jb32 wrote:
Quote:
On the other hand, the failed Investment Banks fully invested themselves in mortgages that they didn't properly investigate. I fully agree that the SEC, consumers, and mortgage companies deserve their fair share of the blame, but the bottom line is that these "geniuses" at the top banks didn't do their due diligence to properly research just what they were purchasing, and the amount of money that was leveraged was just staggering.
You obviously have no idea how this works. Investment Banks for the most part didn't invest in MBS, they originated, sold, and traded them. They didn't buy them to hold for investment purposes (for the most part). What happened in 2007 was the market for these products collapsed and the firms holding the largest amount were stuck with illiquid assets. Namely, the largest players in the origination and trading of MBS then had the most exposure. Imagine it as a game of musical chairs where the number of players you have on your team is directly correleated to your market share of the MBS market. Well, when the music stopped in late 2007, there were no chairs for anyone to sit in. Basically, the larger percentage of the market you owned, the more of these 'Toxic Assets' you had on your books at the time when the music stopped and thus the more likely you were to go bankrupt. Lehman, Merrill, and Bear were the largest players in that market, and thus had the largest concentration of MBS. As you know, they are all gone. The problem was that no one thought the music would stop, but may slowdown a bit.
Check out this article about MBS from 1994:
https://query.nytimes.com/gst/fullpage.html?res=9B02E5DE1F3BF933A1575AC0A962958260&sec=&spon=&pagewanted=allActually, they WERE purchasing mortgages, and by the thousands. How do you think they were creating mortgage-backed securities? In fact those mortgages accounted for so much of their business, that when the people who took out the mortgages defaulted, the IB's lost most of their revenue stream. Also, when the housing market collapsed, the IB's were holding mortgages that they were leveraged to the hilt to purchase, which now had almost no value. If they didn't know that they were putting their firms at risk, then they should have, and to say that it was impossible to know is BS. There are plenty of people who forecast this collapse a long time ago. The executives were reckless and lacked the proper foresight to see that it was foolish to be so heavily invested in sub-prime mortgages.
jb32 wrote:
The banks have been doing this kind of business for 25 years, it's really hard for any person on the inside to foresee this kind of disaster. They figured a repeat of the early 90's was in order, maybe a little worse this time. Do you recognize any of the names mentioned in that article? Hindsight is 20/20 of course, but to think ALL of the executives are idiots for not seeing this coming is both stupid and ridiculous on your part. Fire the ones that could have done something, which for the most part they have, i.e. Sandy Weill, Richard Fuld, John Cayne, Stan O'Neal, etc. I just would be careful about blaming the current management for the most part when many weren't around for the trouble part, or weren't in any position to do anything about it. Would you fire the heads of HR, Technology, or Strategy for an accounting scandal? No, and you shouldn't fire the head of M&A, Capital Markets, Brokerage, or Technology for the current credit crisis when it isn't their fault. Just give this populist bull$hit a rest, I'm sick and tired of listening to it. It's pointless and ignorant.
What's stupid is you misquoting me and making absurd implications like I am suggesting that everybody be fired. If you READ what I wrote, I actually never said that "
ALL of the executives are idiots for not seeing this coming," and I never said that everyone should be fired. I merely said that nobody should be rewarded for failure. It's true that not everybody is responsible for the failure, but surely nobody can be credited with saving them either. If employees who preceded the collapse are able to turn the banks around, then they should be rewarded accordingly, but not before.