No we wouldn't. This is not a repeat of 2008, the rules written to keep 2008 from happening again wouldn't have stopped it, and the media has been bullshitting people about this for, basically, partisan reasons. 2008 was caused by default risk and in particular, by the banking system failing to adequately protect against the fact that lots of loans would default at the same time in a recession or housing price crash. The rules were focused on stopping that. The current problem is duration risk - banks hold a bunch of extremely safe but long-duration fixed interest assets like US Treasures and government-backed mortgage securities, the Fed has increased interest rates very rapidly, and that means the interest banks have to pay on their savings is now higher than they get on those asssets. None of the rules foresaw such aggressive interest rate rises, and to some extent this kind of duration mismatch is just how banks work full stop. The media is misleading people about this because they really, really want it to be a story about right wing anti-regulation politicians causing a repeat of the last crisis.
> None of the rules foresaw such aggressive interest rate rises
The Fed has stress tested for duration since Dodd-Frank. The unsophistication of SVB’s duration simulations was specifically flagged by supervisors ex ante.
Subjecting SVB, Signature and First Republic to LCR requirements would have thrown up early red flags. (You’re partly correct in that the definition of liquid assets is too broad: Treasuries of all kinds get equal weight.)
> media is misleading people about this because they really, really want it to be a story about right wing anti-regulation politicians
Except 1929 didn't happen again, the problems in 2008, and in 2023 were completely different.
The problems in 2023 were made significantly worse by the rollback on liquidity rules in 2017, which, if we may recall, was not a year that Obama was exerting any influence on banking rules.
No, it’s not fraud. There was not misrepresentation. The structures were largely straightforward and the requirements for a bond to be rated AAA were no secret. There were good faith decisions that were foolish in retrospect, but in general credit tranching works.
If people blindly invest their money this is somewhat inevitable to occasionally happen. Its great when regulations can prevent it but thats an ideal, not a 100% attainable reality.
Moodys rates mortgage backed security as A when many mortgages lacked proper documentation and underwriting and were not worth the amount of the mortgage at time of issuance. [0]
They were rated as prime but were actually junk.
There was no criminal investigation because the US DoJ decided not to. Civil suits didn’t get far because it was hard to gather information without criminal jurisdiction.
Obama got almost $50M from Wall Street for his 2008 election and it paid off well for his donors. [1]
With that much fraud, there should have been more criminal convictions rather than bonuses as usual.
The models used by the rating agencies were open and available to investors. The number of low doc/no doc loans as well as no appraisal loans were tracked and specified. Given the number of loans in a particular category, the rating agencies required certain levels of protection via credit tranching, over collateralization and insurance. These models proved to be poor. But no one was hoodwinked.
Now you may argue that banks accepted fraudulent applications that a prudent man would not have and then sold securities based on those, and all the big banks paid out multibillion dollar settlements over that.
Why no criminal prosecution? Two reasons. IANAL, but I believe the standard for criminal fraud is higher than imprudent decisions. Second, and more importantly if you start charging bank employees criminally, you really need to start charging the fraudulent borrowers who by many accounts number in tens of thousands. No one made them commit fraud. They were not victims of fraud, they were literally beneficiaries, though ultimately foolish as well.
In several deals mortgages were claimed to met underwriting but a substantial fraction had not. There was significant civil litigation on this matter but no prosecutions in part because showing knowledge by a particular person was hard.
> In 2013, he (Attorney General Eric Holder) unwittingly earned his place in history for telling the Senate Judiciary Committee, “I am concerned that the size of some of these [financial] institutions becomes so large that it does become difficult for us to prosecute them,” which became known as the “Too Big to Jail” theory.
That's already the state of the world. That's why they're considered systemically important banks.
https://en.wikipedia.org/wiki/Systemically_important_financi...