subprime mortgage crisis

2008 Mortgage Crisis in a nutshell

So the government forces banks to make shoddy sub-prime mortgage loans, because of racially dubious practices which ultimately leads to a climate of lax mortgage practices.

Banks, plush with all these shoddy mortgages try to reduce risk, by bundling slices of thousands of these mortgages into MBS, or mortgage backed securities, then get these MBS insured by AIG against default with credit default swaps.

Then they convince ratings agencies Moody’s and S&P to rate them highly, and they get them backed by Fannie and Freddie Mac, which are government-sponsored agencies (much like the Federal Reserve). Sp when they sell these high yielding MBS’ to unsuspecting investors and banks it turns out all the mortgages are junk and everything collapses and the government bails out the very banks they induced into making this mess in the first place.

Hey okay okay hear me out on this: the nineties were basically our version of the Roaring Twenties.  Why?  Here we go:

  1. Prohibition = War on Drugs.  In both cases, we had drug laws tailored with the excuse of “morality” that were not only ineffective, but resulted in many deaths for people in the lowest echelons of society.  
    During prohibition, the rich were able to afford higher-quality speakeasies with perfectly safe drinks like gin.  Politicians could even go to embassies and drink legally bc they weren’t on american soil.  Similarly, the drug war did not target drugs affecting mostly white people, like heroin or prescription medications illegally sold (and also marijuana for white people was basically ignored)

    Not only THAT, but such conditions also led to terrible substitutes that caused a number of deaths.  During prohibition, people would turn to synthetic methyl alcohol, which tastes like grain alcohol except it, you know, causes blindness and death.  They would also drink industrial alcohol, which the government “denatured” by adding poison despite knowing that people would drink it regardless.  Meanwhile, we now have dangerous synthetic marijuana seen as a safe substitute when it is in reality often incredibly dangerous.


  2. Speculation = Subprime Mortgage Crisis.  I will admit to knowing less about this than about the chemistry of prohibition alcohol substitutes (huge nerd alert) but think about it: in both cases, you have people intentionally making risky financial decisions on the stock market in the hopes of profiting off of future changes in value, causing massive expansion in their respective markets and eventually creating bubbles that burst, causing everything to fall to shit.  Hell, speculation in the 20s even saw the beginning of hedge funds and selling borrowed stocks.  During both crises, the richest stayed in their positions of privilege, in some cases even profiting through smart investment.  

  3. Undeserved Nostalgia=Undeserved Nostalgia.  We LOVE romanticizing both time periods for their music, glamour, weird fashion, and so on, while ignoring the fact that both decades were rife with economic inequality, laws that targeted poor people to a cruel extent, and of course, racism.  

@emperor-of-matzah do you know if I’ve missed or got anything wrong

As wages stagnated and the income gap widened, growing segments of the home-owning working class sustained their consumption by taking out second mortgages on the bubble-inflated values of their homes. The apparent guarantee of forever-rising housing prices led to an increase in the share of consumption financed in this way—from 1.1 percent in the 1990s to 3 percent in 2000–05 (with a similar trend occurring in the growth of investments in “home improvements”).
  It is significant that this went so far as to include poor African-American communities, so long the Achilles heel of working-class integration into the American Dream. The roots of the subprime mortgage crisis thus lay in the way the anti-inflation commitment had since the 1970s ruled out the public expenditures that would have been required just to start addressing the crisis of inadequate housing in US cities. As we saw earlier, a key factor in the steady expansion of Americans’ consumer and mortgage debt since the 1970s had been reformers’ faith that private finance could be used by the state in the public interest—in other words, that financial institutions could be so regulated and reformed as to ensure their functioning in the interest of social groups that they had hitherto excluded. The rising demand for home-ownership at lower income levels had been encouraged by government support for meeting housing needs through financial markets backed by mortgage tax deductions. Of course, the desire to realize the American dream of home-ownership on the part of so many of those who had previously been excluded was one thing; actual access to residential finance markets was another. Access for such unprecedented numbers by the turn of the century was only possible because financial intermediaries were frantically creating domestic mortgage debt in order to package and resell it in the market for structured credit.
—  The Making of Global Capitalism - Sam Gindin and Leo Panitch
policymic.com
The U.S. Is Finally Holding Banks Responsible for the Financial Crisis

The Justice Department is widening its investigation of the subprime mortgage crisis — and they are paying for it with a fittingly ironic source.

Last November, JPMorgan Chase agreed to pay $13 billion in a global settlement over issuing mortgage-backed bonds before the financial crisis. While $4 billion of that will go to the Federal Housing Finance Agency to resolve claims, U.S. attorneys are now hoping to use some of the money to speed up prosecution of other lenders.

Now that’s karma.

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