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The Housing Boom & Bust
Tweet Topic Started: Jun 3 2009, 11:23 AM (210 Views)
Mr Gray Jun 5 2009, 11:27 AM Post #16
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HoosierLars
Jun 5 2009, 10:48 AM
thePhilosopher
Jun 5 2009, 10:36 AM
Why shouldn't it be legal for commercial banks and investment banks to be one in the same?
There should be a clear distinction between a conventional bank where there are savers and borrowers, and the business model is very simple. The bank sets the interest rate spread to make money, and can charge high risk borrowers more interest to compensate them for the increased risk.

Investment banking is a completely different animal. Frankly, much of it is legalized gambling, and driven by speculation. People who "invest" in this arena should understand they can make higher returns, but their principle is at risk.

When the two types of banking systems were merged, we had the introduction of "mortgage backed securities", which gave more of an investment banking return with the perceived lack of risk of a conventional bank. This led to over investment in this sector of the economy, and helped blow up the real estate bubb.e
holy shit Lars...my head is going to explode. All removal of Glass-Steagall does is allow a bank to do something stupid or irresponsible, it IN NO WAY "causes" them to do something stupid or irresponsible. That's like the old debate about guns.....the gun allowed you to kill someone, but it certainly was not the cause. Is the interstate the cause of an accident? Is the ski mask the cause of a robbery? By your reasoning ski masks, guns, and interstates should all be banned.
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The body knows what fighters don't: how to protect itself. A neck can only twist so far. Twist it just a hair more and the body says, "Hey, I'll take it from here because you obviously don't know what you're doing... Lie down now, rest, and we'll talk about this when you regain your senses." It's called the knockout mechanism.
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HoosierLars Jun 5 2009, 11:40 AM Post #17
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thePhilosopher
Jun 5 2009, 11:10 AM
Let me ask you this question: do you think any of these sophisticated methods used by the banks would have been possible without the Fed's policies?
Yes I do, and changed the landing from hard ground to concrete, IMO. I know we can argue about this all day long and there's no clear way to prove who's right. I think you have underestimated how easy it is for capital around the world to quickly flow into perceived good investments and blow up bubbles, without any help from the Fed. World wide access to trading the world's markets has caused dramatic changes to the liquidity of global wealth. More recently, ETF's allow traders to take long and short positions on just about anything you can imagine, which is a pretty dramatic change as more people get into day-trading online.
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yawnzzz Jun 6 2009, 08:50 AM Post #18
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thePhilosopher
Jun 5 2009, 11:10 AM
As long as the customers of the bank know that their bank is also an investment bank, I still don't see the problem.
My knowledge on this topic isn't extremely deep as well, but it seems that you'd have more of a point if these banks were new entities, and they had to sign-up customers. I wouldn't have a problem with an investment and commercial bank if their customers came-in and saw the risks and rewards prior to giving the bank their money. My understanding is that didn't happen. Commercial banks merged with other entities, which put their current customers who believed they had a safe low interest savings account at risk.
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Mr Gray Jun 6 2009, 01:19 PM Post #19
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yawnzzz
Jun 6 2009, 08:50 AM
thePhilosopher
Jun 5 2009, 11:10 AM
As long as the customers of the bank know that their bank is also an investment bank, I still don't see the problem.
My knowledge on this topic isn't extremely deep as well, but it seems that you'd have more of a point if these banks were new entities, and they had to sign-up customers. I wouldn't have a problem with an investment and commercial bank if their customers came-in and saw the risks and rewards prior to giving the bank their money. My understanding is that didn't happen. Commercial banks merged with other entities, which put their current customers who believed they had a safe low interest savings account at risk.
low interest savings accounts were never at risk.
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The body knows what fighters don't: how to protect itself. A neck can only twist so far. Twist it just a hair more and the body says, "Hey, I'll take it from here because you obviously don't know what you're doing... Lie down now, rest, and we'll talk about this when you regain your senses." It's called the knockout mechanism.
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thePhilosopher Jun 6 2009, 03:13 PM Post #20
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yawnzzz
Jun 6 2009, 08:50 AM
thePhilosopher
Jun 5 2009, 11:10 AM
As long as the customers of the bank know that their bank is also an investment bank, I still don't see the problem.
My knowledge on this topic isn't extremely deep as well, but it seems that you'd have more of a point if these banks were new entities, and they had to sign-up customers. I wouldn't have a problem with an investment and commercial bank if their customers came-in and saw the risks and rewards prior to giving the bank their money. My understanding is that didn't happen. Commercial banks merged with other entities, which put their current customers who believed they had a safe low interest savings account at risk.
This is closer to fraud than anything else. In the sense of protecting consumers against fraud, I'm more inclined to accept this than maybe some of my libertarian brethren. I'm for "regulation" in this way. But this is not what the bulk of the new changes to the banking system is all about, really.

But maybe even this is a point of no contest. When Glass-Steagall passed, allowing banks to be both commercial and investment banks, most people should probably have assumed that their bank would be involved in the investment side of things. Of course, since investment banks were making money hand over fist in the late 90's early 00's, this wasn't a concern to most. In a way, with the repeal of this act, people had the opportunity to inform themselves of this possibility, but they didn't. Their accounts were protected by the FDIC, but I think the idea that people couldn't have known that this was coming is a little far fetched.
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troubleatiu Jun 6 2009, 08:19 PM Post #21
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jesus, i dont know who to quote here. i opened a can of worms, i guess. (its my specialty)
i dont even know where to start.
let me get my train of thought and ill try to polish what i originally posted in the morning. it has alot to do with the current situation.
im celebrating a new job and a couple little league wins today with seeing old friends i havent seen in monthes...ive had a couple bud lights. ill gather my thoughts in the morning. :cheers:
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"The illegal we do immediately. The unconstitutional takes a little longer."--Henry Kissinger
"What luck for rulers that men do not think."- Adolph Hitler
"Terrorists don't want your freedoms--they want your life. It's dictators and tyrants who want your freedoms."-author unidentified
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yawnzzz Jun 6 2009, 09:01 PM Post #22
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troubleatiu
Jun 6 2009, 08:19 PM
im celebrating a new job and a couple little league wins today with seeing old friends i havent seen in monthes...ive had a couple bud lights.
:cheers: Congrats. Where's the new job?
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troubleatiu Jun 6 2009, 09:40 PM Post #23
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yawnzzz
Jun 6 2009, 09:01 PM
troubleatiu
Jun 6 2009, 08:19 PM
im celebrating a new job and a couple little league wins today with seeing old friends i havent seen in monthes...ive had a couple bud lights.
:cheers: Congrats. Where's the new job?
you live in southern indiana, within my district. our paths may cross someday. ill pm you tomorrow; tonight im rather drunk. its been a good week.
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"The illegal we do immediately. The unconstitutional takes a little longer."--Henry Kissinger
"What luck for rulers that men do not think."- Adolph Hitler
"Terrorists don't want your freedoms--they want your life. It's dictators and tyrants who want your freedoms."-author unidentified
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yawnzzz Jun 7 2009, 01:44 PM Post #24
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troubleatiu
Jun 6 2009, 09:40 PM
yawnzzz
Jun 6 2009, 09:01 PM
troubleatiu
Jun 6 2009, 08:19 PM
im celebrating a new job and a couple little league wins today with seeing old friends i havent seen in monthes...ive had a couple bud lights.
:cheers: Congrats. Where's the new job?
you live in southern indiana, within my district. our paths may cross someday. ill pm you tomorrow; tonight im rather drunk. its been a good week.
I'm looking forward to hearing about it.
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