For any and all, one of the issues as I see it was the way the derivitives market, a largely unregulated market that Greenspan and others thought would be regulated by market forces ended up a total ponzi scheme.
Derivitives including Credit Default Swaps and Collaterallized Debt Obligations became an unimaginable market. In 2007, the last full year prior to the unraveling “the Bank for International Settlements reported derivative trades tallying in at $681 trillion - ten times the gross domestic product of all the countries in the world combined.”
This is a market for a vehicle that was on no significant size prior to 2002 and didn’t hardly exist before 1990 so it was largely created in the Clinton / Greenspan years and ballooned in the sub-prime and mortgage re-fi boom.
These instruments were idiotically collateralized by Banks. That means these CDS and CDO were treated like cash or like a backed-up insurnace policy and there were rating services that treated them to ratings based upon nothing but history of US mortgage defaults in general based upon regions and terms.
Then as the trading figures for 2007 show they were traded like vehicles with intrinsic or backed value with the parties at both ends selling the instrument.
EVERYONE made money until the fact hit home that none holding these obligations could pay if failure began — and so it did. Not only that but the companies trading, moving and holding them were publically traded and then as the crisis began to an obvious outcome they “shorted” each other with no up-tick rule or other shorting rules from the last 70 years as those had all been swept away in the 90s.
As the companies tanked the agents and partners made huge commissions but watched their stock in their firms (a large part of their wealth) disappear.
It was like Tulp Bulb Markets in Holland six generations ago.
Way ahead of the issue of ‘free markets’ conservatives believe in slow careful reform — better to preserve the culture and society we have inherited. The reforms of the 90s were not slow and not careful. There is not a political party or an economic interest that didn’t share the blame for this mess.
Thank you, it was a failure on both parties, and I’m glad that you mentioned it.
I know I gloss over the Dims involvement in this only because nobody on our side seems willing to accept blame.
Thanks for your concise and easy to understand post. Slow careful reform is the way to go. We can’t undo this mess with more Barney Frank crap, more ‘Obama’ dollars(our money), and bigger bureaucracies. We can’t undo it overnight either. It is going to take careful planning and step by step approaches.