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View Diary: Did Bill Clinton Cause the Financial Crisis? (74 comments)

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  •  Simple one-source models of causality (8+ / 0-)

    contribute little to serious discussion of complex issues.

    This much said, Clinton did nothing to prevent the crisis, and did quite a bit to help it along.

    Dogs from the street can have all the desirable qualities that one could want from pet dogs. Most adopted stray dogs are usually humble and exceptionally faithful to their owners as if they are grateful for this kindness. -- H.M. Bhumibol Adulyadej

    by corvo on Fri May 09, 2014 at 05:07:33 AM PDT

    •  Go beyond the abstract statement (0+ / 0-)

      you made and let's go to the specifics.

      I could be wrong - show me.

      Best Scientist Ever Predicts Bacon Will Be Element 119 On The Periodic Table

      by dov12348 on Fri May 09, 2014 at 05:10:11 AM PDT

      [ Parent ]

      •  You are absolutely wrong (11+ / 0-)

        For one thing.  The financial crisis was global.  It was not due to the single repeal of a US law.

        It was a systemic failure and there were many people involved in its failure.

        For two, the things Glass-Steagal prevented were not the actual cause of the crisis.  Even with Glass-Steagal repealed, there were plenty of regulations on the books that could have prevented the crisis if the regulators were acting.

        So much of what you posted is wrong.

        Bill Clinton was arguably the major force behind the repeal of Glass-Steagall, now allowing commercial banks to package and sell mortages to the big investment banks.  So commercial banks were no longer responsible for their mortgages. So they would loan without credit checks because they could get rid of the bad loans this caused......
        A.  Bill Clinton was not the major force behind the repeal, it was the capstone of a deregulation campaign by politicians and economists that was ongoing for two decades.  Yes, Clinton was the guy in charge and didn't veto it, but he was pushing like Phil Gramm was.  He was also advised by Bob Rubin who I would give more blame than Clinton. Clinton was at the end of the line, not the starting line.

        B.Banks had been packaged their mortgages for years before Clinton.  This is simply false.  This started in the 1970's  One of the actual instruments of the crisis, the collateralized debt Obligation was created in the late 80's.  The problem with the crisis was that these packages got worse and worse.

        C.  Commercial banks were not the problem. Virtually all subprime lenders were not commercial banks, they didn't take deposits.  They were mortgage orignators like The Money Store or Countrywide who got their money from Wall Street.  They could take more risk because people on Wall Street were willing to buy their loans with no questions asked. Bill Clinton didn't force anyone on Wall Street to do this.  They did it because for a while it was immensely profitable to do so.

        D.  You finally get to one of the actual causes of the problem when you say The credit ratings agencies found these deals impossible to evaluate so they made up ratings.
        What you are describing is fraud on behalf of the ratings agencies and it has nothing to do with Bill Clinton.  If they found something impossible to evaluate, they should indicate they can't give it a rating.  This has to do with the perverse incentive that the Wall Street banks creating CDOs paid the bills of the ratings agencies and thus had enormous leverage on the agencies.  

        CDO's were a lot easier to rate when they first came out, because there was like three levels of them.  By the time the crisis happened, there were like 16 levels of them with some CDO's not even based on actual mortgages, but made up a pieces of the CDO's.  This was driven by Wall Street "quants" and cheap computing power.

        Again like I said before the packaging of the CDO's got worse, subprime lenders starting create crazy never seen before loans with a lot of risk, Wall Street piled them high and sliced them six ways to Sunday and the ratings agencies said one of these slices was AAA rated or virtually risk-free.  It was this blessing of the ratings agencies that was the biggest factor in the crisis.  There was a mispricing of risk throughout the system.  Because now banks and corporations could take the AAA rated instruments and use them as collateral to borrow even more and they did.  Look up Shadow Banking.    When the crisis happened, it affected companies that weren't involved in mortgages like GE.  This because the markets bought so much AAA paper that now was not worth AAA and then borrowed more on top of it that high risk was now every where in the financial system.

        Read the book All the Devils Are Here.  There was a lot more than one cause or one person who caused this crisis.  Greenspan had way more to do with it than Clinton.  Clinton's blame lies in being persuaded by Greenspan and others.  The decision not to regulate CDOs and other derivatives in the law that replaced Glass Steagal was a much bigger cause of the crisis.  That however, was a separate decision though.  Clinton listened to Greenspans and Rubin here too.  

        •  I appreciate your input. (0+ / 0-)

          As much of it goes against the grain of a lot of what I've read I'll have to to some more research.

          I'm not saying Clinton did this deliberately, knowing the consequences.  Outside of a few individuals who actually predicted this, no one saw through this whole thing, as far as I know.

          Best Scientist Ever Predicts Bacon Will Be Element 119 On The Periodic Table

          by dov12348 on Fri May 09, 2014 at 08:51:35 AM PDT

          [ Parent ]

          •  it wasn't even Clinton (0+ / 0-)

            Republican legislation passed by a Republican congress.

            -You want to change the system, run for office.

            by Deep Texan on Fri May 09, 2014 at 11:36:12 AM PDT

            [ Parent ]

          •  You can start your research with FCIC report (0+ / 0-)

            If you serious about being openminded on this, the Financial Crisis Inquiry Commission Report is well done and good read.

            A couple of things that I didn't know when I first started to read about this was

            A.  You can make a lot of money in fees by making risky loans. Crazy amounts of money.
            Especially, when the loans are super cheap for the first two years due to teaser rates.  You make even more money when in two years those people have to refinance and pay you more fees.

            B.  The crisis was about a massive mispricing of risk. Because the ratings agencies place AAA ratings on these instruments, lot of folks just stopped thinking.  Particularly certain banks in Germany.  Some folks saw through these triple AAA ratings and wanted to take the other side of the bet.  They convinced Wall Street to sell them credit default swaps, insurance, basically on these instruments defaulting.  They priced these CDS waaaaaaaaaaaaaaaaaaaaaaaaaaay too low, because they didn't understand the risk.  This is what brought AIG down.  Risk kept building up in the system all over the place.

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