Heejin and I just saw “The Big Short” and loved it. The movie was wonderful but very misleading b/c corrupt bankers and slimy mortgage brokers were hardly the only cause of the meltdown.
Gov’t Policy was also a major cause. The Fed kept rates way too low for too long in the Bush years, forcing investors to chase yield anywhere they could find it. This created a market for the crappy loans and mortgage backed securities. Also, excessively low rates often foster asset (real estate) bubbles.
“Affordable Housing” programs forced on banks by gov’t policy literally required banks to make bad loans in many cases.
And an accounting policy known as “Mark to Market” did more than anything else to exacerbate the crisis in the short run. Without going too deep, this accounting rule forced banks to write down the value of their mortgages that created a vicious cycle of capital calls and liquidations that destroyed many large banks.
Why does all this matter? B/c when politicians put all the blame on the private sector and cover up the gov’t’s culpability, we end up with excessive regulations that often make it ridiculously hard to close transactions (like now).
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