2008 Recession

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Vonz90
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2008 Recession

Post by Vonz90 » Sat Sep 15, 2018 1:32 pm

The September 10 issue of National Review has an excellent article on the monetary policies that the Fed pursued that caused the collapse.

In short the money supply was going down but the Fed fixated on oil prices going up and pushed interest rates up to fight what they saw as impending inflation even though other commodities were diving (including housing). By the time they figured it out we were in full crash mode. There still would have been a correction but they turned it into a route.

For most of the time during the recovery they had a tighter money supply than their published targets would suggest too.

Obviously a lot more to it, but worth a read if you have access.

Langenator
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Re: 2008 Recession

Post by Langenator » Sat Sep 15, 2018 2:31 pm

I saw another article a day or two ago on the topic which placed much of the blame on the .gov for bailing out the first bank to run into trouble (Bear Stearns, IIRC), and then choosing not to bail out Lehman Brothers.

A contributing cause was housing speculation - people treating houses as investments (capital goods), instead of a place to sleep and store your stuff (consumption goods.)

But from this guy's view, the big cause was the .gov interfering with a normal, if nasty, market correction and the re-direction of resources from bad, inefficient uses to better, more efficient ones.
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Vonz90
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Re: 2008 Recession

Post by Vonz90 » Sat Sep 15, 2018 6:03 pm

Langenator wrote:
Sat Sep 15, 2018 2:31 pm
I saw another article a day or two ago on the topic which placed much of the blame on the .gov for bailing out the first bank to run into trouble (Bear Stearns, IIRC), and then choosing not to bail out Lehman Brothers.

A contributing cause was housing speculation - people treating houses as investments (capital goods), instead of a place to sleep and store your stuff (consumption goods.)

But from this guy's view, the big cause was the .gov interfering with a normal, if nasty, market correction and the re-direction of resources from bad, inefficient uses to better, more efficient ones.
That is more when the chips started to fall, this has more to do with why they started falling in the first place.

Langenator
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Re: 2008 Recession

Post by Langenator » Sun Sep 16, 2018 1:23 pm

The .gov deciding to monkey around and be inconsistent about saving or not saving banks definitely came after the Fed screwing up (of course, screwing up is kind of what the Fed does - it's utterly horrible at it's stated mission of keeping the currency stable and inflation in check.)

But as you said yourself, housing prices had already started to fall - indicative that the bubble in that market, caused by people treating their houses as capital, rather than consumption, goods*, had already burst. And the bursting of that bubble was what got the banks in trouble.

*A house can be a capital good, if you use it to generate income by renting it out. It can't do that if you're living in it. Even making money by flipping houses, especially if you're doing upgrades in the process, is still treating it like a comsumptive good, not really any different from Saleen buying Mustangs, souping up the engine, and selling it for more money. (Buying a house, holding it for a short time, and then selling it again is just speculation, which is more akin to gambling than anything.)
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Vonz90
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Re: 2008 Recession

Post by Vonz90 » Sun Sep 16, 2018 6:38 pm

Langenator wrote:
Sun Sep 16, 2018 1:23 pm

But as you said yourself, housing prices had already started to fall - indicative that the bubble in that market, caused by people treating their houses as capital, rather than consumption, goods*, had already burst. And the bursting of that bubble was what got the banks in trouble.
The essence of the issue was that the Fed thought we were in an inflationary environment (primarily because of oil prices, but records indicate that they thought housing prices were still going up when we now know they were going down rapidly) which led them to tighten the money supply as we slipped into housing led recession. This turned a correction into a route.

Even when they realized they screwed up and tried to turn on the monetary supply via quantitative easing, they still kept the real interest rate unnaturally high which limited the impact of the easing.

The banks that got into trouble were in a bind precisely because they had to raise cash in a deflationary environment which was a big part of that whole thing.

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scipioafricanus
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Re: 2008 Recession

Post by scipioafricanus » Sun Sep 16, 2018 9:13 pm

Praeger U about Banks and 2008: https://youtu.be/GT1WqIkg9es
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Termite
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Re: 2008 Recession

Post by Termite » Tue Sep 25, 2018 10:06 am

A big part of it was banks making home loans to people who didn't qualify for them.
They were doing this for 2 reasons: #1, they were under pressure from the fed.gov to "help" minorities be home owners, and #2, when sketchy home loans are guaranteed by Uncle Sugar, bankers have little incentive to make sure the borrower can "tote the note" because taxpayers will bail out the bank.
"Life is a bitch. Shit happens. Adapt, improvise, and overcome. Acknowledge it, and move on."

Langenator
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Re: 2008 Recession

Post by Langenator » Tue Sep 25, 2018 12:18 pm

Termite wrote:
Tue Sep 25, 2018 10:06 am
A big part of it was banks making home loans to people who didn't qualify for them.
They were doing this for 2 reasons: #1, they were under pressure from the fed.gov to "help" minorities be home owners, and #2, when sketchy home loans are guaranteed by Uncle Sugar, bankers have little incentive to make sure the borrower can "tote the note" because taxpayers will bail out the bank.
A knock-on effect to the lowering of lending standards for the minorities who wouldn't normally qualify was that the standards got lowered across the board - so people who would have normally qualified for an "entry level" home loan were given access to much bigger loans. Couple that with low-initial rate ARMs and the "you can just refinance before the rate goes up - the market is always rising and you'll have lots of equity by then" prevailing 'wisdom' and you've got a recipe for disaster.
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blackeagle603
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Re: 2008 Recession

Post by blackeagle603 » Fri Sep 28, 2018 1:12 am

The Big Short was both illuminating and entertaining.
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Weetabix
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Re: 2008 Recession

Post by Weetabix » Fri Sep 28, 2018 3:16 pm

blackeagle603 wrote:
Fri Sep 28, 2018 1:12 am
The Big Short was both illuminating and entertaining.
I second that. It was certainly both.
Note to self: start reading sig lines. They're actually quite amusing. :D

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