What will prevent a future collapse of the banking system?

[PseuTonym]

In the absence of the TARP (Troubled Asset Relief Program) of 2008, what would have happened?

I imagine that many libertarians who opposed the bailout of the banks would claim that the resulting economic collapse wouldn’t have had serious negative consequences, or that there would somehow have been a quick recovery. On the other hand, some might have accepted that the consequences would have been very bad, and nevertheless said that we must accept those consequences.

Of course, it’s possible to blame the debacle on non-libertarian policies, and to advocate a major change to the system after the bailout, a change to move the system closer to compliance with libertarian principles.

However, what about people who aren’t libertarians? What is their solution to prevent a repeat of the near-collapse of the economy in 2008?

 

[ILoveYeshua]

I’ve heard it be said that the 2008 crash was caused by government intervention at around the turn of the millennium. The intervention was making it easier for people to take out mortgages, and thus significantly increased the demand for real estate. The high demand was reflected in the high price of homes leading up to the crash.
Once some trader realized that a particular mortgage was junk, he perhaps sold it for a low price, and that would have started a chain reaction of selling mortgages low which resulted in the crash in housing prices.
At least I think it’s how it goes…

 

[Mary_Estelle]

Unregulated lending and borrowing by the banks was a sorry mess of decect and greed. That really has never been resolved. Yes, it could happen all over again and probably will; just a matter of time. Save your nickels and dimes and get out of debt if you can. Being debt free is a freedom that few enjoy and not owing your soul to the government or banks is a spiritual richness. Peace.

 

[mikekle]

Greed is the ultimate problem here, but I cannot recall the last time I heard a homily that mentioned this sin, or the effect its having on this country and really the world, Ive never once heard the Pope or church mention it either, its almost like greed is accepted and even encouraged now.

From some of the things Ive read, the bond and credit markets are due for a major collapse, but the big banks know the Govt will bail them out should they get into trouble again, ‘too big to fail’ has become their motto.

 

[M-Dent]

The solution to preventing a repeat of 2008 is proper regulations and oversight. There is a balance that needs to be maintained. Too many regulations can stifle economic activity and too few allow high risk reckless behavior.

Greed is the ultimate problem here, but I cannot recall the last time I heard a homily that mentioned this sin, or the effect its having on this country and really the world, Ive never once heard the Pope or church mention it either, its almost like greed is accepted and even encouraged now.

There hasn’t been a Pope I recall since Pope John XXIII that hasn’t condemned economic greed and corruption. And it’s a theme that’s quite common in many parishes.

 

[o_mlly]

In the absence of the TARP (Troubled Asset Relief Program) of 2008, what would have happened?

I imagine that many libertarians who opposed the bailout of the banks would claim that the resulting economic collapse wouldn’t have had serious negative consequences, or that there would somehow have been a quick recovery. On the other hand, some might have accepted that the consequences would have been very bad, and nevertheless said that we must accept those consequences.

Of course, it’s possible to blame the debacle on non-libertarian policies, and to advocate a major change to the system after the bailout, a change to move the system closer to compliance with libertarian principles.

However, what about people who aren’t libertarians? What is their solution to prevent a repeat of the near-collapse of the economy in 2008?

The underlying problem is our banking system’s fractional reserve policy and deficit spending. The banks, not the Treasury, create and control our money supply. To fund the federal deficit, the Treasury sell bonds. In an unholy alliance, the banks buy those bonds from the Treasury with no cash – just an accounting entry – turn around and sell the bonds to the Federal Reserve for cash. Sweet deal.

The solution is to either balance the federal budget, eliminate fractional reserves, or have the Treasury fund federal deficits with fiat money instead of bonds. Get the banks out of the revolving door.

 

[Crusaderbear]

Banks need to reign in the greed and use common sense when wheeling and dealing, all bcause you can get people on the hook with low rate mortgages that you know will go up, doesn’t mean you should. Conservative banking practices will win the day.

 

[frobert]

In the absence of the TARP (Troubled Asset Relief Program) of 2008, what would have happened?

Many of the bankers bonuses would have been reduced . That’s the same bankers who were at the root of the problem to begin with.

 

[edwest2]

First, according to a professional mortgage lender who worked at a bank shortly before the intended collapse: “I realized the rules were gone. I was a top lender where I worked and people had to jump through hoops to get a mortgage. Suddenly, people who could barely afford to pay their minimum monthly credit card bill were getting approved.”

Second, those who put valuations on homes kept increasing them incrementally as if the sky was the limit. It wasn’t.

Then, some genius invented Credit Default Swaps. If you were an investor in debt, you didn’t just get mortgages, you got a salad filled with all kinds of different things. A few professionals tried to praise the idea.

It was not until the past year that banks and individuals got called on the carpet for their misdeeds, including misrepresentations. The banks were “expecting this” and fines, but zero jail time, were handed out.

Meanwhile, companies that had been in business for a very long time suddenly realized how “exposed” they were. It was their job to watch the markets but oops, one day they realized that for every dollar they actually held, they owed 23.

And then, someone at Ford Motor Company noticed some very unusual activity going on in the markets. She alerted others and monies were moved around and stocks were bought and mostly sold in a very short period. Then when the Big Three were talking about bankruptcy, one company avoided it.

Strange that the peasants had to bail out those deemed too big to fail. Families lost their homes because the contract says you owe us way more than what they’re worth now. Pay it or lose it. So, the housing market went into a rapid nose dive.

But it was worth. Those who were greedy knew that a certain amount of those getting mortgages would end up not being able to continue paying, but that didn’t matter since some would. Quick cash mattered more.

And those poor people on Wall Street had to suffer. They only got half of their usual Christmas bonus that year!! They would have to wait till next year to get that new Ferrari.

Ed

Nothing will prevent another planned collapse of the banking system. The Federal Reserve is a private national bank and they, not the government, print Federal Reserve IOUs, and make interest off of every dollar.

 

[animalis]

Our economy has too much dependence on financing. The financing in commerce, credit card debt amongst the consumers, and the current excessive rising of federal debt - produces a task that banks cannot handle.

I think the only solution is to decrease dependence on financing and move the economy into a basis of real money with real products, such as manufacturing.

 

[Whalljim]

Many of the bankers bonuses would have been reduced . That’s the same bankers who were at the root of the problem to begin with.

I’m not a banker, nor a finance guy, so take my opinion with that in mind.

I often wonder what would have happened had the banks taken the majority of the mortgages, and instead of writing a check directly to the bank just paid off the mortgages.

It seems the banks would be stabilized because they got their money. And people would be made better off because they have a real asset. The biggest problem might be preventing people from trying to flip houses quickly and inflation.

 

[frobert]

I’m not a banker, nor a finance guy, so take my opinion with that in mind.

I often wonder what would have happened had the banks taken the majority of the mortgages, and instead of writing a check directly to the bank just paid off the mortgages.

It seems the banks would be stabilized because they got their money. And people would be made better off because they have a real asset. The biggest problem might be preventing people from trying to flip houses quickly and inflation.

I am not a banker either. As I recall the reasoning, of both political parties, for not giving direct aide to the mortgagees was that it would a create moral hazard. It amazes me that moral hazard was never a consideration for FED backstopping the culprit banks for 13 trillion dollars and condoning the ubiquitous proven bank fraud, both prior to and during the aftermath of the crises. Taxpayers bailed out the banks and the banks said thank you by taking multi-million dollar bonuses from taxpayer money.

 

[reader124]

The same “conservatives” who scream “Bolshevism” at any attempt to aid the poor are just fine with giving tax payer money to bail out corporations. Reason why? Corporations make political donations. Poor people don’t.

 

[Whalljim]

"As I recall the reasoning, of both political parties, for not giving direct aide to the mortgagees was that it would a create moral hazard. "

If you recalled that correctly, that is awesomely ironic.