Well written and interesting! The move from "plain vanilla banking" to the "originate and sell" model, alongside securitization and the perverse incentives embedded in this system, is a hallmark of the broader transformation rooted in the USA's transition from the Old Republic to the Neoliberal Era.
During the times old the Old Republic (~1830s to ~1970s), banking was primarily localized and community-oriented, restrained by regulatory frameworks like the Glass-Steagall Act and interstate banking restrictions. These structures encouraged prudence in lending and maintained a closer match up between banks' interests and those of their customers. However, the Neoliberal Era dismantled these decentralizing structures and safeguards. Deregulation and financial centralization paved the way for speculative practices. Things like Fannie Mae and Freddie Mac, initially designed to expand access to homeownership, became vehicles for risk transfer and profiteering
This didnt happen in a vacuum. The dismantling of the various capital flow inhibitors (which had been around, in varying forms, since the 1830s) and the concentration of financial power undermined the regional economic diversity and resilience that had been one of the main calling cards of the Old Republic. The rise of securitization and subprime lending grew and grew in this centralized system, where local oversight and accountability were replaced by impersonal, profit-driven mechanisms.
Your anecdote about "loosey-goosey" is right on. The Neoliberal obsession with short term profits over long-term economic health transformed financial institutions from pillars of local economic growth into engines of systemic risk.
The crisis of 2008 revealed the fundamental flaws of this shift, exposing how the financial sector's alignment with Neoliberal principles led to widespread economic harm. A return to principles that emphasize decentralization, accountability, and match up between financial institutions and public welfare needs to be restored. The Old Republic's emphasis on localized economic control and financial prudence offers the lessons we need for building a more stable and equitable system, and in fact, it would even be much more economically vibrant
" In 2005, the Senate sponsored a bill that prohibited them from holding mortgage-backed securities in their portfolios. Congress wanted to reduce the risk to the government. By 2009, the two GSEs owned or guaranteed 44%, or $4.8 trillion (in 2009 dollars), of residential mortgage debt, up from 36% in 2006.3 Congressional Budget Office. "Fannie Mae, Freddie Mac, and the Federal Role in the Secondary Mortgage Market," Pages 10-11.
But the Senate bill failed..."
Most of the bundled had already been made by private banks in the aftermath of the repeal of Glass-Stegall (encouraged and signed by President Clinton, but a bill proposed by Republicans--the Gramm-Leach-Bliley Act--and passed by bipartisan majorities.)
An under appreciated factor in that was Andrew Cuomo's role during his tenure at HUD. The article I link to below shows Cuomo's decisions substantially increased Fannie and Freddie's involvement with subprime and low doc loans
Private banks played a leading role in the early stages, but then Cuomo's policies helped normalize and accelerate the risky practices within the GSEs. By 2000, Fannie and Freddie had made a big pivot toward subprimes and alt loan products, which, even beyond their direct involvement had indirect effects that fueled the speculative excesses in the private banks.
Thanks I wasn't aware of Cuomo's role in encouraging Fannie and Freddie to take on subprime and basically no prime loans. I have a post coming on them. I compare the Canadian system which achieved the same amount of home ownership, about 70%, by requiring mortgage default insurance on 5% down loans only. The banks keep the entire risk of all mortgages on their books subject to insurance as the only hedge. And that only applies to the 5% down mortgages. There is no government guarantee of any mortgage loans. The 70% result should bust the myth that banks won't lend unless the government gives the Fannie and Freddie guarantee. Insurance companies are both private and public. So there is competition among them. Surprisingly more capitalistic in what is viewed as leftist Canada than in the US.
Glass-Stegall repeal (Gramm-Leach-Bliley) was written by Wall Street, for Wall Street, with the enthusiastic direction and endorsement of Robert Rubin, Blll Clinton's Secretary of the Treasury, passed by a bipartisan Congressional majority in 1999 and then signed by Clinton. In an economic climate of irrational exuberance, of course. Turns out they got a little giddy. With a trap door bailout always somewhere in the mix as insurance, of course. A Hedge. To be used only if necessary, and, ehhh...
You meant the tongue twisting Gramm Leach Bliley. But you have phrased it very clearly, 'written by Wall Street for Wall Street'. Ruben was the ex CEO of Goldman Sachs. That raises another issue. The Treasury Secretary should never be from Wall Street. Clinton said the best people to regulate Wall Street were people from Wall Street. To the contrary, they are the worst people. They will always do what's best in Wall Street's interest.
Here in the USA, they've been lying their ***** off since the 1830s, seriously, the physical architecture of the system we had for almost a century in a half is knowable, but *their* world of sources (Big Prestige Unis, Big Int Finance, etc.), lies about by decade. Primary sources by decade can fully prove them wrong each decade, and the --shamefully gone for decades now other sources -- thousands of other news, periodicals, journals, opinions, etc. sources -- can prove the prevailing opinions and intentions of most all the American population and most all directly involved actors (many prim sources their as well, such as fed and importantly state legislative records) and they just lie. People can judge it in its own terms, I strongly suspect at least a super majority would want it back: the long occulted actual true real banking, finance, and monetary theory of Jacksonian Democracy!
I've been reading a book I just bought, Why I Left Goldman Sachs, by Greg Smith. He said that over time, particularly after the 2008 recession, the company stopped even caring about serving the interest of their clients. The only thing that counted was maxxing out the commissions: trade this, trade that, who cares if the client benefits. Which is really pretty bad, even given the absence of ground rules in "free markets."
We see the same values describe by Michael Lewis in Liars Poker. Readers may think that those values were only at Salomon Brothers but they are universal throughout the trading banks. Lewis gives the example of recommending an investment to a German pension fund that was on the Salomon recommended list but was owned by Salomon. Lewis found about that ownership only after the sale. Of course, the stock tanked. When Lewis went to his manager to see if something could be done, the manager brushed him away saying "who do work for them or us".
And our current Fed Chair Jerome Powell, uring the early 1990s, was Under Secretary of the Treasury for Domestic Finance. In this role, Powell was directly involved in overseeing Treasury auctions, which were at the core of the Salomon Brothers scandal.
Funny that.
And then, despite his direct and deep connection to the relevant treasury operations during the whole time it was going on, he was chosen to be in a leadership position within the official "management" -- and it seems maybe the "investigation" as well -- of the matter. Funnier still.
they've been lying their ***** off since the 1830s, seriously, the physical architecture of the system we had for almost a century in a half is knowable, but *their* world of sources (Big Prestige Unis, Big Int Finance, etc.), lies about by decade. Primary sources by decade can fully prove them wrong each decade, and the --shamefully gone for decades now other sources -- thousands of other news, periodicals, journals, opinions, etc. sources -- can prove the prevailing opinions and intentions of most all the American population and most all directly involved actors (many prim sources their as well, such as fed and importantly state legislative records) and they just lie. People can judge it in its own terms, I strongly suspect at least a super majority would want it back: the long occulted actual true real banking, finance, and monetary theory of Jacksonian Democracy!
Well written and interesting! The move from "plain vanilla banking" to the "originate and sell" model, alongside securitization and the perverse incentives embedded in this system, is a hallmark of the broader transformation rooted in the USA's transition from the Old Republic to the Neoliberal Era.
During the times old the Old Republic (~1830s to ~1970s), banking was primarily localized and community-oriented, restrained by regulatory frameworks like the Glass-Steagall Act and interstate banking restrictions. These structures encouraged prudence in lending and maintained a closer match up between banks' interests and those of their customers. However, the Neoliberal Era dismantled these decentralizing structures and safeguards. Deregulation and financial centralization paved the way for speculative practices. Things like Fannie Mae and Freddie Mac, initially designed to expand access to homeownership, became vehicles for risk transfer and profiteering
This didnt happen in a vacuum. The dismantling of the various capital flow inhibitors (which had been around, in varying forms, since the 1830s) and the concentration of financial power undermined the regional economic diversity and resilience that had been one of the main calling cards of the Old Republic. The rise of securitization and subprime lending grew and grew in this centralized system, where local oversight and accountability were replaced by impersonal, profit-driven mechanisms.
Your anecdote about "loosey-goosey" is right on. The Neoliberal obsession with short term profits over long-term economic health transformed financial institutions from pillars of local economic growth into engines of systemic risk.
The crisis of 2008 revealed the fundamental flaws of this shift, exposing how the financial sector's alignment with Neoliberal principles led to widespread economic harm. A return to principles that emphasize decentralization, accountability, and match up between financial institutions and public welfare needs to be restored. The Old Republic's emphasis on localized economic control and financial prudence offers the lessons we need for building a more stable and equitable system, and in fact, it would even be much more economically vibrant
Fannie and Freddie were relative latecomers to the mortgage bubble. https://www.thebalancemoney.com/did-fannie-and-freddie-cause-the-mortgage-crisis-3305659
" In 2005, the Senate sponsored a bill that prohibited them from holding mortgage-backed securities in their portfolios. Congress wanted to reduce the risk to the government. By 2009, the two GSEs owned or guaranteed 44%, or $4.8 trillion (in 2009 dollars), of residential mortgage debt, up from 36% in 2006.3 Congressional Budget Office. "Fannie Mae, Freddie Mac, and the Federal Role in the Secondary Mortgage Market," Pages 10-11.
But the Senate bill failed..."
Most of the bundled had already been made by private banks in the aftermath of the repeal of Glass-Stegall (encouraged and signed by President Clinton, but a bill proposed by Republicans--the Gramm-Leach-Bliley Act--and passed by bipartisan majorities.)
An under appreciated factor in that was Andrew Cuomo's role during his tenure at HUD. The article I link to below shows Cuomo's decisions substantially increased Fannie and Freddie's involvement with subprime and low doc loans
Private banks played a leading role in the early stages, but then Cuomo's policies helped normalize and accelerate the risky practices within the GSEs. By 2000, Fannie and Freddie had made a big pivot toward subprimes and alt loan products, which, even beyond their direct involvement had indirect effects that fueled the speculative excesses in the private banks.
Article link: https://www.villagevoice.com/andrew-cuomo-and-fannie-and-freddie/
Thanks I wasn't aware of Cuomo's role in encouraging Fannie and Freddie to take on subprime and basically no prime loans. I have a post coming on them. I compare the Canadian system which achieved the same amount of home ownership, about 70%, by requiring mortgage default insurance on 5% down loans only. The banks keep the entire risk of all mortgages on their books subject to insurance as the only hedge. And that only applies to the 5% down mortgages. There is no government guarantee of any mortgage loans. The 70% result should bust the myth that banks won't lend unless the government gives the Fannie and Freddie guarantee. Insurance companies are both private and public. So there is competition among them. Surprisingly more capitalistic in what is viewed as leftist Canada than in the US.
Glass-Stegall repeal (Gramm-Leach-Bliley) was written by Wall Street, for Wall Street, with the enthusiastic direction and endorsement of Robert Rubin, Blll Clinton's Secretary of the Treasury, passed by a bipartisan Congressional majority in 1999 and then signed by Clinton. In an economic climate of irrational exuberance, of course. Turns out they got a little giddy. With a trap door bailout always somewhere in the mix as insurance, of course. A Hedge. To be used only if necessary, and, ehhh...
think in terms of the Hyperpower version of "Postcards From Paraguay" https://www.youtube.com/watch?v=D2UISeUv4d0 "Too Big To Fail"
You meant the tongue twisting Gramm Leach Bliley. But you have phrased it very clearly, 'written by Wall Street for Wall Street'. Ruben was the ex CEO of Goldman Sachs. That raises another issue. The Treasury Secretary should never be from Wall Street. Clinton said the best people to regulate Wall Street were people from Wall Street. To the contrary, they are the worst people. They will always do what's best in Wall Street's interest.
Here in the USA, they've been lying their ***** off since the 1830s, seriously, the physical architecture of the system we had for almost a century in a half is knowable, but *their* world of sources (Big Prestige Unis, Big Int Finance, etc.), lies about by decade. Primary sources by decade can fully prove them wrong each decade, and the --shamefully gone for decades now other sources -- thousands of other news, periodicals, journals, opinions, etc. sources -- can prove the prevailing opinions and intentions of most all the American population and most all directly involved actors (many prim sources their as well, such as fed and importantly state legislative records) and they just lie. People can judge it in its own terms, I strongly suspect at least a super majority would want it back: the long occulted actual true real banking, finance, and monetary theory of Jacksonian Democracy!
You're right, I mean Glass Stegall repeal.
I've been reading a book I just bought, Why I Left Goldman Sachs, by Greg Smith. He said that over time, particularly after the 2008 recession, the company stopped even caring about serving the interest of their clients. The only thing that counted was maxxing out the commissions: trade this, trade that, who cares if the client benefits. Which is really pretty bad, even given the absence of ground rules in "free markets."
We see the same values describe by Michael Lewis in Liars Poker. Readers may think that those values were only at Salomon Brothers but they are universal throughout the trading banks. Lewis gives the example of recommending an investment to a German pension fund that was on the Salomon recommended list but was owned by Salomon. Lewis found about that ownership only after the sale. Of course, the stock tanked. When Lewis went to his manager to see if something could be done, the manager brushed him away saying "who do work for them or us".
And our current Fed Chair Jerome Powell, uring the early 1990s, was Under Secretary of the Treasury for Domestic Finance. In this role, Powell was directly involved in overseeing Treasury auctions, which were at the core of the Salomon Brothers scandal.
Funny that.
And then, despite his direct and deep connection to the relevant treasury operations during the whole time it was going on, he was chosen to be in a leadership position within the official "management" -- and it seems maybe the "investigation" as well -- of the matter. Funnier still.
And now he's Fed Chair. Hilarious x1000
they've been lying their ***** off since the 1830s, seriously, the physical architecture of the system we had for almost a century in a half is knowable, but *their* world of sources (Big Prestige Unis, Big Int Finance, etc.), lies about by decade. Primary sources by decade can fully prove them wrong each decade, and the --shamefully gone for decades now other sources -- thousands of other news, periodicals, journals, opinions, etc. sources -- can prove the prevailing opinions and intentions of most all the American population and most all directly involved actors (many prim sources their as well, such as fed and importantly state legislative records) and they just lie. People can judge it in its own terms, I strongly suspect at least a super majority would want it back: the long occulted actual true real banking, finance, and monetary theory of Jacksonian Democracy!
Exactly!