were making money by lending, they made more by sub prime lending as interest rates were higher. The debt was then simply sold on up the chain and packaged into complex derivatives and derivatives of derivatives.
There's nothing fundamentally wrong with this. If mortgages were not sold on, then local banks would quickly run out of funds to lend, drying up the mortgage supply. Yes, they could take the Northern Rock approach, of covering the loans in the money market, but we've seen now how bad an idea that is.You can also add value by packaging a mixed bag of mortgages up into various tranches of differing risks. It turns out that people will pay more for the risk when each tranche has less variation, as they have less uncertainty of the default rate.
One of the many places where a perfectly reasonable system fell down was when trading desks bought these mixed bags, and found that they could no longer sell them all on. They sold some of it, but kept the bits that would not sell, and marked them up as being worth what their models claimed that they were worth.
Any trader, of any product, should know that if you keep building up inventory, then what you are looking at is a wrong price. It's tempting to keep buying stuff that you believe is being sold too cheaply, but we have risk limits to stop this getting out of hand. For some reason this failed in the world of MBS, and we ended up with absolutely massive holdings on what were supposed to be trading desks, marked at wildly optimistic levels.
Does anyone think that in knowingly punting rubbish, stickered-up as AAA and then betting agsinst it (because you were so sure that was a bet worth taking) that the banks over-stepped the for-profit mark and were criminal?
To put it in PH parlance, what if a car dealer was knowingly selling lemons...
To put it in PH parlance, what if a car dealer was knowingly selling lemons...
NorthernBoy said:
el stovey said:
The lenders were making money by lending, they made more by sub prime lending as interest rates were higher. The debt was then simply sold on up the chain and packaged into complex derivatives and derivatives of derivatives.
There's nothing fundamentally wrong with this. If mortgages were not sold on, then local banks would quickly run out of funds to lend, drying up the mortgage supply. Yes, they could take the Northern Rock approach, of covering the loans in the money market, but we've seen now how bad an idea that is.Great programme. Unfortunately no surprises for me. I was there back in 2004 when Brown came to open the Lehmans Office at Canary Wharf. Lots of back slapping by Brown and Fuld. Just a little sick of those squirming bankers / academics who dont have the balls to own up to their part in the whole messy business. Dont see any hope for the future given that President Obama has re-appointed the same sorry mob again.
Richard
Richard
Great programme. Unfortunately no surprises for me. I was there back in 2004 when Brown came to open the Lehmans Office at Canary Wharf. Lots of back slapping by Brown and Fuld. Just a little sick of those squirming bankers / academics who dont have the balls to own up to their part in the whole messy business. Dont see any hope for the future given that President Obama has re-appointed the same sorry mob again.
Richard
Richard
Digga said:
Does anyone think that in knowingly punting rubbish, stickered-up as AAA and then betting agsinst it (because you were so sure that was a bet worth taking) that the banks over-stepped the for-profit mark and were criminal?
To put it in PH parlance, what if a car dealer was knowingly selling lemons...
It wasn't criminal because the laws did not prohibit such activity in the financial sector.To put it in PH parlance, what if a car dealer was knowingly selling lemons...
However, it was definitely amoral.
Let's sell crap products to crap customers but and then take a bet on the crap product failing which will net us more than the crap product succeeding.
No, I can't see where any of this could have gone wrong.
NorthernBoy said:
There's nothing fundamentally wrong with this. If mortgages were not sold on, then local banks would quickly run out of funds to lend, drying up the mortgage supply. Yes, they could take the Northern Rock approach, of covering the loans in the money market, but we've seen now how bad an idea that is.
You can also add value by packaging a mixed bag of mortgages up into various tranches of differing risks. It turns out that people will pay more for the risk when each tranche has less variation, as they have less uncertainty of the default rate.
One of the many places where a perfectly reasonable system fell down was when trading desks bought these mixed bags, and found that they could no longer sell them all on. They sold some of it, but kept the bits that would not sell, and marked them up as being worth what their models claimed that they were worth.
Any trader, of any product, should know that if you keep building up inventory, then what you are looking at is a wrong price. It's tempting to keep buying stuff that you believe is being sold too cheaply, but we have risk limits to stop this getting out of hand. For some reason this failed in the world of MBS, and we ended up with absolutely massive holdings on what were supposed to be trading desks, marked at wildly optimistic levels.
But what was wrong was getting debt (and other assets) that was/were known to poor quality rated as good, then selling it on as such. Whether the fault was with the ratings agencies and/or those selling said crap is debateable I suppose, but borderline fraud I would say.You can also add value by packaging a mixed bag of mortgages up into various tranches of differing risks. It turns out that people will pay more for the risk when each tranche has less variation, as they have less uncertainty of the default rate.
One of the many places where a perfectly reasonable system fell down was when trading desks bought these mixed bags, and found that they could no longer sell them all on. They sold some of it, but kept the bits that would not sell, and marked them up as being worth what their models claimed that they were worth.
Any trader, of any product, should know that if you keep building up inventory, then what you are looking at is a wrong price. It's tempting to keep buying stuff that you believe is being sold too cheaply, but we have risk limits to stop this getting out of hand. For some reason this failed in the world of MBS, and we ended up with absolutely massive holdings on what were supposed to be trading desks, marked at wildly optimistic levels.
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