Horrible News: Lehman Brothers Bankrupt and Merrill Lynch bought by BAC

[Fragony]

This my org friends is capitalism. When unemployment and the depression really hit in 2 years - you just wait to see how the unemployed are villified.

Equality industry is to blame, not capitalism, or do you think banks like loaning money to people who can't pay it back? They had to because of the Carter administration. Bravo, way to go.

[Ser Clegane]

Equality industry is to blame, not capitalism, or do you think banks like loaning money to people who can't pay it back? They had to because of the Carter administration. Bravo, way to go.

The problem is that the banks thought that the rising prices for real estate would cover their risk sufficiently.
If banks beleive the risk is limited they will be very keen on loaning money to customers with a lower credit rating as they will charge them a higher interest rate.
The second issue was that further "selling" these loans to other banks who thought they would make a great deal they rather multiplied the risk instead of minimizing it.

The "equality industry" might have to take part of the blame - pure greed is responsible for a good chunk of the blame though.

BTW, you also see a trend here in Germany that banks are offering loans equivalent to 100% or even slightly above the value of a house (20 years ago banks would not have done such a thing).
The banks certainly were not forced to do so - they do so because the want to get the business and the higher interest rates, thinking that they have the risk under control - which now turns out to be a mistake, at least in some countries.

[Fragony]

The problem is that the banks thought that the rising prices for real estate would cover their risk sufficiently.

Mistake yes but out of all mistakes the most forgivable, let's not forget what really happened here, disastrous government interevention into something that needs to be unregulated to function properly.

[Ser Clegane]

Mistake yes but out of all mistakes the most forgivable

I guess we have to agree to disagree on this one. Please keep in mind that a number of banks went down the gutter not primarily for giving the actual loans but because they thought they could make a lot of quick money with asset backed securities based on these loans.
Greed - and too much money on the market from investors that were not happy with single digit returns on their investment.

[drone]

I can only imagine the fun sound-bites we would be getting now if Ron Paul was the GOP nominee at the moment.

[Ser Clegane]

To add one point:
The greed was not just on the banks' side - certainly also a lot of people who took the loans to buy a house they realistically could not afford are to blame.
If you make such a big investment you should not just rely on what the bank is telling you what you can afford but perhaps also take the time to sit down and to realistically calculate what you can really afford without making wild assumptions about how things will only go up in the next 20 years...

[Fragony]

I guess we have to agree to disagree on this one. Please keep in mind that a number of banks went down the gutter not primarily for giving the actual loans but because they thought they could make a lot of quick money with asset backed securities based on these loans.
Greed - and too much money on the market from investors that were not happy with single digit returns on their investment.

Fair enough I guess, but do bear in mind that company's need a steady cashflow and have to make due when presented with insecurities, and they got mightily burdened by the restrictions that got slapped on them. Government should have sticked at what they do best, doing poorly, and stop summoning what they can't control.

The greed was not just on the banks' side - certainly also a lot of people who took the loans to buy a house they realistically could not afford are to blame.

Yes. Good thing I could run to daddy when I made the same mistake.

[Xiahou]

Mistake yes but out of all mistakes the most forgivable, let's not forget what really happened here, disastrous government interevention into something that needs to be unregulated to function properly.

In the US, you had GSEs, which are inherently anti-free market, buying up and repackaging lousy mortgages -giving them the appearance of being government backed- with approval and even encouragement from their supporters in congress.

Unsurprisingly, investment banks and other financial institutions eagerly bought up these repackaged mortgages, thinking them a sure money-maker. And banks eagerly made mortgages to unworthy debtors, knowing that Fannie/Freddie would take the mortgage off their hands.

[ICantSpellDawg]

I've seen more people driving mercedes benz and BMW over the past 5 years than ever before in the entirety of my life. I know that they can't afford it. If you lied or through ignorance took out loans that you could not afford to pay back, I understand the temptation of salesmen, but you deserve to burn. You eat food you can't afford, drive a car you can't afford and live where you can't afford; you've slathered yourself in BBQ sauce and throw yourself on the grill. I have contempt for these people and feel sorry for thier kids.

[Tristuskhan]

I've seen more people driving mercedes benz and BMW over the past 5 years than ever before in the entirety of my life. I know that they can't afford it. If you lied or through ignorance took out loans that you could not afford to pay back, I understand the temptation of salesmen, but you deserve to burn. You eat food you can't afford, drive a car you can't afford and live where you can't afford; you've slathered yourself in BBQ sauce and throw yourself on the grill. I have contempt for these people and feel sorry for thier kids.

Replace the word "people" by the word "nations" and we're all likely to roast soon.

Edit; sorry I'm back after two weeks of hollidays in my homeland, by the ocean (a trip in which I've burned much gas I can't afford...) And I'm really pleased to read about what you, US citizens, proud members of the most important communist country on earth (well, North Korea IS an important country but does not use a tenth of the money USA uses for communism), think about this marvellous events. Could everyone read TuffStuffMcGruff's post and replace the word "people" by the word "nations", please? He said everything I'd like to be able to say en anglais. Especially the last sentence: I'm sorry for our kids....

[Lemur]

Stuff like this does not inspire confidence:

In fact, some of the most basic details, including the $700 billion figure Treasury would use to buy up bad debt, are fuzzy.

"It's not based on any particular data point," a Treasury spokeswoman told Forbes.com Tuesday. "We just wanted to choose a really large number."

Well then, by all means, allow us to hand you a bottomless budget and unchecked power. Who can resist such reasoning?

[gaelic cowboy]

Mistake yes but out of all mistakes the most forgivable, let's not forget what really happened here, disastrous government interevention into something that needs to be unregulated to function properly.

Unregulated financialism was what got the world into this there was nothing wrong with selling debt to people who could not pay for it

[Koga No Goshi]

Equality industry is to blame, not capitalism, or do you think banks like loaning money to people who can't pay it back? They had to because of the Carter administration. Bravo, way to go.

Absolutely they loved it--- loan officers and banks took the commission fees, and then sold off the mortgage to someone else (most ended up owned by Freddie and Fannie.) They weren't getting rich off giving bad loans to people who couldn't pay them, they were just getting rich off the COMMISSION FEES for signing the loans, and then throwing away having to collect the loan itself.

I would not be entirely against some form of regulation that if a bank issues a loan, THEY have to be the one to collect it, unless the person who took out the loan chooses to refinance with another company. That would force banks to take responsibility for the loans that they give and not simply give a bad loan, knowing its bad, collect the commission fee and then dump the loan on the Feds or the taxpayer, ultimately. Which is exactly what happened in this case.