2009 Called…

Cidu Bill on Nov 6th 2017

2009.JPG

Filed in Bill Bickel, Harry Bliss, Lehman Brothers, comic strips, comics, humor | 18 responses so far

18 Responses to “2009 Called…”

  1. Terrence Feenstra Nov 6th 2017 at 08:00 am 1

    Hey, me too!

  2. Terrence Feenstra Nov 6th 2017 at 08:02 am 2

    Just kidding. I’ve always dressed like those guys. Haven’t had a tie around my neck since ‘97.

    Morning, Mona.

  3. Kilby Nov 6th 2017 at 08:34 am 3

    I don’t think this comic would have worked the same if it had been published that much closer to the incident. Sure, the mighty have fallen, it’s simply a question of how long it took them to hit rock bottom.

  4. Cidu Bill Nov 6th 2017 at 12:16 pm 4

    My figuring was that by 2009, Lehman Brothers employees would have been unemployed for a year. By 2017, if they’re still unemployed, there are probably more reasons than the fact that they’d worked for Lehman Brothers.

    And of course comic-wise, how many people in 2017 even remember Lehman Brothers?

  5. James Pollock Nov 6th 2017 at 12:22 pm 5

    The point being that they’re still unemployable TODAY, because people still remember the Great Recession, and who “caused” it.
    (Actually, the GR has its roots in the Gramm-Leach-Bliley Act, which was signed into law by President Clinton, and there are STILL people who think deregulation of the economy is a good idea.)

  6. Mona Nov 6th 2017 at 02:26 pm 6

    Hey, morning, Terry!

  7. Lord Flatulence Nov 6th 2017 at 07:16 pm 7

    Quit hogging the fire, guys!

  8. Usual John Nov 7th 2017 at 01:40 am 8

    Hey, an opportunity to go completely off topic and pontificate on something that is entirely irrelevant to the subject of this blog! But somebody is wrong on the Internet, so what can I do?

    James Pollock, the Gramm-Leach-Bliley Act is pretty small potatoes as a contributing cause of the Great Recession. In particular, its substantial repeal of the Glass-Steagall Act, while perhaps questionable as a policy matter, played no role in bringing on the recession. More problematic was a little-noticed change that made investment banks like Lehman Brothers not subject to net capital requirements. Still, this was probably less important than the exemption of swaps from CFTC oversight in the Commodity Futures Modernization Act of 2000.

    The biggest regulatory cause, however, was not legislative at all, but the willful nonfeasance of the Federal Reserve Board, which chose not to use existing authority to regulate the home mortgage market. Greenspan was lionized at the time, but in hindsight the recession bears his fingerprints.

  9. James Pollock Nov 7th 2017 at 03:31 am 9

    “the Gramm-Leach-Bliley Act is pretty small potatoes as a contributing cause of the Great Recession.”

    Right. Because banks that COULDN’T pass on bad loans to others would have set up their systems to reward writing lots of bad loans over fewer, but all good, loans, thus avoiding the crap-ton of bad loans that some (but not all) banks were writing.

    ideologically, there is one party that believes that all regulation is bad, because it costs them money to comply and (sometimes) keeps them from doing what they want to do. It is absolutely true that regulation costs money to comply with, and sometimes keeps people from doing what they want to do, but regulations are written to resolve specific problems, and without replacing the mechanisms that prevent those problems from returning, the problems will show up. Not soon enough to influence the next election, but eventually.

    Glass-Steagall kept the banks in their lane. The banks were limited in the risks they could undertake, and there were direct repercussions for banks that didn’t pay enough attention to banking fundamentals. (See, for example, the 1980’s S&L deregulation) But then, we got the idea to deregulate the banks, so they could generate more profits. It worked, for a short period, but then they decided they could make more money by loaning money, and then passing on the risk to other suckers. That worked, until they started running out of suckers.

  10. Usual John Nov 9th 2017 at 01:47 am 10

    That’s a largely accurate analysis, but the Glass-Steagall Act doesn’t have anything to do with it. Glass-Steagall limited (and to some extent still limits) affiliations between banks and nonbanking companies. Banks were able to resell their bad mortgage loans under Glass-Steagall, and they continued to be able to do so after its partial repeal.

  11. James Pollock Nov 9th 2017 at 05:25 am 11

    “That’s a largely accurate analysis, but the Glass-Steagall Act doesn’t have anything to do with it.”

    Glass-Steagall put Chinese walls between banks and other financial-services companies… Even though banks were affiliated with other financial-services providers… investment advisors, stockbrokers, insurance… the businesses had to be kept separate, with full paper trails on both sides. Any securitization of bank assets had to pass a smell test from both sides of the wall… a bank would not be able to rely on being able to securitize away bad loans.
    This limitation was imposed in the wake of the Great Depression, because a major problem people had was having their long-term investments (stocks) tied up in their short-term investments (bank deposits) such that a crisis in one (a stock-bubble bursting) led inescapably to a crisis in the other (runs on the bank that crashed over-leveraged banks).
    While Glass-Steagall was in effect, this forced separation help insulate the different sectors of the financial industry from each others’ misery (federal deposit insurance helped, too) and this helped prevent crises in on sector from doing long-term damage to the others. Other things led to the housing bubble, and other things led to the bursting bubble poisoning the entire financial system instead of just speculators who bet big and had unlucky timing. Some people can even point to some regulations that contributed to it (these same people tend to ignore the role DEregulation played, but yes, some regulations intended to fight redlining removed some of the checks on bad loans that would have limited the scope of the bubble.)

    But THE fundamental problem was agency cost. There was a whole layer of the banking industry who were compensated for the number of the loans they wrote, with insufficient checks on them to make sure the loans they were writing would/could actually be serviced. So, surprise! those people wrote a lot of loans that, it turned out, wouldn’t or couldn’t be serviced. That wasn’t a problem… property values only go up, so even if we wrote a bad mortgage, we come out owning property that can be sold for enough money to cover the bad loan, and all the costs of foreclosing on the bad loan, and all the costs of liquidating the property. Except… there’s only so many people who have nice, stable incomes sufficient to take out a new, higher mortgage, and eventually there isn’t anybody there to buy those properties at inflated prices any more. If it suddenly turns out that we CAN’T foreclose and cover the bad loan, foreclosure and liquidation costs any more… hey, that means we lose money on the deal. How many of these ARE there in our portfolio? Really, THAT many? Oh, crud. Well, it’s not our problem anymore, it’s the securities broker who sold the securitized mortgages. What’s that? Thanks to Gramm-Leach-Bliley, the securities broker who sold the securitized mortgages is part of the same bank? Uh… we’d better keep quiet about our doubts about the long-term value of those securities, then, hadn’t we? Fire up the paper shredders.
    But it turns out, emails can be subpeonaed as well as paper documents, and forensic examiners can pull old emails out of Exchange that everybody thought they’d deleted.

  12. Ted from Ft. Laud Nov 9th 2017 at 05:29 pm 12

    I’m a bit surprised that there hasn’t been more heat directed at the rating agencies (Moody’s and S&P) for declaring the marginal (or worse) paper to be fine, so facilitating the passing of the risk. And even if some of the behavior on the part of bankers, mortgage brokers, and rating agencies wasn’t strictly illegal (and some of it was illegal), it was clearly not ethical or in the interests of some of the “stakeholders”, just in their own interests. It is depressing to me that - even beyond the outright fraudsters that would ignore the legalities anyway - there apparently needs to be regulations to prevent all the rest of them from acting that way.

  13. Usual John Nov 10th 2017 at 07:32 pm 13

    James, mortgage loans are a traditional bank product, and banks could securitize them before the Gramm-Leach-Bliley Act. Thus, the Glass-Steagall Act provided no insulation. In fact, the biggest bank failure was Washington Mutual, which did not have a brokerage affiliate.

    Ted, you are right to focus on the credit rating agencies, which were key enablers of the excesses leading up to the recession.

  14. James Pollock Nov 10th 2017 at 08:17 pm 14

    “James, mortgage loans are a traditional bank product”

    Oh, they are? Wow, I had no idea…

    “Thus, the Glass-Steagall Act provided no insulation.”
    So, you’re going to continue to ignore the actual point offered? OK.

  15. Usual John Nov 11th 2017 at 10:34 am 15

    I have no idea what you think your point is. But as someone who worked in the legal department of a large bank prior to the passage of the Gramm-Leach-Bliley Act, supporting its investment advisory, brokerage, and insurance businesses, I assure you that the separation of these businesses was not as great as you describe.

  16. Kilby Nov 11th 2017 at 05:47 pm 16

    @ Usual John (15) - I’m not about to read the item referred to, for it usually only leads to irritation and heartburn, but the general strategy is normally to change the agenda or misinterpret previous comments, in the search of an opening that will permit some sort of artificial legalistic triumpf. This may be enormously successful in a court of law, but it is a lousy basis for civilized human discourse. In some cases ignorance is bliss.

  17. Lola Nov 11th 2017 at 10:03 pm 17

    We actually bought some of their fixtures when they closed, so this was a, well, not a haha, but, a yeah, right.

  18. James Pollock Nov 12th 2017 at 07:10 am 18

    “as someone who worked in the legal department of a large bank prior to the passage of the Gramm-Leach-Bliley Act, supporting its investment advisory, brokerage, and insurance businesses, I assure you that the separation of these businesses was not as great as you describe.”

    They were in the one *I* worked in.
    How did yours fare in the Great Recession?

    ” I’m not about to read the item referred to”
    Fine. Will that choice ALSO affect your choice of whether or not to comment on it? No? Carry on, then. I am positively certain that any such comment will be chock-full of insightful analysis and not at all just a lazy, personal attack!

    “In some cases ignorance is bliss.”
    Perhaps. But in all cases, ignorance is ignorance.

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