Why did the banks need a bailout?

[squerly]

I'm far from the most educated individual on this forum and there is a whole lot of discussions that are way over my head. But I'm working on this and todays quest is to try and understand what got the banking industry in such a mess.

On the surface it appears that money was loaned (mostly for housing purchases) to individuals that were unable to pay it back. So many loans were made that the banks found themselves in an insolvent position when the loans started to default.

Is it all this simple? Or was (is) there another contributing factor that I'm overlooking?

 

[muleman]

That is a small part of it. They also allowed the banks to be gamblers by bundling and selling those mortgages as bogus stocks and making money coming and going. The fund managers made a killing and promptly departed with it. This left the many greedy fund managers holding the bag which trickled down to the pension funds and little guys 401K plans. In the end the banks got saved by the government and we got shafted twice.

 

[squerly]

The fund managers made a killing and promptly departed with it.

No joking intended, where did they go with it? Surely they didn't just put it in their pocket and leave town. And why did it get this far anyhow? I would have assumed the "toxic" loans were the loans that were made without the 20% required down payment, and therefore would have required PMI. So if the loans were covered by PMI, why would the banks be upside down?

 

[waybomb]

No joking intended, where did they go with it? Surely they didn't just put it in their pocket and leave town. And why did it get this far anyhow? I would have assumed the "toxic" loans were the loans that were made without the 20% required down payment, and therefore would have required PMI. So if the loans were covered by PMI, why would the banks be upside down?

Were record years for Lambos, Ferrari's, yachts, etc. Maybe that's where it went?

A toxic loan does not need to be anything less than 20% down; it's a man-made number. There are plenty of people out there very well qualified to lend millions to with no collateral at all.

It's when all you need for a loan is to say you make 100k a year with no proof. And the govt telling the banks that the banks must book the loan or be sued for being discriminatory.

And then the banks look elsewhere for some guarantee and get caught up with default swaps (unbacked insurance).

PMI ran out of money a long time ago. I have no idea what the numbers really are, but I would guess PMI rates assumed a default rate of 2-5%, but in the height of the fall, defaults were probably around 25%. Broke faster than in Vegas playing slots.

 

[grizzer]

Suffice to say there was too much money chasing too few deals & the bankers started manufacturing money with no oversite to collect more commissions.

The SEC was busy watching porn on their computers all day, every day, and nobody was fired.

A place to read is www.zerohedge.com the games continue today.

 

[300 H and H]

Grizzer,

I quote,

"too much money chasing too few deals"

Definition of a "bubble"?

If so to bad I cann't short the Ag land market....

It's a big bubble in the heartland

Regards, Kirk

 

[300 H and H]

Waybomb could you explain in more detail what this means?

And then the banks look elsewhere for some guarantee and get caught up with default swaps (unbacked insurance).

Were banks or lenders aways able to do this? If not when did it become possible?

I have a feeling it is the BIG resaon for squrely's question, maybe...

Thanks, Kirk

 

[jpr62902]

Waybomb could you explain in more detail what this means?

And then the banks look elsewhere for some guarantee and get caught up with default swaps (unbacked insurance).

Were banks or lenders aways able to do this? If not when did it become possible?

I have a feeling it is the BIG resaon for squrely's question, maybe...

Thanks, Kirk

No, they weren't. Part of the Glass-Steagall Act was repealed in the 90's. Prior to that, a bank was either an investment bank (buying securites\stocks) or a commercial bank (where you have your savings account). When the repeal allowed these two types of banks to merge, the bastards went crazy with depositors' moolah, investing in all kinds of wild stuff, including toxic mortgage backed securites, derivatives, etc. When the bottom fell out in 2008, TARP was born.

 

[300 H and H]

BINGO!

And BOTH parties democrat and repulican voted for the change. That was 1999, by the way. This was the go ahead for the Central Banksters IMHO

Regards, Kirk

 

[300 H and H]

Oh yea almost forgot, As I understand it the "over the counter exchange market" IE derivatives...Was created by circumventing Federal GAMBLING LAWS to allow it....Aint that a stinker?

Regards, Kirk

 

[Kane]

No, they weren't. Part of the Glass-Steagall Act was repealed in the 90's. Prior to that, a bank was either an investment bank (buying securitesstocks) or a commercial bank (where you have your savings account). When the repeal allowed these two types of banks to merge, the bastards went crazy with depositors' moolah, investing in all kinds of wild stuff, including toxic mortgage backed securites, derivatives, etc. When the bottom fell out in 2008, TARP was born.

This is surely the beginning, the root of it all. Couple this with government-mandated lending to anyone and everyone, the fact that mortgage losses by most every bank were ultimately re-insured thru AIG, the obscenely corrupt compensation structure (regardless of risk) rife throughout the banking industry, all in a system where the reward is privatized while the risk is socialized .... then sooner than later

POP!

Bend over taxpayer. The Banksters stay rich and Granny gonna' eat cat food.

.