The real truth about the 2008 financial crisis | Brian S. Wesbury | TEDxCountyLineRoad

The real truth about the 2008 financial crisis | Brian S. Wesbury | TEDxCountyLineRoad


Translator: Queenie Lee
Reviewer: Peter van de Ven I’m about to tell you some
unconventional wisdom, alright? I called my talk today “The real truth
about the 2008 financial crisis.” So, I guess what I ask you
to do this morning is to think about what you believe what the conventional
wisdom is about 2008, and I’m going to put some words
in your mind or describe it this way, and that is most people believe that the free-market capitalist system,
especially bankers, are greedy, they go through periods
of excess speculation, and then the world collapses and the government has to
come in and save us. By the way, this is the story
that was told about the Great Depression, and it is also the story that is told
about the 2008 financial crisis. Now, before I get into the meat
of my presentation, I want you to think about something else, and that is that the Federal Reserve controls the level of short-term
interest rates in our economy. Everybody knows that today, they’re holding
those interest rates at 0%, trying to get the economy moving again. What lots of people don’t remember
is that back in 2001, 2002 and 2003 the Federal Reserve dropped
interest rates to 1%. I want you to think about this. Because when you make
a decision to take out a loan, when you make a decision to buy a house, what is the most important
ingredient of that decision? I mean, obviously,
whether you have income, whether you like the house, but one of the most important
ingredients of that is the level of interest rates. Alan Greenspan pushed interest rates down to 1% in 2003 and 2004. In fact, interest rates
were below inflation for almost three years –
below the rate of inflation. Now, how do you think about this? So, when you’re looking at a house –
can I afford this house, the payment? Obviously, those payment streams are determined
by the level of interest rates, and when interest rates are low, you’re going to buy a bigger house, you’re going to buy
in a better neighborhood, buy cherry cabinets
and granite counter tops because you can afford it. So, let me put this into a story
that I know you can understand. And that is, when you come
to a green light in your car – you’re driving along,
there’s a green light – how many people in here actually
have ever stopped at a green light? I’m not talking about senior moments. (Laughter) I’m talking about stopping
at a green light, getting out of your car
and walking around to the other side, just to make sure
the other one really is red Because, obviously, if it was green too, it’d be dangerous to go through
that intersection. So what happens when Alan Greenspan
or the Federal Reserve holds interest rates
all the way down at 1%? You get a green light. You get a green light to make a purchase that’s bigger than probably you should, and by the way, the financial system
is no different than you. Bankers, they’re no different
than individuals. They would say, “Hey,
with interest rates so low, leverage, borrowing doesn’t matter
as much, it’s cheap. So, why don’t we
lever up a little bit more? After all, it’s Alan Greenspan,
the smartest man in the world, that tells us interest rates are 1%; in other words,
all the lights are green.” And, so what happens when you
hold interest rates down like this? You cause people to make decisions
that they wouldn’t otherwise make. Now, let me put this
in a different perspective. House prices went up 8% in 2001. By 2004, 2005 they went up 14%
in 2004, 15% in 2005. So you could borrow at 1%,
especially with those teaser loans, and you could have a house
that was appreciating at 14%: what a great deal! And, so what happened is we
encouraged more people to buy homes, bigger homes than they
should have at the time. We also encouraged bankers
to take on more leverage, and make more risky bets
than they would have if interest rates were higher. In fact, if interest rates
would have been 4 or 5%, I don’t believe we would have had
the housing bubble at all. Now, let’s go back in time
just a little bit, because this has happened before. The last time the Federal Reserve really
held interest rates too low for too long was back in the 1970s. In the 1970s, farmers
bought too much land, we drilled too many oil wells, we were betting on oil prices
going up forever, and in the 1980s, when farmland
prices collapsed and oil collapsed, banks collapsed too. By the way, the entire savings
and loan industry also collapsed in the 1980s because of the same reason: they made too many loans
when interest rates were low, and then, when interest rates
went up, they collapsed. At the same time, we made big banks make huge loans
to the Latin and South America. And so, if you go back
and look at the 1970s, banks expanded, they made loans to farming, housing,
oil, Latin and South America, and all of those parts
of the economy collapsed in the late of 70s, early 80s, and the banking system
was in monster trouble. In fact, the eight biggest banks
in America in 1983 had no capital – zero capital – because they had lent too much
to Latin and South American countries that all collapsed. And here’s my point of going back to that. That is if you go back
and look at the 1980s, the problems of the 1980s –
the banking problems – did not take down the entire economy. This time, they did. And so, the question is why, and we’re going to deal with that
in just a minute. And so one of the things
that I want to do is tell you something I just did, right? This is the picture of the S&P 500 – the 500 largest companies
in the US stock market. It’s a picture from 2008 all the way
through the first half of 2009. What I just recently did is I went back, and I read the verbatim transcripts of all the Federal Reserve
meetings during 2008. Now, the reason I just did this is because they only come out
with a five-year lag. The Fed they released little statements, and then minutes, and then five years later, they give us the full transcripts
of what they’ve talked about, right? All of those red dots,
there’s 14 of them, are a Fed meeting. Normally, the Fed
has six or seven meetings, but that was a crisis year, right? And so the Fed had 14 meetings that year. Just to put this in perspective, it’s 18 or 20 people
sitting around a table, and the verbatim transcripts
are each of them talking for three or four minutes if they go around and they vote
and they go around again; they vote. These transcripts were 1,865 pages long, 559,000 words. Now, I read these for you,
just so you know. (Laughter) And some people have a hard time,
like, what is 559,000 words? Well, the Old Testament is 593,000 words. I mean think about that, we’ve built the universe, wandered around the desert
for 40 years, 50 years, built an ark … There is a lot of stuff
that happened in the Old Testament. (Laughter) The Fed used that many words for one year of US economic history. Now, I could head down this road – maybe that’s another TED talk –
because that’s one of our problems. Nonetheless, one of the things
I want to point to is this huge decline in the market that happened in September
and October of 2008. You know what happened
in September and October of 2008? Well, first of all, the bloody weekend,
September 13th, 14th, I think it was, when Lehman Brothers failed,
AIG, Fannie Mae, and Freddie Mac, and all of those things happened, and the Federal Reserve started a program
called quantitative easing; that’s where they started to buy bonds
and inject cash into the economy in an attempt to save us. At the same time, in fact,
just a few weeks later, on October 8th of 2008,
Hank Paulson, the Treasury secretary, President Bush, the Bush White House,
Congress passed TARP: the Troubled Asset Relief Plan, and it was 700 billion dollars
of government spending to save our banking system, okay? I want you to take a look
at this chart a little more closely. Quantitative easing started right here,
TARP was passed right there. Did it help? In fact, the worst part of the crisis
was after TARP was passed. The stock market fell 40%; financial-company stocks fell 80%
after TARP was passed. In fact, if I look at this chart
and kind of squint at it, look at all those red dots, I would say the more the Fed met,
the more the Fed did, the worse it got. So, something else
must have been going on, right? In my opinion, the government did not save us, and in fact, this is one
of the problems that people have when they’re trying
to understand the economy. You see, there’s an interesting fact
about our world, and that is the free market – capitalism – does not have a press agent; the government does. The Federal Reserve does. In fact, there are about 2,000 books
about the financial crisis, but there are three main ones
that have just come out. One is by Timothy Geithner, former Secretary of the Treasury
under President Obama. He was the head of the New York
Federal Reserve Bank during 2008. He’d written a book about the crisis; who do you think he says saved the world? (Laughter) Timothy Geithner, of course. Ben Bernanke. He doesn’t have a book out –
he has a book of speeches out – who do you think he says saved the world? Ben Bernanke. Hank Paulson has a book out, and who do you think he says
saved the world? Hank Paulson. In fact, it’s not really
that they take credit themselves, but they credit TARP and quantitative easing and stress tests; that’s what Timothy Geithner
takes credit for: stress testing banks,
so that everybody can trust them, right? This is where I want
to shift gears, just a little bit, because what I want
to tell you is why – or explain – is why I believe this banking crisis turned into a true
overall economic crisis, while if you look back in the early 1980s, where banks had more losses
than they did in 2008, the economy did not collapse, and in fact started
to accelerate without TARP, without quantitative easing. In fact, Paul Volcker was raising
interest rates in the early 1980s, and the economy recovered. Here we cut interest rates to zero, and the economy
has grown relatively slowly. So, what caused this problem? By the way, in those transcripts
that I said that I read, Ben Bernanke asks his staff to go out
and find out how big the problem is, how many subprime loans were made, how many losses could we face, and he has a staff
of about 200 Ph.D. economists, and they came back
with a number of 228 billion dollars. Now, don’t get me wrong, I’d love 228 billion dollars, right? But 228 billion dollars is small
compared to a 15 trillion dollar economy. So, how did that small problem
turn into a problem that almost took down
a 15 trillion dollar economy, and the answer is
mark-to-market accounting. It’s a little-known accounting rule that most people
know nothing about, right? It was put into place in November 2007 after being out of place,
not enforced, since 1938. Now, let me give you a little
bit of background on an accounting. In the 1800s, bookkeepers, they were bookkeepers. They weren’t the accounting
profession yet. They were getting
more and more sophisticated, but they usually marked
everything to market. So, if you think about this, if the farmland goes up in value,
if your machinery goes up in value, if your inventory,
if loans go up in value, you get to mark those up. So, in good times, things look better, but then, when you start
marking things down, things look worse. And I believe that if you
go back to the 1800s, this is one of the reasons why we have
very sharp dips and drops in the economy, panics and depressions and things like that. In the 1930s, mark-to-market accounting
actually took lots and lots of banks out. In fact, it was such a bad law that the SEC at the time
told Franklin Delano Roosevelt that he should get rid of it, and he did in 1938. It didn’t come back,
all the way till 2007. So, what does mark-to-market
accounting do? Well, let me give you a story. Just imagine you live on the coast
of Texas, in Galveston, Texas, and you have a $500,000 house
right in Galveston, near the beach, and you have a $300,000 mortgage, and there is a hurricane on the way. And it’s only four or five hours away, and they’ve told you
to evacuate your neighborhood, and you’re packing up your pictures, you’re packing up
your most important belongings, and just before you leave the driveway,
your banker shows up. (Laughter) And your banker says, “You have a $300,000
mortgage on this house, and there’s a hurricane coming. Your house is about to be destroyed. We’re really, really
worried about our loan. I know you’ve paid every payment, but we’re going to have to
mark this house to market.” And you’re like, “Well,
everybody’s gone, no one left. I saw the realtor leave.
Who’s going to bid on this house?” He said, “Don’t worry,
there’s a fire truck. Let’s get the fireman to bid on it. They stopped the fire truck, said,
“Hey, make a bid on this house.” Fireman says, “There’s
a hurricane about to hit. I’ll pay 20 grand for it,” and the banker says, “You know what,
you owe me $300,000, but the house is only worth $20,000 because that’s the bid. So, if you can’t come up
with $280,000 dollars right now, you’re going to lose your house. You’re bankrupt. That’s what mark-to-market accounting is. And so in 2008, what we did is we said – what people were doing is – they were saying a hurricane is heading,
that no ones are worth nothing, and so, banks couldn’t sell assets,
they wouldn’t buy assets, and in reality, what happened
is their losses spiraled out of control, and it turned to a $300 billion problem
into a $4 trillion problem. Now, the amazing thing is,
right at the bottom, March 9, 2009, something changed the world. There’s a little-known –
well, actually he’s not little-known, but he’s retired now –
Congressman named Barney Frank. His financial services committee
actually held a year, and he brought the accountants in and said, “We don’t think
this rule is right,” and they changed the accounting rule. On March 9, 2009, they announced the hearing,
held the hearing on March 12, changed the accounting rule on April 2, and from that point on,
the economy has grown; the stock market is up 200%. And, what I’m getting to here is the fact that I believe this crisis
was not generated by over-speculation, well, in fact, was caused
by the Federal Reserve in the first place, and by changing this accounting rule, we brought about a recovery in our economy
that most people don’t understand. What they do believe is that the government
has caused the recovery, especially the Federal Reserve
through quantitative easing. I want you to think about this
for one second, and then I’ll close. That is that what the Federal Reserve does
is they go out and buy bonds, and when they buy bonds,
they inject cash into the banking system, and typically, banks will
take that money and lend it out, but in the last five years, banks haven’t. What banks have done is they’ve begun
to sit on excess reserves. And so, when you look at the economy today
and see how it’s growing, what’s fascinating about this is that this growth is actually coming
from entrepreneurship. I want you to remember one thing, and that is Ben Bernanke and Janet Yellen
have never stayed up all night drinking Red Bull,
eating pizza and writing Apps; (Laughter) they’ve never fracked a well; they haven’t ever built a 3D printer. And so, when you look at our economy,
what I’d like you to do is have faith that the free market actually works, and realize that many many times, government, rules,
regulations and actions, especially with interest rates,
have major impacts. I think the understanding of 2008
that people have, the conventional wisdom, that banks lost control
is actually the wrong thing. I believe it’s government
that lost control, and by fixing that rule, we actually started
the recovery that’s underway. Thank you very much. (Applause)

100 thoughts on “The real truth about the 2008 financial crisis | Brian S. Wesbury | TEDxCountyLineRoad

  1. Wall Street created a product in their credit derivatives that separated seller of mortgages from holder of mortgages. Credit rating agencies, in their lust for profit, failed to properly account for risk in these products, allowing them to be sold to customers as readily as they could be packaged. The end of the Glass-Steagall act allowed banks to take the money sitting in their saving accounts, borrow as much as 64 times that amount, and then invest it into these overly risky products so that when even the slightest downturn in the mortgage market manifested, banks were unable to cover their outstanding liabilities.

    And this lunatics takeaway is that government caused this by interfering with free market capitalism…

    Worst TED Talk I've ever watched.

  2. Where is Latin and South America? I have only heard that Latin America consists of Central and South America different from North America: Canada and the USA.

  3. The real truth about all financial downturns is they are created by the illegal and unconstitutional Private banking consortium known as the Federal Reserve Banking System . End the Fed ,end the IRS which existence is a direct result of the creation of the Fed in 1913 . This moron is a mechanical drone whose existence depends on Two illegal and unconstitutional systems . End the Fed ,End the IRS . Throw idiots like this in jail along with all lobbyists and corrupt politicians and bankers .Problem solved.

  4. Fine ok but the banks are responsible for the products they sell and if they get dangerous and greedy it us not the fault of taxpayers. This banking crisis shows us that unbridled Capitalism will either kill our economy or make the divide so large in this country , Wall Street will see pitch forks

  5. This is not the Real Reasonit happened, and talking that way only shows how stubbornly focused on matter humans really can be. The 2008 crash happened exactly in the time it had to happen on Earth, right in sync with human evolution at the right timing after Pluto have entered Capricorn, because that’s the kind of energy that Earth was supposed to be subject to and I tell you more: Pluto is still in Capricorn right now and about to make the most important angle of all while there: Zero degrees with Saturn, exactly on the 12/01/2020, this time is the crash not only of finance but of many structures in general from political to the natural ones, of course months before and after things will get visibly more noticeable, no matter the talks and the explanations, the blame of this or that: it’s just the journey we volunteered to take part on! Proudly engage!

  6. Don’t get so focused on the event, that is just a detail of the experience see the overall picture, the effect on humanity’s journey: that’s even why it happened!

  7. 11:00– extremely suspect correlative argument—and it’s really his first big one that TARP made things worse. He’s 11 minutes in and just starting….and it’s a super rocky, unconvincing start.

  8. My not-expert twist on this story is that the loan defaults alone weren't sufficient to spread the GFC contagion. Reading a The Economist article when the GFC was just getting under way in late 2007 or so, I saw an interview with a banker who described the problem as banks realising (too late) that they'd bought rubbish debt-backed securities and at that point they no longer knew if they had the assets that they needed (under law) to even keep trading as a bank. If they'd accurately known the risk, they could have planned accordingly. But they didn't, and when the crunch came they simply had no idea what their real position was. So they closed their teller windows and credit dried up. Low interest rates don't force mortgage brokers and finance companies to lie about what they're selling to banks. But I'm not an expert.

  9. This guy is exactly correct. whether you guys understand it or not. Look up the article ,"A mark to market history lesson" by Tracy Alloway,, March 13, 2009.

  10. I bought my house in September 2008. I heard the things people were being told at that time by lenders…and I still can't believe it.

  11. There are so many things wrong here.

    For starters, I believe he is oversimplifying the crisis. He shows shows a graph and continues with a few apparently defining moments. Then he simply assumes that those moments were the cause of the drop or recovery. And his rigid proof: “look the government did this and the graph does down! So it didn’t work!” Or vise versa.

    Right.

    Correlation does not equal causation. So many apparently smart people still don’t seem to grasp a basic understanding of this principle. A principle freshmen get explained in their first psychology class.

    And in a complex system such as the global financial markets, it is hard to even show a potential correlation; let alone causation.

    Perhaps the talk was too short to dive into details, but I’m missing a solid proof here. This is just shoddy guesswork at best.

  12. Didn't the post-2008 collapse also created yet another money-making scheme with insurance? I'm not an economist, but I read somewhere that banks needed to insure the portfolio of good loans, and they ended up making money from selling those insurance. The caveat was, they started bundling bad loans in the portfolio and banks ended up taking a loss on those – but since they have insurance, they were "covered" – and the money kept recycling. It was quite mind boggling on how creative bankers are in making money.

  13. Banking is fraudulent and deceitful at best, I read some triple A rated CDO’s we’re giving up to 200-1 returns.
    When in fact they were made up of BB and B rated mortgages! That is ridiculous!!
    Wall Street knew very well what they were doing! It’s criminal! Plain and simple!

  14. Your problem is the lies you were told (taught) have become your way of life. It is obvious you no nothing of the power of the FED and or its manipulation of not just markets but entire world governments. Please abandon your lecturing and pick up your career where you left off only do so with a blank slate and the knowledge that you have been lied to and hopefully those that you inadvertently mislead will forget what they heard.

  15. His argument is weak and imprecise. Perhaps it's fair to say that this accounting rule may have played a role in accelerating the crisis, but there is no evidence to suggest that the rule caused the crisis, which is supposed to be his point. This does not make sense. Many countries, including mine, have this accounting rule in place and are not in perpetual financial crisis. In any case, even if we accept that the rule was an accelerator, we should be clear that it wasn't the only one. The tangled web of credit default swap counterparties was also a big factor, amongst others.

  16. Baloney, the government needs to set rules against too risky and or destructive Market behavior. If it does not, who or what will?

  17. I believe he is trying to put another perspective or way of explaining 2008; at least a part of it. It talks about the failure and not the conspiracy so I believe it should be received and understood well by both the general public with all their different views and by conspiracy theorists. Two comments only:
    1. The American federal reserve is Not government. It is a PRIVATE ENTITY. Imagine, a private entity (which means it represent PRIVATE INTERESTS AND AGENDAS) has so much power and control over the greatest and most powerful country in the world. Ain't that scary?!?!?
    2. 2008 has proven that the world's economy is tied to the American one. Most economies suffered because USA economy suffered just like most economies gained like the USA economy gained at the end of last century and the start of the new one.
    I understand the comments here whether it is about bankers doing it intentionally, the government tried to save bankers and not the people etc etc it all direct us to see WRONG intentions behind this.
    I believe in the conspiracy theory but was worried he will say the word 'conspiracy' at some point because it will drive many to not believe what he is saying and probably not listen to the end. Thank you Brian for not saying it.
    Conspiracy theorists like me can add their spices to this later. Like:
    – The federal reserve is owned by those who are destroying the world so they will control it more; mainly Zionists (which I believe has nothing to do with Judaism; it is purely Khazarian pagan organization; read their history) and specifically Rothchilds and the families that spun out of them or work for them.
    – The US Dollar is the only currency that is not backed up by worth, gold etc. and USA is the only country that can just print money. All this because the $ is used for the vast majority of oil trading around the world and USA is powerful enough to keep it this way including delaying or even hiding other energy resources specially the free ones. But what if Oil just disappeared or a new energy resource suddenly replaced it or, heavens forbid, the Zionists (and I believe this is their plan) put USA into a war in the world's richest oil region??
    – What if 2008 was a pilot test by those who control the world so when they wanna destroy the world and make the elite Zionists own what is left of it (people and resources), they do it perfectly right without any mistakes or misses?
    Listen to Brian and other people like him or those who comment with more thoughts on 2008 But keep just a little chance, just a little one, that there maybe some powers behind this failure who intended for this to happen.
    May God bless the brains and eyes of humans to see what is really happening and think and reach the right conclusions before it is too late.

  18. How's accounting rule fixed? What is the rule now? 300k house worth 20k when hurricane comes. Under new rule, what's the house worth when hurricane come? 300k?

  19. This guy is really saying that the markets would have been fine if the government didn't help? So everyone would have lost their 401k's and houses with no job. This guy!

  20. See it was the Fed that made bankers give loans to people who had no hope of paying them back. Then it was again the Fed that made them buy the ratings company so they forced them to approve the loans as good.

    So see it was the Fed that forced the bankers to cause the crash.

  21. This guy is full of nonsense. If you really want to understand what happened, go watch any of Mark Blyth's talks about austerity.

  22. The flaw in Brian Wesbury's economic philosophy is explained in the documentary "The Flaw" in which Westbury's economic guru Alan Greenspan admits in a Congressional hearing that he made a mistake. If Wesbury was the Federal Reserve chair in September 2008, there would have been no economy left by October 2008. Greenspan adored laisse faire theorist Ayn Rand. His down fall was Ayn Rand's theory — let the rich control the economy.

  23. Borrowing $ from banks is a rip off. The house cost $250,000 the interest over 30 years is another $250,000 so you basically buy the bank a house. Banks are the biggest crooks around. When greedy banks need help they get a bail out but you get nothing. The federal reserve is like having a fox in the hen house, they are not our friend

  24. This guy is nothing more than apologist for a banker's. How about derivatives and the over speculation by the Banks and the repeal of glass-steagall? This guy is an apologist for big Bankers. Sorry not buying any of it

  25. This man works for the Fed. Reserve & George W. Bush's presidential center: THIS MAN IS NOT TO BE TRUSTED!
    YOU CAN'T WORK FOR COBRA & THE LEGION OF DOOM HAVE A GRADUATE SCHOOL LEVEL OF EDUCATION AND NOT KNOW YOU WORK FOR THE BAD GUYS WHICH MAKES THIS GUY A BAD GUY.

  26. This needs a new title: conservative apologist banker, makes excuses for the greedy bankers and people like him that caused every market crash.

  27. The question being is did tarp make it worse or, have no effect at all. That meaning, was the economy always going to fall to that low no matter what they did, it was destint at that point.

  28. Is there someone in the comments section that hasn't got his master's degree in economics from watching a 90 minutes documentary? Lol

  29. A few points here. First that Congress changed the accounting rule of mark to marketing which caused he economy to instantly start growing. Anyone who’s ever made observations in studies knows that correlation is not causation. At that point quantitative easing had been in place for some time and is a much better candidate for the change in economic growth. Next, this man seems to imply that the fed doing nothing or worse that austerity being imposed would have been much better. Just look at how well it worked for Greece. What a crock!

  30. As is widely-known, there are many calls for systemic reform of the nation's banking system. One proposal is to remove from the Federal Reserve the authority to create monetary values out of thin air and return to a system of currency redeemable in some specific and tangible form of wealth (most often coins of a standard gold and or silver metallic content). Then, there is the issue of whether commercial banks have been allowed to create new money each time a loan is made. As commercial banks do not have the authority to issue legal tender currency, the mechanism by which a commercial bank creates money is not supported by any accounting standards one can identify. I would be interested in any accounting regulations that describe how a commercial bank is able to make a loan to someone without having the cash on hand to do so.

  31. It is worth observing that a reduction in the rate of interest on a mortgage loan will not necessarily lead to the ability to purchase a larger, more amenity rich residential property. The reason for this is simple. The initial increase in borrowing capacity will be capitalized into higher land prices and, therefore, higher prices for all residential properties.

  32. This guy doesn't know what he is talking about. There was no ONE thing that caused the financial crisis of 2008. It was a set of events that fed upon each preceding event and it all snowballed into a financial crisis. The one thing we know for sure is that if Pres. George Bush had not removed the banking regulations, then the banks could NOT have done what they did. Pres. Obama put in new regulations on the banks when he came into office which would prevent another financial crisis. Unfortunately when Trump came into office he removed those regulations. There is nothing in place to stop another financial crisis. Just a reminder: the banks that were too big to fail ( back in 2008) are now three times bigger !

  33. 这是我看过的关于2008年 经济危机的最好的另类解读,会计规则的改变确实是一种毒药,可以立刻改变 商品(或抵押品)的价值。国内做的研究,则侧重于资产评级与事后政府的救援。

  34. Ah, Roosevelt got rid of market to market accounting. In 2007 Bush's administration reintroduced it. In 2009 Barney Frank's finance committee got rid of it again and the crisis was over.

  35. It’s pretty clear from the big short and other books/movies that the government didn’t have people on the payroll that really understood what was happening or how these complex investments were structured. They didn’t realize that Moody’s and S&P were giving out false ratings. I’ll have to join the chorus of disagreers on here. Funny thing about this period is most people I knew were upgrading to much larger houses than they needed or could afford and I decided to refinance to drop about 2.5 points on my rate. The broker I used said I was the first person to refinance in two years with him and not pull a chunk of “equity” out of the house based on the prevailing values. I just wanted to lower the rate and my payment. Kept me from losing my house.

  36. Yes the FED 'primed the pump'…………..but the repeal of Glass/Stegall created problems along with all the malfeasance Ninja loans, robo-signing and other nonsense that is simply fraud. Then there were the derivatives, from the mortgage tranche products to the atomic bomb CDS amplified the losses and wrapped AAA investment grade on what was total dog manure. This talk is very short on all the contributing factors that made the collapse so epic.

  37. Now I understand. I had a heart attack after i put on 30kg not because i ate pizzas every day. No! It's because the damn pizza was so cheap. They made too much flour, corn and ham in Canada and this made the pizza cheap. This is the real truth. Canada almost killed me. I would have stayed fit if it hadn't been for those damn cheap pizzas.

  38. The REAL truth? Is there an UNREAL truth? … The most valuable info I got here was about the difference between TED – events and TEDx – events as explained in teh sub-text ……

  39. Very accurate talk, agree completely with your conclusions and I have studied it extensively. Mark to Market 157 caused the 2008 Crash. It started in Europe IFRS 13 and was brought to the USA via FASB.

    You can see from the comments and thumbs down most people do not understand finances. They assume wrongly that the system is supposed to run like a swiss watch and only because of greedy people does it not. Well the greedy people are always there doing what they do so to claim this is a cause is a non-starter for me. Good claim however if your goal is some sort of social agenda using the examples of greedy people to move groups to what you tell them will be a fair and just system. The one which doesn't exist cept in the minds of people not very sophisticated about money and business.

    Its like saying President Trump is a "crook". Doing so devoid of the understanding most of what an average person would encounter in the Commercial Real Estate business would look shady. Most businesses beyond the time clocks and labor agreements look shady and some of it is flat-out illegal. Employees steal pencils, your boss is riding his business account to a vacation in Rio. The danger in a system like ours is assuming fair play is the default operating mode when the standard is cheat. That's just how it works.

    Quick sharp slowdowns are caused by clueless people. The government is filled to the brim with them. If not for an active and informed Executive branch the last 2 years we would once again be back in some form of a sharp decline and societal changing financial mess. The Social Planners are now praying for this collapse. For without one their agenda rarely moves out of crazy. We have bubbles everyplace and they are fine as long as you keep the kids with the pins away.

  40. "It is hard to imagine any time in history when such rampant pessimism about the economy has existed with so little evidence of serious trouble." – brian s. westbury, 2008

  41. This is awesome "it was the interest rates that made us not do credit checks and income check on Sub Prime loans and parcel up rubbish CDO and sell them to unsuspecting Smucks.

    Hey i know this guy he was in in my class I'm sure he was the one where his dog ate his homework.

  42. A PBS video shows Brooksly Borne warning about the building crisis, including Fan & Fred, in a Congressional appearance in 1999 and Greenspan, Rubin, and B.Frank just laughed at her.

  43. This video hurts TED Talks credibility. This is the equivalent of a fossil fuel executive telling people that Climate Change is a hoax, or a 1950s tobacco executive telling people smoking is good for you. Understanding the 2008 depression, look at its root causes the May 7th 1998 blockage of the CFTC's Concept Release concerning the OTC Derivatives Market, and the Nov. 12th 1999 the Financial Services Modernization Act (AKA the Gramm–Leach–Bliley Act) which broke Glass-Steagall.

  44. Too wrong. The lack of regulation and a series of ill-fates laws created the fuel and the match for the GR.

    The Great Depression exemplifies what happens when the US government doesn’t step in. The government shrank after the crash of 1929. Unemployment was 25% by 1933. Roosevelt was elected in 1933 and turned things around with massive gov’t spending.

    Banks are leveraged 40-fold, meaning that for every $1 they have in actual cash, they can loan out $40 dollars. When they start to default, they drop like dominoes. Our entire economy money floats on loans. If banks fail, we’re back to another Great Depression.

  45. People are inherently greedy. Only effective regulation can attempt to slow down actions that are too risky. For example, if AIG were required to hold 30% of the value of their polices in cash (a law that exists for other types of insurance), they never would have backed $300 billion in risky assets. Then we’re a major part of the $700B TARP program to stimulate he economy. AIG insures over 60M companies worldwide. If they sink, the planet sinks.

  46. The speaker would have benefited from watching a few TED talks to understand the level at which these talks usually take place. Certainly, as people here have pointed out, the derivatives specifically MBS, ABS and CDS and explanation of the whole subprime market should have been covered. Also his conclusion to blame the Fed for the crisis due to low interest rate is at best half baked and incomplete! What about the intransparent risk structure of bundled sub prime mortgages (which, by the way, was known in the industry well before the crisis)? A visit to a SIFMA conference in the run up to 2008 would have provided that insight. Was this taken from a introduction course at a high school?

  47. Free market has no PR?? What about all those so called economists and entrepreneurs who do nothing else but tell us how great a free market is and how bad regulation is? „Hey people, let us make huge profits, pay our workers less than what they need to survive, put our money in tax paradises: everything will be all right, the market regulates itself…“

  48. To look at a graph and try to correlate it with decisions and then decide whether there is an instant causal connection between the two is silly. As an engineer, I will say to an economist that tells me this you should go back to school and study the hard sciences a little more.

  49. Wow someone put on a suite and tie and showed a chart of the S&P and talks a lot of BS. Watch the movie or read the book The Big Short is a good start to understanding what happened in 08 Stress test is a good read on how the government got the banks to safely de leverage and survive although not perfect they did a good job of keeping the ship from sinking .

  50. OMG…this guy… If it were not for the mark to market accounting rule then the problem could have had substantially more negative impact due to much bigger bubble and financial destruction it could have caused. I live in small Eastern European EU member state economy, and we were not that affected by the 2008 crisis also a little bit due to conservative banking policy of the local banks back then. Nevertheless, I’m convinced that this accounting rule (mark to market) helped to detect the problem early in US, and please bear in mind that prices of securities started falling when first bankruptcies of smaller financial institutions have happened due to insolvency.

    Using e.g. acquisition price accounting rule (historical price based) instead of mark to market accounting rule (current price based) definitely might’ve offset losses resulting from uncollected receivables from loans, i.e. loan defaults, through keeping collaterals (houses) value high as the last price of market acquisition applies.

    Furthermore, if we were to apply historical based rule then it could have resulted in overpriced commodities/securities being historically recognized as assets… Please bear in mind that assets by definition have to generate economic benefits.

    Well… prices rise when there is demand and fall when commodities/securities lack demand. Historically, the demand for houses and securities was high but it lowered in time significantly in value.

    Moreover, in historical based approach NO costs resulting from impairment in value are recognized in losses department. So more money could have being pumped into the system with entities having ability to borrow for longer and more due to ok financial ratios and better financial standing. In other words the financial institutions could have conducted business for longer prolonging the period before a bankruptcy occurs….

    If it were not for mark to market accounting rule then the negative impact could have been much worse… and it was quite significant anyway!!!!

  51. Blatant over speculation with KNOWN risks, deliberately hidden, repackaged and resold are known facts. Why try to blame it on something else? Sure, it might have EXPOSED the issue… but the issue was still something else. Let's say someone has an illness, some case of some unknown condition. During an exam related to a sprained ankle this unknown issue happens to be found by chance and the patient later goes on to die from the previously unknown condition… We don't then blame the exam of the sprained ankle for the death of the patient.

  52. It’s sad to me now, that in 2019 my parents are losing their house to foreclosure. But, that being said, they cannot afford it. I’m 32 and don’t own my own house yet. But I cannot allow myself to get into a mortgage I know that I cannot afford. It doesn’t make sense to tread water before I drown. They’ll recover credit wise. Rent for a few years what you can afford. There’s no shame in living according to your means.

  53. The title of this presentation should be : How far from the real truth…
    In my opinion it is the Greed what causes it and it will again at some point. There is no government or any good will that can control it. There is no broker no bank no feds and no insurance to regulate Greed. And all of them share the same denominator. It is a simple overvaluation and high payments for the consumers to pay and afcource took the toll. The market always will find the right price. In this situation the right price was highly multiplied by the Greed factor and uncontrolled played by the banks.

  54. That was probably the most full of –it Ted Talk in the history of Ted Talks. Corruption and greed caused the crash. And there was no accident. It was all on purpose. Bankers and Wall Street made billions on that crash. They could have simply locked in the loan rates when they were affordable instead of allowing the huge bumps to take place. They wouldn't have made as much profit but the far fewer loans would have failed. The banks need to sell CDOs was the issue.

  55. Here's a bit of a spin on your understanding…..banks did not lose control. In fact, those who ultimately control the banking system also control the political funding & positions. Banks forced their owned politicians to inflict "mark to Market" policies KNOWING THEY WOULD CREATE GREAT DAMAGE (which to them is fantastic opportunity), then once the damage was done to their chosen targets, they simply turned off the storm. Then, they regulated the little guy while once again deflecting regulation on themselves.

    Funny how NO ONE ever mentions the derivatives market

  56. "Bear don't care" was the slogan & mantra when an audited mortgage file was kicked out for compliance, underwriting guidelines or pricing. I remember watching Bear Stearns stock fall from $110 to $5 & wondered if they cared now?

  57. This is not the real truth of the 2008 crisis. Want to know the real truth? The crisis was caused all by politicians. It was Clinton who repealed Glass Steagal of which the CDO's were a direct consequence as did the hostile take over of saving banks by investment banks. Then came the dotcom crash and Bush pushed and stimulated the housing market in the hope to get the economy going again which combined with the former 2 led to the 08 crisis.

  58. Canada's short terms interest was the very same of the USA one (we realy do copy the USA most of the time on that) but we had law preventing the extream loan % most american bank did and well, our bank had no crisis in 2008. We suffered form the backlash caused by the world going bankrupt but poeple bankrupcy rate barely went up and many country started to copy the laws canada have over private banks.

    Now we even force a stress test where you must prove that you can resist a 3% interest raise to get a loan for a house and their is discussion to up it to 5% but who's agaisnt that ? Well private banks who wich they could loan anything to anybody since the CEO get paid upon sign up rather then long therm profit.

  59. Uh, the repeal of Glass Steagall has EVERYTHING for the ushering in of the 2008 crisis. Why? Because after Glass Steagall was in 1999 and up to the 2008 crisis we had investment banks, commercial banks and insurance companies wheeling and dealing. Before that we didn't have investment banks, commercial banks and insurance companies wheeling and dealing. Period. Do your own research on this. The repeal of Glass Steagall was the absolute reason WHY the 2008 crisis was ALLOWED and CREATED to happen.

Leave a Reply

Your email address will not be published. Required fields are marked *