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In retrospect (as the housing prices have mostly recovered: http://www.doctorhousingbubble.com/wp-content/uploads/2013/01/united_states.png http://www.doctorhou

In retrospect (as the housing prices have mostly recovered: http://www.doctorhousingbubble.com/wp-content/uploads/2013/01/united_states.png http://www.doctorhousingbubble.com/wp-content/uploads/2013/0... ), the hosing crisis can be seen as an irrational bubble, with the major problem being that the banks were under-capitalized for the risk they were taking on. After several years of injecting capital into the banks for several years, they are fine. Arguably the banks didn't worry about the risk because they trusted the government would help them out.

norikki 9y ago
> the banks didn't worry about the risk because they trusted the government would help them out This is euphemistic for the banks stealing money from taxpayers through crony capitalism.
- Godel_unicode 9y ago
  You're aware that those taxpayers actually got a very good deal, right? Roughly 10% return on investment, we effectively just invested public funds in good companies at cheap prices. https://projects.propublica.org/bailout/ https://projects.propublica.org/bailout/
  - paulddraper 9y ago
    If it was such a fantastic deal, why wasn't someone else willing to step in and take it?
    - Godel_unicode 9y ago
      I did, and my portfolio is super happy about it. I cheerfully 'bailed out' Ford too.
      - thinkcontext 9y ago
        No, you bought after the crash. The relevant question is would you have sold an insurance policy before the crisis and been able to stay solvent through it.
        Godel_unicode 9y ago
        I'm not saying that I bought before the crash, neither did the government. I literally did exactly what the government did; bought shares of banks and automotive companies after the crash, at severely reduced prices, and held for a substantial gain. The government absolutely did not sell an insurance policy before the crash. Even if you're arguing that there was a guarantee that the banks would be bailed out, which argument has merit, the banks didn't pay for that guarantee. We did it for different reasons (I won't pretend I was either magnanimous or delusional enough to think my investment by itself would buoy the stock price enough to keep the companies alive) but the actual actions are the same. Edit: technically both the government and I bought during the crash rather than after; my ROI wishes I'd been better at calling the bottom, but that's life.
        thinkcontext 9y ago
        Buying stock was only a small part of what the government did for the finance industry. Guaranteeing money market funds, opening up the discount window, bailing out AIG and paying off counterparties at 100%, sinking $100B+ into Fannie and Freddie, etc. The government had essentially given the finance industry an insurance policy before the crash that paid off during the crash. And you are right, they didn't have to pay for it in money, perhaps its possible to argue that they paid for it in regulation. If the firms had had to buy such a policy on the open market what would the price have been?
    - nopzor 9y ago
      because at the time very few people had the guts to?
      - paulddraper 9y ago
        (1) I don't think it actually turned out great. (2) Even if it had, "it worked out" isn't a good justification for gambling with taxpayer money.
        Godel_unicode 9y ago
        What result would have met your test for worked out? Gambling with taxpayers money is a pretty good description of the job of government (will this transportation system get used (consider Detroit's highway system)? Are we encouraging business the right way? Will this law reduce crime?)
        paulddraper 9y ago
        Uncertainity about the usage of a hypothetical transportation system is qualitatively different than investing money to a company that has been mis-managed so badly it's going bankrupt.
        nopzor 9y ago
        re: (1), so you think it didn't turn out a hell of a lot better than most imagined?
    - ethan_g 9y ago
      Some people did, like Warren Buffett. https://qz.com/67052/heres-how-warren-buffett-made-3-1-billion-on-his-crisis-era-bet-on-goldman-sachs/ https://qz.com/67052/heres-how-warren-buffett-made-3-1-billi...
  - pasquinelli 9y ago
    what do i get from that return?
    - Godel_unicode 9y ago
      The Treasury has money which didn't come from taxes to spend on federal budget items...? Not sure what you're asking. And as a nice sweetner, you got a financial system which isn't a smoking ruin.
      - pasquinelli 9y ago
        so, military spending then, that's what i get. i ponied up actual cash which was lent to banks to cover them, but the return on those loans don't come back to me as actual cash. it goes to the federal budget, which is mostly military spending. it would've been better if the financial sector hadn't fucked up. it would be better if the financial sector wasn't protected--with my money--when it tries to make itself a smoking ruin. it should be protecting itself.
        Godel_unicode 9y ago
        You might want to look at a pie/donut chart of government spending. Mostly you got medic{are,aid} and social security. I think most people would agree that reducing the tax payer burden of those programs without reducing benefit is an objectively good thing. I don't disagree that the financial system should strive to be better, but during a crisis is definitely not the time to make that happen. https://www.cbo.gov/sites/default/files/cbofiles/images/pubs-images/50xxx/51110-Land_Overall.png https://www.cbo.gov/sites/default/files/cbofiles/images/pubs...
        pasquinelli 9y ago
        i know, but the subject was the return on the investment from bailing out the banks, but that return went to the federal budget, and the bailing out came out of people's pockets. it isn't comparing like for like at all.
  - ktRolster 9y ago
    That article is a little deceptive. It is mainly tracking TARP, it doesn't track the money injected into banks by other methods (like the FED directly buying subprime loans and manipulating the market). http://www.zerohedge.com/sites/default/files/images/user5/imageroot/von%20havenstein/Fed%20Balance%20Sheet%201.28.jpg http://www.zerohedge.com/sites/default/files/images/user5/im...
    - Godel_unicode 9y ago
      I totally disagree. The Fed isn't taxpayer's money (except maybe inasmuch as its actions effect the money supply). When people talk about "tax payer dollars" they are talking about funds the federal government has gotten directly from the people through taxes. That is exactly what TARP was.
  - yardie 9y ago
    QE is still a loan that needs to be paid back and we haven't nearly touched the principle.
  - ethan_g 9y ago
    I don't know why this was getting downvoted, because it's correct. All the banks repaid their TARP loans from the Fed at a significant profit (https://en.wikipedia.org/wiki/Troubled_Asset_Relief_Program https://en.wikipedia.org/wiki/Troubled_Asset_Relief_Program). Even QE, which is not a direct bailout but certainly helped banks' profits, was substantially profitable for the treasury the last I heard. (edit) Let me add, I was no fan of the bail-outs when they happened. But I can't deny they were, in retrospect, really profitable.

norikki 9y ago

> the banks didn't worry about the risk because they trusted the government would help them out This is euphemistic for the banks stealing money from taxpayers through crony capitalism.

Godel_unicode 9y ago
You're aware that those taxpayers actually got a very good deal, right? Roughly 10% return on investment, we effectively just invested public funds in good companies at cheap prices. https://projects.propublica.org/bailout/ https://projects.propublica.org/bailout/
- paulddraper 9y ago
  If it was such a fantastic deal, why wasn't someone else willing to step in and take it?
  - Godel_unicode 9y ago
    I did, and my portfolio is super happy about it. I cheerfully 'bailed out' Ford too.
    - thinkcontext 9y ago
      No, you bought after the crash. The relevant question is would you have sold an insurance policy before the crisis and been able to stay solvent through it.
      - Godel_unicode 9y ago
        I'm not saying that I bought before the crash, neither did the government. I literally did exactly what the government did; bought shares of banks and automotive companies after the crash, at severely reduced prices, and held for a substantial gain. The government absolutely did not sell an insurance policy before the crash. Even if you're arguing that there was a guarantee that the banks would be bailed out, which argument has merit, the banks didn't pay for that guarantee. We did it for different reasons (I won't pretend I was either magnanimous or delusional enough to think my investment by itself would buoy the stock price enough to keep the companies alive) but the actual actions are the same. Edit: technically both the government and I bought during the crash rather than after; my ROI wishes I'd been better at calling the bottom, but that's life.
        thinkcontext 9y ago
        Buying stock was only a small part of what the government did for the finance industry. Guaranteeing money market funds, opening up the discount window, bailing out AIG and paying off counterparties at 100%, sinking $100B+ into Fannie and Freddie, etc. The government had essentially given the finance industry an insurance policy before the crash that paid off during the crash. And you are right, they didn't have to pay for it in money, perhaps its possible to argue that they paid for it in regulation. If the firms had had to buy such a policy on the open market what would the price have been?
  - nopzor 9y ago
    because at the time very few people had the guts to?
    - paulddraper 9y ago
      (1) I don't think it actually turned out great. (2) Even if it had, "it worked out" isn't a good justification for gambling with taxpayer money.
      - Godel_unicode 9y ago
        What result would have met your test for worked out? Gambling with taxpayers money is a pretty good description of the job of government (will this transportation system get used (consider Detroit's highway system)? Are we encouraging business the right way? Will this law reduce crime?)
        paulddraper 9y ago
        Uncertainity about the usage of a hypothetical transportation system is qualitatively different than investing money to a company that has been mis-managed so badly it's going bankrupt.
      - nopzor 9y ago
        re: (1), so you think it didn't turn out a hell of a lot better than most imagined?
  - ethan_g 9y ago
    Some people did, like Warren Buffett. https://qz.com/67052/heres-how-warren-buffett-made-3-1-billion-on-his-crisis-era-bet-on-goldman-sachs/ https://qz.com/67052/heres-how-warren-buffett-made-3-1-billi...
- pasquinelli 9y ago
  what do i get from that return?
  - Godel_unicode 9y ago
    The Treasury has money which didn't come from taxes to spend on federal budget items...? Not sure what you're asking. And as a nice sweetner, you got a financial system which isn't a smoking ruin.
    - pasquinelli 9y ago
      so, military spending then, that's what i get. i ponied up actual cash which was lent to banks to cover them, but the return on those loans don't come back to me as actual cash. it goes to the federal budget, which is mostly military spending. it would've been better if the financial sector hadn't fucked up. it would be better if the financial sector wasn't protected--with my money--when it tries to make itself a smoking ruin. it should be protecting itself.
      - Godel_unicode 9y ago
        You might want to look at a pie/donut chart of government spending. Mostly you got medic{are,aid} and social security. I think most people would agree that reducing the tax payer burden of those programs without reducing benefit is an objectively good thing. I don't disagree that the financial system should strive to be better, but during a crisis is definitely not the time to make that happen. https://www.cbo.gov/sites/default/files/cbofiles/images/pubs-images/50xxx/51110-Land_Overall.png https://www.cbo.gov/sites/default/files/cbofiles/images/pubs...
        pasquinelli 9y ago
        i know, but the subject was the return on the investment from bailing out the banks, but that return went to the federal budget, and the bailing out came out of people's pockets. it isn't comparing like for like at all.
- ktRolster 9y ago
  That article is a little deceptive. It is mainly tracking TARP, it doesn't track the money injected into banks by other methods (like the FED directly buying subprime loans and manipulating the market). http://www.zerohedge.com/sites/default/files/images/user5/imageroot/von%20havenstein/Fed%20Balance%20Sheet%201.28.jpg http://www.zerohedge.com/sites/default/files/images/user5/im...
  - Godel_unicode 9y ago
    I totally disagree. The Fed isn't taxpayer's money (except maybe inasmuch as its actions effect the money supply). When people talk about "tax payer dollars" they are talking about funds the federal government has gotten directly from the people through taxes. That is exactly what TARP was.
- yardie 9y ago
  QE is still a loan that needs to be paid back and we haven't nearly touched the principle.
- ethan_g 9y ago
  I don't know why this was getting downvoted, because it's correct. All the banks repaid their TARP loans from the Fed at a significant profit (https://en.wikipedia.org/wiki/Troubled_Asset_Relief_Program https://en.wikipedia.org/wiki/Troubled_Asset_Relief_Program). Even QE, which is not a direct bailout but certainly helped banks' profits, was substantially profitable for the treasury the last I heard. (edit) Let me add, I was no fan of the bail-outs when they happened. But I can't deny they were, in retrospect, really profitable.