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

[Fragmentedbrain]

Lives were destroying by the arrogance of bankers who thought they were invincible and now live on six figure pensions

It's a miracle imo they were allowed to just walk away

And we're so close to something even worse happening

What do you mean?

Are tech to blame this time?

well trump is planning on doing away with safeguards put in place to prevent banks from taking on bad loans/lending to people who are unlikely to pay back the loan.
we very much could see a repeat of the 2008 crash, but then again his tariffs could lead to a crash similar to the great depression of the 1930's.

I think the financial crisis of the 1970s should also be on people’s minds…

Yes, I watched ‘The Big Short’ again recently and the lack of convictions or learning from that crisis is disgraceful.

I couldn’t agree more.

If you want to look for evidence of the power of some kind of ‘deep state’, this is a great place to start. Not only did no one senior go to jail, but there is remarkably little out there on the internet about it, given that it nearly brought down the global economy. (I am not a believer in some organised conspiracy but I do think the wealthy and influential look after themselves).

A particularly egregious example, from memory, was the Morgan Stanley 2008 bonuses. They brought the bonus date forward (a responsible organisation would have delayed it given the uncertainty!) and paid themselves $4.5bio out of a company with negative net worth (as BOA discovered a couple of months later). If that isn’t fraud, I don’t know what is. No criminal charges and no bonuses paid back. In fact most of the senior staff went on to other senior, bonus-paying positions.

If you want to look for the next 2008, crypto is my bet. If they all went to zero quickly (there is $4 trillion and rapidly rising), it could easily upset the financial system.

Well we never recovered from it so maybe that's why it's avoided!

No idea why my reply was hidden!

But, yes, I agree.

The bonuses paid out of insolvent banks were eye watering and, arguably, fraudulent.

And cryptocurrencies, being encouraged by Trump, look an awful lot like tulip bulbs to me.

And, it is awfully strange how little research there has been on 2008 by the economic community (probably as they are mainly paid by banks) and how little you can find on the internet about it.

You are incorrectly attempting to distil an extremely complex event into a simple blame game.

And now we head for another on account of our addiction to public spending and the public’s absolute unwillingness to accept we need to rein it in somewhere.

@MyNameIsX ,

‘You are incorrectly attempting to distil an extremely complex event into a simple blame game.’

It wasn’t that complex really!

There was layered complexity on top of a few simple frauds.

Knowingly lending to people who had no real assets or income and selling on these loans as if they had significant value.

Capturing the ratings agencies to go along with this deception.

And, finally, continuing to pay yourself when you know your organisation has negative net worth.

Did I see it coming? Not really, although the ECB certainly did and warned about it. However, like all good frauds, they are based on winning trust. People trusted Moodies and S&P to rate honestly, people trusted the quants and their correlation models and people trusted the big banks not to cheat them.

It was a total scandal and the result was people on middle incomes had tax raises and, when bonuses were banned, for about a year or two, mid-level traders’ base salaries went up from about £150k to about £350k, and they still whinged about ‘working for nothing’.

It was and still is a sore on the political system and, I would argue, in large part led to the disillusionment in politicians that led to Brexit and Trump.

And, as the OP said, I think it has a high chance of happening again soon, either via tech valuations or crypto.

I think my posts are being hidden because I am mentioning the new type of fiat currency not issued by central banks! I will try again without it.

But @MyNameIsX , it really wasn’t that complex. It was basically a loan fraud where the rating agencies were captured into saying that the loans were good and a simple fraud of paying bonuses out of negative money and then allowing the companies to go into liquidation.

Sure, like all good frauds, there were layers of complexity on top of it and people trusted the banks, the rating agencies and the regulators.

I didn’t see it coming, although I had a bad feeling about the markets that year and at least reduced my risk, but the ECB did and warned in as stark a terms as it was able.

It was and is a stain on politicians’ consciences and, I would argue, in large part led to Brexit and Trump.

Yanbu. Rishi Sunak was one of them. Did VERY well betting against RBS before going into politics and ascending to the highest job.
Sadly peoples memories are so short history will inevitably repeat itself.

Absolutely agree.

The thing happening with the water companies in the UK is different but basically fraud being allowed to happen with the general public footing the bill.

I recommend everyone to read Boomerang by Michael Lewis (who also wrote the Big Short). It discusses how the financial crisis manifested itself differently in different countries, driven by the historical culture of that country - Greece, Germany, Iceland etc. Whole societies, not just the bankers are to blame.

Yanbu at all to see that we are heading for another big bubble-burst but it is naive to think that through responsible stewardship and regulation we can prevent these disasters. They will only stop if we actually overthrow capitalism and establish an entirely new paradigm for the global economy that doesn't use money in the same way. Under the current structure there are enormous numbers of people who bend every ounce of their effort to identify growing bubbles, inflating them to maximise their own profit and diving off just before the bubble bursts (which triggers the bubble bursting) leaving other people to deal with the loss. This is all nicely packaged in formal declarations about risk but the plain english version is that investors need a ready supply of mugs who are going to lose their money, in order to ensure that those at the top keep raking it in. The thing you are trying to eliminate isn't a "flaw in the system" it is the entire raison d'etre of the system and cannot be eliminated without destroying the system.

@HappilyUrbanTrimmer ,

That’s not really true.

We have had bubbles throughout the history of capitalism, but when they burst, everyone paid a significant price.

What is new in the last 25 years or so is an attempt to abolish the economic cycle via bailouts, zero interest rates and QE.

These have immunised the risk takers from the consequences of their bets going wrong and made the bottom of society economically pay the price.

We haven’t disproved capitalism, just crony capitalism, which is the system we have at the moment.

Sorry, but what are you talking about?

Did you experience it directly, or are you simply regurgitating what you have read, without any comprehension?

The period in question was fundamentally a liquidity crisis brought about by CDO’s in the US subprime mortgage market - yes, including valuations by the ratings agency.

Had the central banks not bailed out many of the banks, the crisis would have proven financially existential for the majority of us posting on here, because banks would have simply failed - like Lehmans and Bear Stearns.

So, by all means look back 17+ years, with the benefit of all that hindsight, but I remember it vividly, and the outcome, whilst clearly imperfect, was so much better than the alternative.

@MyNameIsX ,

I remember it perfectly thanks and I was at the heart of it.

‘The period in question was fundamentally a liquidity crisis brought about by CDO’s in the US subprime mortgage market - yes, including valuations by the ratings agency.’

The liquidity crisis was merely a symptom of the insolvency of the banks. It was the proximate cause, not the primary reason for the bailout.

‘Had the central banks not bailed out many of the banks, the crisis would have proven financially existential for the majority of us posting on here, because banks would have simply failed - like Lehmans and Bear Stearns.’

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.

That is how capitalism is meant to work, you know! Risk is rewarded by riches but bad risk taking is punished by poverty. Yes, things would have been very ugly for a while, but like the 20s or the property crash in the 70s, new entrepreneurs would have arisen from the ashes.

If you bail out bad risk taking, it’s no longer capitalism.

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.

Things would have been very ugly for a while.

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.

@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’.

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.)

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.

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.

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