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Ryan,You make another good point along these lines.Look, I can guaranty you, if Black was Attorney General, you wouldn't have to write your comment here. He is a true believer in the righteous authority of civil government.That said, you are entirely correct about the current crew. They have completely surrendered the authority that they have obtained. It is hard to understand why they do this; but it goes right on up to Bush/Obama.They (politicians) seek the authority and then once they get it they surrender it immediately, it's irrational.I'd be the last one to give any ersatz regulator any credit, but even I think Black deserves much credit here.Another thing I've noticed about Black here; he has made it to 100% in MMT paradigm. He has had a breakthrough this year (someone at UMKC must have had a focused sit down with him this year on this).He "gets it".Resp,
Ryan, Bill did not address that this post but he has in many others. As he says in this post, the FBI was warning about fraud in 2005. Who were they warming. The people in charge of regulation and oversight. The chief regulator, the Fed and operationally, the Chairman, blew it off.Bill Black was a regulator. He understand regulation and oversight, and also the abject absence of it in the lead up to the GFC. In this post, however, he is addressing a specific objection that borrowers were chiefly responsible for the lie, pointing out that, no, it was the lenders.Bill's work in that area is voluminous and he only touched lightly on a couple of areas in this post. I recommend reading everything he writes for a comprehensive overview of what went down and what did not.
I deleted my criticism. My railing against the regulators is getting a bit repetitive.
Ryan,FWIW it is right on the mark imo...Resp,
Also relevantFrom Global Economic Intersection – Pre-Crisis Leverage Effectively Reached 3,000:1This was based on this article from The Political Commentator – Guest Post: 3,000 TIMES LEVERAGE…HIDDEN – the single handed cause of the housing (price and overbuilding) bubbles and financial crisis…Quote:TBTF banks, before 2008, created a hidden/secret “market” for Mortgage-Backed-Securities (MBS ): 1. As stated above TBTF banks changed from financial intermediaries to non-intermediaries via turning their prop trading units into speculators. 2. They hid (the FDIC used the word concealed) trillions of MBS off their balance sheet. 3. They allowed their own internal prop traders to value #2 (MBS) above all else (legal under the SEC’s 2004 CSE program), despite the fact that few, if any, of them had EVER seen the light of a "market" trade - one between arms-length parties. 4. Why? To maximize those SAME prop traders’, managers’ and CEOs’ cash bonus checks. 5. All based on the assumption (an almost religious belief) that national median home prices had NEVER gone down. (Which was actually true, as you may recall.) 6. But the past had operated under a 60 times house financing leverage regime (20% down payments, verified job, income assets and 12 times leverage on bank balance sheet). 7. TBTF banks single-handedly created 3,000 times leverage on house prices, the underlying collateral of any MBS and/or further derivative. 8. 3,000 times leverage is the product of zero-down loans; 100 times leverage for the borrower multiplied by 30 or more times leverage from on and off the balance sheets of TBTF banks. 9. J. Kyle Bass, Managing Partner at Hayman Advisors, testified before the FCIC in January 2010 that almost all leverage at TBTF banks at the end of 2007 – yes, end of 2007 (here - see page 13) – was over 30 times, with Citigroup at 68 times leverage; which meant an adverse swing (in the value of the underlying collateral) of as little as 1.5% could wipe them out completely – insolvent. 10. And we know that leverage worsened IN 2008… and we know from Goldman’s collateral call dispute with AIG that MBS marks (not even collateralized-debt-obligations - CDO’s) were south of 90… 11. It’s not about Fannie or Freddie either - they were downstream of information from the TBTF banks. Again, TBTF banks held trillions of MBS, in secret OFF balance sheet vehicles. I’m not saying it was necessarily illegal, but it was fraudulent; as it was knowing, willful and intentional. It only went on as long as it did BECAUSE they were hidden.Along the way EVERY mortgage borrower was defrauded due to the concealment of TBTF banks, and also every other party connected to mortgage borrowers - including real estate agents, appraisers, mortgage brokers, some originators, home builders, developers, cities, states, and I believe the ratings agencies.
Tom,My comment can now be read at New Economic Perspectives. Blogger does not seem to like long links!
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