If the government gave, spent, lent and guaranteed $12.8 trillion to the banks and the total Residential mortgages owed is $11 trillion, why didnt taxpayers dollars go to taxpayers?

Money the Fed lends to banks gets paid back, and on loans longer than overnight, generally with with interest. Not so with simply paying off people’s mortgages for them. Doing that would have nearly doubled the national debt overnight. Right now we have a phony debt crisis. The debt after WWII was much higher, and we paid it down. But doubling the current debt would have put us in a very real debt crisis. And would it be fair to ask renters to pay taxes to buy the house they are living in for their landlord only so they can keep paying him rent?

I feel as though I am pissing into the wind (again, as usual in this forum) in attempting to correct a huge misconception:

Banks did not “cause” the recent and ongoing economic meltdown. Banks are not ‘sociopaths’ (nor are they run by more sociopaths, in general, than exist throughout society in every occupation).

Subprime mortgages, various derivatives plays and hedges and many of the other instruments that failed were not (or at least, in the overwhelming majority not) swindles. “Bad business” does not equate to crime.

The debt instruments (mortgages) – and the rules under which they were issued, guaranteed, collateralized and traded after the initial issue – are very highly regulated by the government. If there is evidence of criminal activity then that should be investigated and thoroughly prosecuted.

The problem with the “economic meltdown” is that the rules were so deeply flawed that the financial institutions relying too much on them (and not enough on their own good business sense) built a house of cards with debt that ultimately became unsupportable. Banks were just the ones holding the bag. A public policy decision was made to not allow all of the banks to fail that had been caught short (which would have led to a more general collapse in the economy, as well), and so money was lent to banks and to other financial institutions (such as GM, for example) that had huge financial exposure. (I believe that GMAC is now bigger than GM’s manufacturing business, as GE’s has been for many years.)

Personally, I think that the whole thing should have crashed. I expect that our economic recovery would be well underway by now if it had, and the banks that played too close to “government rules that they knew were idiotic” (such as the idea of making “interest only” loans to people who could barely even afford the interest on the loans) should be permanently out of business.

That would have made too much sense! : ((

@CWOTUS Bad business decisions are not a crime. Bundling derivatives that the bank knows are extremely high risk, selling them at inflated prices without disclosing the risk, then selling short because the insiders know they are going to fail—betting against their own product—that’s criminal. Most banks had nothing to do with such practices. The too-big-to-fail ones did. And they did because they knew they were too big to fail. They knew they could play Casino Capitalism with absolutely no risk. Every time they won, they pocket trillions. When they finally lost, taxpayers would have no choice but to bail them out.

The GOP with the Gramm-Leach-Bliley Act of 1999 gutted the protections put in place against big bank gamesmanship by the Glass–Steagall Act of 1932. That’s what cleared the way for the biggest Wall Street banks to become bank, investment bank, self insurer and stock trader all in one. And learning nothing from the failure of their laissez-faire policy, the GOP is pushing vigorously to completely deregulate Wall Street all over again.

As to the house of cards, when did TV newscasters first begin talking about a real-estate bubble? As I recall, it was around 2002. Everyone knows bubbles burst. Yet in 2007 before the crash, the big banks had a house of cards in derivatives, mostly highly leveraged abd bundled mortgage backed securities, of $72 trillion a year in the US alone. That is more than 2.4 times the entire US GDP per year. And they didn’t know there was any risk? Did they all live under rocks? If they’d turned their TV on at any time in the foregoing 5 years they would have know that there was more than a risk the house of cards would collapse, there was an absolute certainty it would. In their backroom bets against their own customers, they proved they damned well knew that.

I didn’t think that you’d say a word about the biggest of the big players, @ETpro, and you again lived down to my expectations. What about Fannie Mae, Freddy Mac and the rest of the dysfunctional government family of “too big to fail” agencies? They weren’t playing any games, were they?

As for your allegations of criminal action, why hasn’t your vaunted government sprung into action if this is so?

You’re just proving to me the uselessness of all this Wizard of Oz machinery that we pay so much for. If it’s not going to prosecute what is (to you, anyway) obvious criminal activity, but reward it instead, then why do we need it at all?

Aside from that, your breezy assertion that “it’s the Republicans, it’s always the Republicans” is old, stale, simplistic and laughably wrong. But I don’t have time to get into all of that now. And that truly seems to be a waste of time here anyway.

I realize @CWOTUS does not need any support from me. He’s doing quite well. Nonetheless, I will add this gem from Barney Franks

@CWOTUS It does seem that the Party of Personal Responsibility merged with the Party of No! and gave us a new Party of No Personal Responsibility. The convenient fall guy for the failure of Gramm-Leach-Bliley and tha t Bush don’t tax, just spend extravaganza is naturally, the poor. The poor ran of with trillions and look, they are so stupid they are still poor and the rich guys pocketed it. Wikipedia has a good, balanced article on the mortgage crisis.

Truth is that the sub-prime debt in total was only 15% of the mortgage debt that defaulted. I am not saying Fannie and Freddy ran things correctly. They were pushed by key Democrats to up sub-prime lending to get poor people into home ownership, and they were pushed by the Bush White House to do it because it made the housing market skyrocket and more wealthy speculators were getting stated value and ARM loans than poor blacks anyway. But still, is Fanny and Freddy’s entire portfolio “was only $4.9 trillion?:http://www.econbrowser.com/archives/2008/07/did_fannie_and.html, and that’s nowhere near large enough to cripple the US economy even if all of it defaulted, which it did not. What brought us down was a $182.2 trillion a year derivatives market, much of which was highly leveraged mortgage backed securities. That, even the US treasury couldn’t cover up, nor could Wall Street.

I agree 100% about disgust with the lack of prosecutions. I’m not surprised. Too many powerful people would be behind bars if we opened that can of worms. But that indeed might discourage a repeat performance. Letting them not only walk free, but pocket billion dollar bonuses for the crime isn’t likely to make them change their stripes.

@ETpro

If you weren’t so overboard in trying to blame Bush and the Republicans, you may be more believable. The entire fiasco originated in the 90s and it is hard to blame Bush for that. In fact it was Clinton that pushed for the creative financing in 1994. And the GSEs played a major role in the crisis. According to the Financial Crisis Inquiry Commission, “by the end of 2007, Fannie Mae and Freddie Mac combined leverage ratios, including loans they owned and guaranteed, stood at 75 to 1.” After factoring out tax-loss carry-forwards, Agency capital ratios were probably below 1% on over $5 trillion of aggressively underwritten exposure.. Which means they had no money and that’s why we had to bail them out to the tune of $250—$350 billion.

“Agencies played a larger role in the housing crisis than we first reported. In January 2009, I wrote that the housing crisis was mostly a consequence of the private sector. Why? US Agencies appeared to be responsible for only 20% of all subprime, Alt A and other mortgage exotica. However, over the last 2 years, analysts have dissected the housing crisis in greater detail. What emerges from new research is something quite different: government agencies now look to have guaranteed, originated or underwritten 60% of all “non-traditional” mortgages, which totaled $4.6 trillion in June 2008. What’s more, this research asserts that housing policies instituted in the early 1990s were explicitly designed to require US Agencies to make much riskier loans, with the ultimate goal of pushing private sector banks to adopt the same standards. To be sure, private sector banks and investors are responsible for taking the bait, and made terrible mistakes. Overall, what emerges is an object lesson in well-meaning public policy gone spectacularly wrong.”

And it is significant to note that the GSEs were purchasing those risky loans which gave the rest of the market confidence that they were low risk and that the derivatives were solid. I think you vastly underestimate the role of Freddie and Fannie in this whole mess.

One final note, if you recall Bush tried to reign in Freddie and Fannie several times but was thwarted by the Democrats (I’ve posted our friend Barney before). Maybe if you could let go of your hatred for Bush you would put together a little better evaluation. I wouldn’t hold Bush blameless but to try and lay this all at his feet is really misguided.

@Jaxk

You’re learning fast why I generally try to bite my tongue in these “debates” and simply ignore them until I can’t any more. I seem to get put into a position where I have to defend “conservatives” and “Republicans”, and I just won’t do it (beyond a point of sanity, anyway, when the arguments – as you have correctly noted – just go so far “off the rails” that they’re somewhere in space).

The fact is that both major political parties are playing power games; both parties are out to reward their friends and punish their enemies; both parties are responsible for what is wrong with our government – and there is no shortage of things gone wrong; both parties are responsible for the metastasizing growth, breadth, reach and cost of this monstrosity. Democrats will not “save us” any more than Republicans will.

And that’s when the line comes in – with amazing predictability and reliability – that I should move to the “Libertarian paradise” of Somalia.

Really, arguing political fine points with most of this lot is a lost cause. Facts aren’t needed; cans of spray paint will do.

@CWOTUS

Cans of spray paint. I love that line.

@Jaxk I’m not a great defender of Clinton. Some of what he and his Republican Gongress did was good. In 20/20 hindsight, some was very bad. He did push forward low infome home loans, but what ran Fannie and Freddy off the rails was speculators getting in on the ARM party, and that started in 2000 when the real estate market suddenly went up like a skyrocket. He signed Gramm-Leach-Bliley and still defends doing so. THat, I have no good excuses for. He was wrong.

@ETpro

Yes, they thought repealing Glass Steagal would make banking less risky. Obviously that was poorly thought out (if thought out at all).

@Jaxk Ha! What planets are aligned? Carmageddon and you and I agree on a political policy issue all in one weekend. The Mayans must have been right. 2012 is approaching.

@ETpro

Either that or I’m just growing senile in my old age :)