The Fall

I have a degree in journalism, not economics. So while that makes me potentially qualified to run for vice president, it doesn’t make me an expert on the banking crisis.

But I know enough to know this: Technology wasn’t the problem.

Just two years ago, Bill King, the publisher of Bank Director magazine, wrote:

New information technologies have had a huge impact on giving bankers a better handle on credit quality, monitoring of loans, and gauging the profitability of products and services. Managing the bank isn’t any easier, but the financial technology available is a quantum leap forward from what bankers worked with 20 years ago.

OK. I’ll take his word for it. The technology worked. But if it did, then what went wrong? There’s only one explanation. People.

Of course, with just that journalism degree, it’s impossible for me to say which people should be held responsible. So I’ll leave that up to you…

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10 Comments

Filed under economic crisis, globest, random, Real Estate, Technology, Technology news, thoughts

10 responses to “The Fall

  1. george

    I THIGTH SHE DID RATHER WELL. Maybe that what this country needs.

  2. Lisa Sherwin

    Based on the comment from George, this country also apparently needs spellcheck (not to mention common sense).

  3. The difference between Palin and Biden besides being a Hockey Mom is that Joe makes it up as he goes along which is what trained politicians do. They lie through their teeth and we believe their bull. Common sense tells me to trust the people around me who have it and not those who have had it educated out of them.

    Spencer Clarke

  4. Bruce Emory

    Hmm! Me thinks there is more to this onion. Palin gets my vote. Best of luck and regards to all.

  5. John

    Leave it to idiots like Bruce to blindly follow whatever candidate is tossed at them by their failing party. Nevermind that Palin is a “straight out” in your face liar, was found to abuse her power by trying to have her former brother-in-law fired as a state trooper, and claims to have had “extensive foreign policy experience” because of Alaska’s proximity to Russia.

  6. Mr. James B'tim

    “Are you kidding me, the mayor of Wasilla, Alaska? Yeah, that’s who you want in the White House during a time of crisis. When she got a phone call at 3 in the morning, it was because a moose had gotten in the garbage can.”

    “Alaska Gov. Sarah Pallin is John McCain’s choice. Here’s what we know about her: her name is Sarah Palin.” –Jay Leno

    “Palin and McCain are a good pair. She’s pro-life and he’s clinging to life.” –Jay Leno

  7. ShareholderUnion

    IT (information technology) is only as good as the person using it (GARBAGE IN GARBAGE OUT). Technology and complicated math formulas can give a false sense of security to the user. Understanding underlying principles of risk (which means, you must understand the underlying asset) is a far better management tool.
    Most of the risk that commercial banks delved into, of late, were off balance sheet risk, or shadow banking, which they were not legally allowed to partake in under firm Glass Steagall regulations, which have been changed and watered down over the last thirty years (especially since the last 8 years). Glass Steagall had been passed after the crash of ‘1929 to protect the financial system and its users.

    Shadow Banking, or off balance sheet accounting was the true culprit along with an environment that encouraged a trade off of short term gain for long term calamity.In fact, the New York Federal Reserve Chairman, Geithner, met with the Citibank CEO in 1997, and he didn’t even understand the extent of Citi’s shadow banking exposure. Essentially, commercial banks were allowed to act like investment banks with credit default swaps, collateralized mortgage backed securities, and other derivative hedge bets.(Congress’ fault and Lobbyists fault and Wall Street’s fault).

    The real issue in the financial sector was the transparency of the asset (the mortgage loan), the attributed risk, and accountability for the asset. Mortgages used to be owned by the bank or mortgage bank that originated the loan, which meant that the bank or originator had more “skin in the game” for making good risks. The accountability for the mortgage asset was lost with the advent of mortgage securitization (cutting up the risk and associated risk into tranches, and selling the packaged risk to others, and others making derivative hedge bets on the risk). Everyone was veritably passing off the risk to the next player (hot potato). And no one questioned the asset, because it was all supposed to be risk free if the asset kept increasing in value (a huge faulty assumption).

    Additionally, the issuers of mortgage products were becoming higher risk takers with lower underwriting standards (to increase their revenue production) by using option arms (pick a payment any payment, wind up paying more for the life of the loan, but most consumers were clueless to negative amortization), as well as Alt A loan products (which were essentially Liar Loans – mortgage banks were accepting “stated income” for the loan products (ie no verification of income), and Interest Only loans, which were never intended when they were dreamt up, to be loans for Average Joe with a regular paycheck to be misused to buy into a larger home or qualify for a larger loan amount.

    Furthermore, to make matters worse, The Federal Reserve under Greenspan made two fatal mistakes: 1) he kept the interest rates very low and 2) he virtually did away with the 30 year T-Bill (which encouraged investors to load up on more 30 year mortgage investments like mortgage backed securities, etc).

    Let’s not forget the lemming effect of borrowers who didn’t say no to products that were stuffed like candy into their mailboxes and email boxes. Self-restraint or caution, were not the words of the day.

    So to summarize, we had a) aggressive lenders pushing riskier and riskier loan products on b) consumers who THOUGHT they knew what they were doing, c) pundits in the media who were increasingly pushing the mantra of real estate is regional and not national, and real estate never goes down, d) mortgage securization blossoming to levels never seen before, e) mortgage backed securities which were sliced and diced (and God only knows where the original documents are and who has title to them) e) faulty mathematical formulas assuring the lenders and investors that they would be insured with f)credit default swaps (which virtually had no collateral backing it (like a normal insurance product is mandated by regulation to have reserves backing it) and f) Rating Agencies giving AAA ratings to products that shouldn’t have had that rating and finally g) foreign investors who couldn’t get enough of the action. A PERFECT STORM.

  8. ShareholderUnion

    Let me add to the above h) CEO Compensation incentivized the few to take enormous risks for enormous gains. Also, the fact that CEO’s are usually in their posts for a half of a nano second, only further encourages their hit and run behavior. Additionally, the lack of Ethics courses in MBA schools, or the lack of MBA’s actually taking the courses available in Ethics, provides a breeding ground for short sighted, self-serving behavior. The economic-financial system which has corporations chasing quarterly returns and measurements is extremely myopic and unhealthy, as we have seen from our current economic tsunami.

  9. ShareholderUnion

    Which people should be held responsible: Ask Anderson Cooper who lists the Ten Most Wanted as
    Joe Cassano from AIG; then
    Richard Fuld from Lehman Brothers;
    Chris Cox from the SEC;
    Phil Gramm of Texas;
    Alan Greenspan;
    Ian McCarthy, CEO and president of Beazer Homes USA;
    Angelo Mozilo, the guy — the founder of Countrywide Financial; and
    James Cayne, former CEO of Bear Stearns. There they are, the “Culprits of the Collapse.” We’ll add another name tomorrow.
    I believe you should add all the CEO’s of AIG: Greenberg, Sullivan….
    also, add Raines at Fannie Mae;
    there are so many hands in this, we could go all day and night. Finally, don’t forget the taxpayer.

  10. OvertheHillYuppies

    The media is at fault, too, by perpetrating hero worship on people who are least deserving. Lauding CEO’s as “special” and praising the type of behavior(s) they engage in has done great damage to the populace; to the extent, today, where few even question the morality of “The End Justifies the Means.” This amoral Ayn Rand philosophy is what got us Greenspan and the situation we are now experiencing in the economy. Sixty years ago, people readily recognized that “Mr. Potter” in “It’s a Wonderful Life.” Fast forward to the 1980’s, when “Wall Street” the movie was such a hit. Unfortunately, due to a decline in morality, many people did not understand that Gordon Gekko was not a hero. Oliver Stone was quite perplexed when young Wall Streeter yuppies would come up to him and say that “Greed is Good” and yes Gordon Gekko was my hero and was my inspiration for wanting to work on Wall Street. Pretty pathetic when a cautionary tale becomes interpreted as a how to manual. The sad state of affairs.

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