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Author: qazulight Big gold star, 5000 posts Top Recommended Fools Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 464958  
Subject: Banking Crisis cycles Date: 10/8/2012 10:00 AM
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We have been seeing posts about the causes of banking crisis. Most have settled on the idea that bankers are greedy and stupid and need to be regulated, or bankers are greedy and smart and they will run to the next crisis in spite of the regulators.

There are a few who say the regulators are the problem.

I submit that banking crisis are a symptom of normal economic cycles and that the troubles are not causes be evil people so much as that they are caused by people being human.

If you go back, (and this is based on the memory of a short post a long time ago so feel free to correct the history,)to shortly after the turn of the 20th century you had an economic system based on the horse. The horse needed grain. Farmers produced grain. When the automobile came out, the demand for grain fell, and the underlying value of the loans made to purchase farm land fell. Thus a banking crisis.

These technological changes ripple through out society changing what is valuable to worthless, and what is worthless to valuable. The problem with bankers is that they make loans on what has been proven to be safe. Unfortunately, what is safe of necessity changes as one wealth generator fails and gives way to another.

We marvel at the failure of Detroit. Many wag their heads and say "Oh it was the corruption." others say "It was the unions." I say it didn't matter. Detroit grew and prospered with unions and corruption. The problem is not that Detroit is made up of bad people, the problem is that the technology and business ideas that made Detroit, ceased to be the wealth generators that they were.

When you look back a the the 1970's and 80's you can see the baton of wealth creation being handed off from the old line manufacturers to the "technology" companies on the West Coast. With Facebook being the latest and greatest technology company now, why would you wonder about the falling real estate values in California? I hear people bleating about the high taxes and high regulation in California, BAH! HUMBUG! There were high taxes and high regulation when Silicon Valley got its start. No the problem with California is: the wealth generators is finished and the baton is being handed off to something else.

These transfers of power between technologies and localities always cause upheavals in the banking industry,it is almost a requirement because banking is a backward looking industry.

Finally, one more thing. The U.S. has been the wealth creator in the world for our lifetimes. There is no reason to think that this is a fixed thing. That the U.S. is GOD's country, or that our Democracy, or religion, or form of commerce is the beginning and the end wealth creation. Just like wealth creation gets handed from technology to technology, wealth creation gets handed from society to society.

As investors, we should not focus on what was, rather attempt to find what will be and buy into it.

Cheers
Qazuilight
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Author: goofnoff Big funky green star, 20000 posts Top Recommended Fools Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 405556 of 464958
Subject: Re: Banking Crisis cycles Date: 10/8/2012 1:15 PM
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I submit that banking crisis are a symptom of normal economic cycles

I think that is absolute garbage.

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Author: qazulight Big gold star, 5000 posts Top Recommended Fools Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 405557 of 464958
Subject: Re: Banking Crisis cycles Date: 10/8/2012 1:23 PM
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I think that is absolute garbage.

Ok, care to say why?

I made my case, I even pointed out an unresearched premise. I know it is weak, but I think it will take a little more than an emphatic statement to refute it.

Cheers
Qazulight

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Author: karenlj Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 405573 of 464958
Subject: Re: Banking Crisis cycles Date: 10/8/2012 6:00 PM
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I think that is absolute garbage.
___________________________

Ok, care to say why?



Listen and learn:

http://www.youtube.com/watch?v=gVqb73f8Vmg

http://seekingalpha.com/article/186141-elizabeth-warren-expl...

Karen

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Author: RaptorD2 Big gold star, 5000 posts Top Favorite Fools Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 405578 of 464958
Subject: Re: Banking Crisis cycles Date: 10/8/2012 6:36 PM
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I call foul. Someone has to do it. Qaz, old friend, are you okay? I always enjoy your posts but this time you went completely off the rails. but ... Hmm ... 437 recs so far; maybe it's me that woke up off the rails. :)

Let's find out, shall we?
____

I submit that banking crisis are a symptom of normal economic cycles and that the troubles are not causes be evil people so much as that they are caused by people being human.

I submit that this crisis was caused by greed, corruption and lack of proper regulation. The mortgage originators and banks KNEW without doubt that they were making bad loans which blows your theory to smithereens.
____

When the automobile came out, the demand for grain fell, and the underlying value of the loans made to purchase farm land fell. Thus a banking crisis.

I submit that this is way, way different. The industry in question is the very banking industry itself. Not hardly the same thing, methinks.
____


The problem with bankers is that they make loans on what has been proven to be safe.

Wow. Where in the heck did you come up with that one, my friend? The mortgage originators and banks KNEW without doubt that they were making bad loans. That isn't just 'people being people' in my book.
____


...the problem is that the technology and business ideas that made Detroit, ceased to be the wealth generators that they were.

I think you're dead wrong. I think the auto industry shot itself in the foot, and maybe, just maybe, the employees' unions had a small hand in the failure? I'm not blaming them, mind you; I'm just disputing your theory with a few thoughts I suspect you have overlooked. And, uh, the last time I looked, the automakers were making record profits once again, just a few short years after they went, according to you, the way of the horse and tyrannosaurus rex. I wonder, just how does that plug into your theory?
____


With Facebook being the latest and greatest technology company now, why would you wonder about the falling real estate values in California?

What the heck does that mean? Tech is now outdated? No longer profitable? Perhaps we should step back and look at the biggest corps in the world and see what they do? And if tech is dead, don't tell the Apple Fan Boi's Club! :) I posit that California real estate and politics are unquestionably crazy. How's that for scientific? :)
____


I hear people bleating about the high taxes and high regulation in California, BAH! HUMBUG! There were high taxes and high regulation when Silicon Valley got its start.

BAH! I call BULL$HIT! I opine once again that California real estate and politics are unquestionably crazy. (Maybe the voters too.) :) Which has nothing whatsoever to do with regulations for Silicon Valley.
____


No the problem with California is: the wealth generators is finished and the baton is being handed off to something else.

What wealth generators? Tech? Or, Real Estate? If the latter, what do you expect would happen when Mexico moved its citizens to California to pick crops for less than minimum wage? Should house prices double again because of the trend? (Apologies to my Hispanic friends, who know darned well exactly what I mean and whom I trust would agree in spirit.) Again, this has nothing to do with your purported theory.
____


These transfers of power between technologies and localities always cause upheavals in the banking industry,it is almost a requirement because banking is a backward looking industry.

Once again, the industry in question is not just affected by the crisis, they were the crisis! Surely we can agree on that? I guess not, you think it's a case of 'people being people.' That's tough to swallow, friend.
____


Just like wealth creation gets handed from technology to technology, wealth creation gets handed from society to society.

You just don't see the world the way I do, and that's fine. I see it as the financiers trying to take ALL the chips in the game and not only that; they also believe they are ENTITLED to them. ARGH! People being people? I don't want to live on that planet.
____


As investors, we should not focus on what was, rather attempt to find what will be and buy into it.

Wonder of wonders, I agree! Since that is the nut of the argument, I have to tell you I totally missed out on what the next big thing will be. Please remind me. I have tons of cash in ports now, so ... What was it, again?
____


You know I luv ya, man, but you simply must come up from the Rabbit Hole to reality before you post next time. You know, like you usually do. :)

Dan

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Author: warrl Big funky green star, 20000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 405580 of 464958
Subject: Re: Banking Crisis cycles Date: 10/8/2012 6:52 PM
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The problem with bankers is that they make loans on what has been proven to be safe.

Wow. Where in the heck did you come up with that one, my friend? The mortgage originators and banks KNEW without doubt that they were making bad loans. That isn't just 'people being people' in my book.


You're both right.

The banks - or to be more precise, the bank executives - make loans on what they know to be safe... for them.

The banks were making loans that they knew to be bad... for whoever ended up owning the actual stream of payments.

The government demanded that banks make bad loans, and helped arrange things so that these loans would be safe for the bank executives.

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Author: jgc123 Big gold star, 5000 posts Top Recommended Fools Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 405581 of 464958
Subject: Re: Banking Crisis cycles Date: 10/8/2012 7:06 PM
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warrl: "The government demanded that banks make bad loans, and helped arrange things so that these loans would be safe for the bank executives. "

I continue to disagree.

The majority of the bad loans were the result of the deal cut by * with a * Congress to repeal Glass-Steagall. Blaming the CRA for the bad loans which comprised a small percentage of the total continues to be a false claim no matter how many times y'all repeat it.

The primary problem was regulatory capture of the * party in Congress, not the deal cut by * add CRA to the repeal of Glass-Steagall.

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Author: tim443 Big funky green star, 20000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 405583 of 464958
Subject: Re: Banking Crisis cycles Date: 10/8/2012 7:20 PM
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You're both right.

The banks - or to be more precise, the bank executives - make loans on what they know to be safe... for them.

The banks were making loans that they knew to be bad... for whoever ended up owning the actual stream of payments.



warrl,

Lock the door and mark the calendar for once we mostly agree. I'm not sure about the government's part in it as it is hard to force people to do what they already want to do?

Had the banks been force to hold on to the mortgages or at least a good percentage of them much of the mortgage disaster would not have happened... but of course the massive housing bubble would probably not have happened either. This is of course one of the reasons I never bought into a similar housing crash in Canada. Our banks do hang on to the mortgages.

They also hang on to corporate loans which is why I enjoyed so much getting a peek inside the corporate loans world last week. Banker lady was two doors down the hall (in a very nice hotel next to the CN tower in Toronto) while we took care of the little guys. Some interesting stuff that started out being an excuse to go to Toronto to meet her support staff but ended up including two deals closed with relatively small tech companies (total just under a $billion) and another "emergency" conference call with a large US tech company that needs a lot of money quick.

Tim

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Author: qazulight Big gold star, 5000 posts Top Recommended Fools Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 405585 of 464958
Subject: Re: Banking Crisis cycles Date: 10/8/2012 7:43 PM
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Great response Dan!

Mostly I agree with you, and I want perp walks as much as you do. However, lets look a little closer.

Once again, the industry in question is not just affected by the crisis, they were the crisis! Surely we can agree on that?

You said the the banking industry was the crisis. Of course the banking industry was the crisis. They dropped the ball! They thought that what was would continue to be. Or, at least they sold that bill of goods to investors and regulators and law makers.

So, while the banking industry world wide went into a crisis, and I don't think it will be the last, the trigger was the shifting of the economy under the bankers, or banksters feet.

Remember the S&L crisis. I don't. I really don't, even though I was in the nexus of the storm. In 1986 I was working in the oil fields in Houston. (Actually communications on and offshore but based out of Texas City)

I remember talking with my father when I was in high school, circa 1978, he was telling me to buy land in South East Texas, we had never seen land go down in value, even in the great depression there were jobs in Southeast Texas because of the oil and refineries.

Yet in 1986, I drove down to the gates of those same refineries to try to sell a few trinkets to the guys coming out. Anything to pay for diapers you know. I drove down the old main street of Port Arthur to the refineries past blank blinking lights and empty store fronts.

The S&L crisis was inevitable. It could have been less bad, in fact it would have been less bad if the powers that were had not tried to get one last puff out of the dying economy of more expensive oil.

In the same way our national regulators tried the same trick with the big banks. When the economy started sputtering in the late 1990's the regulators were lured into trying to prop it up with deregulation.

http://www.openthegovernment.org/sites/default/files/otg/der...

So, while I can agree with you that we had a banking crisis, and I believe, (For what it is worth) that Glass-Steagall would have lessened the impact, the banks would have still had massive problems, because the drivers of wealth creation have reached an end and they have to be replaced.

And, uh, the last time I looked, the automakers were making record profits once again, just a few short years after they went, according to you, the way of the horse and tyrannosaurus rex. I wonder, just how does that plug into your theory?


Which brings me to this statement. While the automobile industry is making money, it is not creating excess wealth.

From my stand point on the Gulf Coast. We had found all the oil and all the gas in 1978. All of it. The Gulf of Mexico was done for, and our cars were as modern as they could be, heck, my 15 MPG Cordoba even had an electronic ignition. (It was a SCR activated by a magnet) Just a few year later, the WINTEL environment left room for niche players to build models to perform 3-D seismograph. And wadduya know! There was a lot more oil and gas in the Gulf than we thought. In fact in the late 1990's I worked communications on a rig in Galveston Bay, that hit one of the biggest gas finds of the century.

Just a few years after the piece of junk Cordoba was retired to the razor blade factory, I owned more powerful car that got 25 MPG, thanks to real computer based fuel injection. So, while Microsoft and Intel made money they also drove wealth throughout the economy. Facebook doesn't do that. (To a great extent I think Apple does)

However, even Apple is now getting to the point that all the wealth that Apple is creating is being captured by Apple. This is not enough to drive a 20 year healthy economic expansion and it will not drive the same kinds of wealth that the banks loaned money against.

Wonder of wonders, I agree! Since that is the nut of the argument, I have to tell you I totally missed out on what the next big thing will be. Please remind me. I have tons of cash in ports now, so ... What was it, again?

Well, dang! If I knew I wouldn't be driving a Ford One ton around East Texas! However, I do have a strategy. You might not like it though.

As I believe that one day the loose money driving the stock market will dry up. I am keeping some cash handy to buy in the panic.

Second since I have a pretty accurate record of being dead wrong on timing, I am buying companies that make money and pay me to use my money, and I do it every couple of weeks.

I believe that we do not need to know what the next big thing is, we only need to know the companies that make money and see that the money that they make gets back to the owners of the company. The excess wealth will be captured by the owner of those companies.

I remember in 1983 I was looking at buying my first computer. (I did not buy one until 1987) I was enamored with the Osborne. I am sure that if I had any money I would have invested with Mr. Osborne.

http://en.wikipedia.org/wiki/Osborne_1

And not with MicroSoft.

However, from 1980 to 1999, an investment in a S&P index fund would have returned 1000%. Unfortunately I am not even confident which continent to invest in, much less which sector or company.

Cheers
Qazulight

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Author: Dwdonhoff Big gold star, 5000 posts Top Favorite Fools Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 405590 of 464958
Subject: Re: Banking Crisis cycles Date: 10/8/2012 8:23 PM
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Hi Dan,

Let's rip a bit deeper into smithereens...

I submit that this crisis was caused by greed, corruption
True enough... not only industrywide, but regulatorwide.

and lack of proper regulation.
*AND* an over-abundance of crap regulation.

The mortgage originators and banks KNEW without doubt that they were making bad loans which blows your theory to smithereens.

There are two categories of "originators";
A) retail (fiduciary responsibility to the banks,)
B) Brokers (fiduciary responsibility to the borrowers.)

Brokers are not legally authorized to issue credit denials, only the lenders are. Brokers do not design the loan product guidelines, only the lenders do.

When a prospective borrower shows up to apply for a loan at a broker, the broker cannot legally decline the applicant's loan because the broker has some emotional judgment about the applicant's capability. A broker must apply the standards of the known available loan guidelines, and submit the applicant's file to the best known solution available among the portfolio of lender relationships the broker iscontracted with.

Originators may have had *SUSPICIONS* about whether loan terms were really healthy lnog-term (I certainly did,) but they did NOT have the legal authority to turn down applicants who qualified simply because the broker didn't personally like the terms a lender may actually offer.

... and *THAT* blows *YOUR* theory to smithereens.

Dave Donhoff
Leverage Planner

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Author: qazulight Big gold star, 5000 posts Top Recommended Fools Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 405591 of 464958
Subject: Re: Banking Crisis cycles Date: 10/8/2012 8:27 PM
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The majority of the bad loans were the result of the deal cut by * with a * Congress to repeal Glass-Steagall. Blaming the CRA for the bad loans which comprised a small percentage of the total continues to be a false claim no matter how many times y'all repeat it.

The primary problem was regulatory capture of the * party in Congress, not the deal cut by * add CRA to the repeal of Glass-Steagall.


This is the problem I am trying to address. Glass-Steagall was repealed by the politicians because they needed to do something, anything to get one last gasp out of an economy that had run out of gas.

While not repealing Glass-Steagall would have made the crisis less bad, I think that is like saying, "It wouldn't be so hot in Houston in the summer if the sun wouldn't come up."

Cheers
Qazulight

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Author: jgc123 Big gold star, 5000 posts Top Recommended Fools Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 405625 of 464958
Subject: Re: Banking Crisis cycles Date: 10/9/2012 10:26 AM
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Q: "While not repealing Glass-Steagall would have made the crisis less bad, I think that is like saying, "It wouldn't be so hot in Houston in the summer if the sun wouldn't come up."'

Probably true. One of the excuses given at the time for repeal of Glass-Steagall was that most of the banking regulations had already been altered and/or repealed anyway in the late 80's and 90's. Regulatory capture was pretty much complete anyway.

As is often the case when discussing any sort of history, we fight over competing single causes when in fact there are many causes over many years. In this case many of the banking regs were weakened by Congress in the 80's and 90's, the president and Congress agreed to end it once and for all in 1999 and add CRA to the repeal of Glass-Steagall for good measure. By the time 2000 rolled around the banking/investment industry was already in charge of its own destiny (and, ultimately, in charge of our destiny collectively to the extent that they got so big that they could hold a gun to their own head like Cleavon Little in Blazing Saddles and force us to rescue them).

*We* may have put gasoline in our fire hoses with our monetary and fiscal policies of the 2000's, but the fire was already started.

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Author: steve203 Big funky green star, 20000 posts Top Recommended Fools Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 405634 of 464958
Subject: Re: Banking Crisis cycles Date: 10/9/2012 12:46 PM
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>>like Cleavon Little in Blazing Saddles<<

OT, but funny that you should mention that film today

Lions saddened to learn of Alex Karras' condition, say they join his many fans in prayer

Reports say the former All-Pro defensive lineman and actor has been given only a few days to live because of recent kidney failure.
---
The 77-year-old Karras has been suffering from dementia. He is among the many former NFL players suing the league regarding the treatment of head injuries. Detroit drafted him 10th overall out of Iowa in 1958 and he was a standout for 12 seasons.

Karras may be even better well known for his work as an actor, including being a lovable father in the 1980s sitcom "Webster." He also played the role of Mongo in the 1974 comedy classic "Blazing Saddles," in which he said, "Mongo only pawn in game of life," and punched out a horse.


http://www.clickondetroit.com/news/Lions-saddened-to-learn-o...

Clevon Little died in 92

Steve

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Author: rubberthinking Big funky green star, 20000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 405642 of 464958
Subject: Re: Banking Crisis cycles Date: 10/9/2012 3:45 PM
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the chicken and the egg......back and forth......

it is cannibalism......pure and simple....the Chicken ate her own eggs.......a capitalistic outing for lunch......

who is to blame for what? greed.....??? bad breath on a chicken???

the rotten egg???

if this country does not get a grip on reality we will end up more like England after WW II....powerless and meaningless to the world......

We need honest governance....and we wont be getting that from either candidate or party in this election cycle.....

YOU know why? because the American public is too stupid......

Here comes Truman's 92%......

It was Churchill who said something to the effect of, "The Americans will try every alternative before doing the right thing...."

Churchill was speaking of the Kondratieff Cycle as it had played out in England a few times already......he knew English history......

We can have a bunch of people saying lets deregulate and give the wealthy another tax break......while we have another bunch of people saying lets compromise so very little is done......and on the flip side of all of that....somewhere unspoken by either party is the god's honest truth of what needs to be done in this nation.....

ofw,

Dave

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Author: SuisseBear Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 405643 of 464958
Subject: Re: Banking Crisis cycles Date: 10/9/2012 3:49 PM
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I submit that this crisis was caused by greed, corruption and lack of proper regulation.


yup, and cheap money is a real powerful corruptor - "look there's money for nothing, let's grab it, put it to use and get stinking rich!" .

That mindset will then overcome every obstacle in its wake and permeate large parts of society - running over 'overly meticulous' mortgage brokers, 'anal-retentive' bank loan officers, rating agency employees who 'don't get the big picture', 'pesky' regulators, 'inhibitive laws', etc.

Let's give the "Maestro" his fair share of the blame. He brought out the worst in a lot of people.

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