To think we should have a regular reflection on the great financial crash

It’s partly this, it’s partly because so much has happened since then that’s more tangible for people to talk about: Covid, wars and polarisation in politics. I’m not sure people have enough of a grasp of mortgage-backed securities and what actually happened in the 2008 crash to begin to talk about it / assess the potential risk of it happening again.

Also, society has become more money obsessed on a personal level due to COL and social media/influencer culture, and it’s become socially acceptable to get rich through whatever means and not necessarily ‘earn’ money. Hard to criticise bankers for excessive bonuses who at least put in the hours in over decades-long careers, when 20 year-olds are making millions from going ‘viral’ on TikTok, or having gang bangs on OnlyFans.

I think if you’ve never struggled to get work on a reasonable income, it’s easy to assume you will always be fine. I think for lots of us who came of age in the mid 90s it was a huge shock. I had been in debt since I started university, the way student finance was structured in was very much encouraged as a way to fund yourself, debt was cheap and easily available, I’d had no financial education, my parents generation didn’t talk about money, it was a taboo subject, but they too were encouraged to stretch themselves on mortgages, because inflation meant loans depreciated in actual value and house prices seemed to only go in one direction… it was a huge shock for us. We will never be in that position again. Many people were in a worse position than us, people who ended up in negative equity. There’s still people trapped in mortgages they can’t change.

That is one of the greatest films ever made !

Neither my mother born in 32 or grandparents starved (born in 1899 and 1910) during the great depressions. Judging by family stories both very different families did okay. One farming the other in an inner city working in a factory.
Uk history suggests people actually ate better during ww2 with rationing planning and community support.
I’m more worried about a sudden event and mass chaos.

@EasternStandard ,

‘How do you want to control risk and reward? ‘

Of course you need rules and regulations. But, firstly, failure needs to have a meaningful cost. The senior people in banks shouldn’t be able to fail time after time and remain personally wealthy (and free, if it is fraudulent).

But then you need people to have an ethical/moral compass which leads them to trade/invest in such a way that they are not just gambling with shareholder funds.

What typically happens is that dealers take positions which work 9/10 times but just risk what Naseem Taleb dubbed black swans.
And when that black swan happens, they just lose their job and move on to the next well paid position.

‘Morality sounds a bit religious as a way to control.’

It is. And that is a big problem. We live in a post religious age and yet haven’t found a replacement for those old fashioned concepts like professional pride and shame. So people just optimise personal economic outcomes without regard for how it might affect others.

I hardly spoke to a single person after 2008 who felt ashamed of embarrassed. It was all just ex post facto justification for why they didn’t do much wrong and how awful it was they had to work for ‘nothing’ (nothing being equal to their basic salary of around £150k, as there were no bonuses that year).

How do you want to control risk and reward? Morality sounds a bit religious as a way to control.

Did you work in the City, what drew you to it?

Well not really. If you reward something don’t be surprised when people do it.

I’m getting the doom part ok in your post, but what is the trigger, are you thinking of AI, climate, other, can you say?

Talking to yourself is not healthy…

I'm talking about a great depression. Mass starvation. The consequences of hubris.

An awful lot of posters seem to have identical concerns recently.

Almost as if it is orchestrated.

It’s a shame this thread (and others like it) get so little traction.

2008 and how global governments and central banks responded to it was a massive fracturing of the implicit social contract between government and the vast majority of tax payers.

That and uncontrolled immigration were the two main factors leading to a growth in populism.

Totally agree.

This sense of everything being someone else’s fault is pervasive.

There's a big push right now to deregulate banking & investment sector in UK.
Even louder noises in USA.

Yeah of course revisiting optimal regulatory framework is good practice (constant process), but making noises like the guard rails are being swept away: am not happy to hear that.

Wouldn't surprise me if foundations of next Fin. crisis are being laid now.

Banks should never be "too big" to be allowed to fail.

Govts should provide stable environment (inflation constraint, peaceful transfer of political power, independence for central banks) & after that investors should be expected to shoulder more risk themselves, not have a huge safety net funded by all taxpayers meaning the big investor group is effectively very low.

Saying that as an investor myself who favours 'medium-high risk' for at least part of the portfolio.

Certainly capitalism is flawed but what is a better alternative? For me it is best described as the least worst option.

I think alot of people didn’t want to hold themselves accountable. Yes some banks and “bankers” did bad things however many people overextended themselves.

@EasternStandard ,

‘It’s not so much the people who devise risk and reward from it it’s regulations (or lack of) that allow it to emerge.’

Rules and regulations only go so far. You need people to be moral/ethical or they will always find a way around rules (legal or otherwise).

The lack of shame and consequence allows people to repeat the same behaviour time and time again and, as long as they are wealthy, society will welcome them back.

Compare 2008 to the Profumo affair. He really didn’t do anything that awful by today’s standards but he was shamed for life.

You can’t regulate morality.

Brilliant film, one of my favourites, funny too. I also read the book on which it’s based.

It’s not so much the people who devise risk and reward from it it’s regulations (or lack of) that allow it to emerge.

Op when you say about to something worse happening what are you referring to?

Yes but we've had more rules put in, in the UK than the U.S - they have much more relaxed rules on SAPs for political campaigns and it's easier to lobby politicians and they can use bigger sums. This definitely had a big impact on the rules that were put in around financial institutions, but instead politicians prioritised getting elected and the institutions profit. Whilst the film obviously doesn't explain everything, I think it gets it to a basic level for the majority of people, and honeslty I think many people don't understand it that much and even a basic level is better than nothing. I think when something horrible happens we want to erase it out of our collective memories but with the financial crash, I'm really hoping we don't and young people learn about it because there are big lessons to come from it about power and regulation/oversight of those in power for the general public. The more detailed stuff can be left to those who understand it better.

I love that film - every time I watch it I understand it a tiny bit more - but it’s brilliant

I think this is key. That movie whilst entertaining doesn't go into the reasons why do many subprime loans were allowed and encouraged.

Since then lending requirements in this country have been tightened by the government to ensure that people are protected from banks own risk appetites. It makes my heart sink when I hear people in government talking about relaxing the rules to make it easier for people. There are numerous ways to make things easier for people, relaxing these rules that were put in place to protect them isn't the right solution

Honestly I agree but for the general public more about how the banks were willing to do it and not check mortgages properly because it made them money, it says a lots about general society. So many people lost their jobs and homes and had no clue what was happening in the lead up. The Big Short (though it doesn't go into all the issues) I think should be watching for everyone, including older teens as they grow up, especially the ending when it reflects on how lobbying politicians meant not much changed in terms of regulation and it speaks to other areas of society and how they function to not serve or help the majority.

We were affected badly by it, we had just put our house on the market, we couldn’t sell it for 18 months due to the crash, DH lost his job and actually had multiple redundancies, we were in lots of debt which had been manageable but suddenly wasn’t because our income reduced so quickly, we had just had our first baby. We had never known a time in our town when you couldn’t just go out and get a reasonably well paid job. I think about it often, it was really scary. We fell off the housing ladder, private rented for years after. Only able to buy again when I inherited some money.

I haven’t been in debt other than my mortgage that I can’t immediately repay since. I cut up all my credit cards and didn’t use them for years.

It's easy to be wise after the event, but there were a lot of factors to the crash of 2008, and distilling it into a film like The Big Short highlights some, but certainly not all of those factors. There was quite a lot of regulation put in place around the world after the crash - but worryingly we now have politicians trying to weaken various rules, on both sides of the Atlantic.
A significant contributing factor to that crisis was that governments allowed banks to sell millions of sub-prime mortgages; but both houses and the loans that are secured on them are traded on the open market and only worth what someone is willing and able to pay for them. The value of either or both will fall, given the right circumstances, leaving millions of people worse off, and destabilising the housing and financial markets.
Governments tightened rules after the crisis, but some are now proposing to relax borrowing rules to assist more home ownership - they might have good intentions, but it is a very risky move, and could do a lot of harm to some of the people that it is intended to help. (Ref also problems with 'help to buy' schemes which, although not relevant to the issue of the 2008 crash, have similarly done more harm than good in many cases.)

@MyNameIsX ,

‘Yup, and so it should have been. And you know what, teachers, non-city lawyers and the middle classes would have been able to afford houses again, and wealth would have been recycled.

Wrong - the banks were subsequently compelled to increase their capital requirements, and had already taken huge M2M write downs on property portfolios. Your assumptions are reductive.’

Your reply has nothing to do with my statement! It is a total non-sequitur. If any company’s assets are less than their liabilities, they are insolvent. Banks aren’t somehow immune from that.

It had nothing to do with their ‘property portfolios’! It was to do with their mortgage CDO books, especially the super senior tranches, which the rating agencies had categorised as ‘better than AAA’ and the banks were unable to sell on as they traded a long way under LIBOR.

You would do well to read ‘Fool’s Gold’ by Gillian Tett if you want to gain a better understanding.

‘Again, a huge simplification - there would have doubtless been social unrest, and contagion elsewhere in financial markets including a loss of trust in fiat etc.

With respect, you dont appear to be from a senior financial/economics background.’

No one can replay history, but you have no more idea of what would have happened than I do.

I will leave the wisdom of MN to judge which of us is actually from ‘a senior financial background’.