2008 Treasury Secretary Hank Paulson on Charlie Rose, 091313:
Paulson: "What happened in 2008 was a huge credit bubble which was building for years and years burst. ... The US and Europe were under-capitalized."
Charlie: "Should a lot of smart people have seen this comming and warned us?"
P: "I describe this as a giant speculative bubble which burst. And of course the nature of a bubble is no one fully understands it until it bursts. ... I thought we were due for a crisis. At my very first meeting with President Bush I explained I saw it coming. He asked what would cause it. I said I don't know, because I didn't see '98, I didn't see '94. With 20/20 hindsight it will be obvious."
P: "we missed housing not because we didn't see some problems but we were looking through too short a historical record. Ever since World War II residential housing prices always went up."
In other words, they completely ignored the Great Depression. A self-serving choice made by banks and investment banks as they lobbied to remove all the safeguards established during the Great Depression.P: Complexity is the enemy. It works against transparency.
P: the root cause of all the crisis in history, as far as I'm concerned, is flawed government policies, which lead to excesses, ultimately bubbles ...
Flawed government policies that the banks lobbied for strenuously.P: The 10 bubble years, '97 to 2007, the median family income was flat and yet Americans were doubling what they were borrowing.
Doesn't sound like the bubble was hard to see for financiers and investment bankers, the people watching the numbers.P: there was low interest rates, low inflation, money flooding from all over the world, chasing risk, looking for yields, huge imbalances, money coming from Asia ...
C: The country could look back at the Saving & Loan Crisis and say some financial executives went to jail. No one has gone to jail for what happened in 2007 & 2008. ...
C: You are critical of the level of compensation that existed both before and after the crisis in the sense as to whether it might very well have clouded judgement."
P: "There is no doubt that was a contributing factor. ... Very ungracious after all that had been done to see the kinds of bonuses that had been paid. I understand that is a problem." ...
Paulson was adamantly and vocally against including bonus limits in the TARP legislation at the time of passage, when it mattered. His excuse at the time was that it would disincentivize the banks from accepting the bailouts they "desperately" needed.P: If people look at this an say well it was just the bankers, it was just the bonuses, then we won't fix our problems and we'll be back here again.
In other words, people's excess borrowing was the other side of the equation. The excess borrowing that was involved in causing the crises was excess borrowing for over-priced inflated home prices. People were making these decisions in an informational enviorment where the masters of the universe, the "people who understand the economy" were saying basically, "Ever since World War II residential housing prices always went up" and "its a new evonomy" and in Miami they were saying that prices will continue going up because we're running out of land. Try to convince someone that there's a housing bubble in that enviorment.Josh Tyrangiel: "I think there is a giant disconnect between the people who understand the economy and understand the banking system and the people who don't."..
C: Everyone was complicit.
The removal of Glass-Steagal allowed banks to make ever more risky loans on which they weren't keeping any of the risk but passing the risk to investors through securitization, yes even to those Asian investors flush with cash that was flooding the markets. Removing Glass-Staegal opened the vanilla housing market to speculators and extreme bubbles.P: You're always always trading off making an imperfect decision with doing nothing. ... The key is, I say, .. you've got to be ready to change course and adjust if you're wrong. ... A lot of times people say to me, Hank, the reason you were successfully, if you were successfully, is you've had all this experience on Wall Street and you understood financial markets. But people that really know me say the key ingredient I had is that I'm decisive by nature. And this was a time when you couldn't be afraid to make decisions. You had to make decisions. ...
Housing prices in Miami today are back to 2004 levels.
The Fed, through quantative easying, bought at full price from the banks the securities of a lot of those underwater homes, including the ones that went and are going into foreclosure, eating the losses.
Worker salaries are flat or dropping in reference to inflation
Sounds like we have a housing bubble, again.
Since the FED is eating the losses of those homes so that the banks don't, how is that better than the FED writting off those differences for the original home owners so they could keep their homes?
To watch WallStreet being whitewahshed after all the chaos and loss they caused on Main street is disheartening.
