Bank Failure in 2008

hammo1j

Donor
TARP restored liquidity and perhaps more importantly gave assets a value which prevented negative equity and bank failure.

If the banks failed shareholders would lose their money. Creditors would be settled by tier.

The loans and employees would have to go somewhere and would be snapped up by stronger banks at a fire sale as Barclays did with Lehmans.

This would all be disasterous, but not catastrophic, were it not for the fact that these banks operated ordinary retail accounts. Hence we have ringfencing now.

So the result would have been utter chaos with the austerity years being a truly great depression.

I know this means the guilty, who issued dodgy loans assuming an ever buoyant housing market, got away with it, but relatively that's a small price to pay.
 
So the result would have been utter chaos with the austerity years being a truly great depression.

But what would the political effects of this be? Due to a lack of TARPs there would be less of a libertarian backlash against “big government.” So probly a radicalization of the public against wall street, hence an earlier and much stronger Occupy, as well as an earlier emergence of a “Trump" figure in the GOP. Mabey if things happen quick enough a radical like Mike Gravel might win in 2008.
 
Russia, China and quite a few other countries move their armies to acquire whatever resources they can.

Russia, totally, however not China. In 2008 the Chinese economy was reliant on exporting to America. If America had a second Great Depression, they would suffer to.
 
But what would the political effects of this be? Due to a lack of TARPs there would be less of a libertarian backlash against “big government.” So probly a radicalization of the public against wall street, hence an earlier and much stronger Occupy, as well as an earlier emergence of a “Trump" figure in the GOP. Mabey if things happen quick enough a radical like Mike Gravel might win in 2008.

Probably not in 2008. Up until the fall, the major issue that campaign was still Iraq, and then the bottom fell out of the economy about a month after the conventions.
 
Would TARP have existed if Dubya didn't appoint Paulson?
The push for TARP came in part from Spencer Bacchus's idea of a liquidity injection for stabilization purposes. I think its likely that it comes about still as a result.

As for what would happen, well, you would see what happens when banks fail, which is that creditors are compensated via tier, and that means depositors get paid first, but at that point, I believe the threshold was only 100K. This would have some pretty steep effect on the upper middle class. The process of unwinding unguaranteed asset values would have a disastrous impact on the entire economy, especially considering how much investment had gone into said assets in the buildup.

I would assume you would be looking at unemployment rates above 15% by early 2009 and a substantial shrinking of per capita GDP. The United States would look more like Ireland in 2010 than the UK in 2010. It would take an adverse event and a recession and turn it into a depression.
 
The economy crashes and burns worse then the Great Depression. America goes hard isolationist. Russia, China and quite a few other countries move their armies to acquire whatever resources they can. It’s the 20s and 30s back again and if American politicians don’t realize it in time and co-opt it then the far left and far right aided by the social media will take power like never before seen in America.

Europe will not be immune either as if America economically collapses into a deep depression so will be the EU.
Too grim but i doubt it. The thing is a massive depresion crash china too...(and might kill japan) but as other say, the recover will be different but people will not be happy with Wall Street and we might see even stronger regulations that ever
 

Vuu

Banned
Trump happens except this madman would actually purge everyone with a blank cheque from the entire populace
 
One scenario can happen, and it's the best-case scenario: the Democrats add Georgia, South Carolina, Nebraska, Texas, Kansas, Mississippi, and Kentucky to their Senate wins in 2008 with a bigger financial collapse by November 4, 2008. They have an easier time winning Minnesota.

Democrats have 66 Senate seats by January 20, 2009 under Obama and have around +270 seats in the House and enough state legislatures to ratify constitutional amendments.

By 2009, Obama, with the greater urgency to do something to halt America's economic collapse, becomes much faster at passing legislation. He is able to be the staunch liberal/progressive people thought he was at the time, pass a much, much bigger stimulus, universal healthcare, higher wealth and income taxes, a huge infrastructure package, heck even a Green New Deal and other fiscal stimuli to help the average American. More of the stimulus goes to average Americans rather than large banks because, well, they've largely collapsed ITTL. All kinds of stimuli are tried to get the economy running again.

While 2009 is still worse than IOTL economically the next year is instead better than IOTL. By 2016, the world economy is better than IOTL.

Other legislation such as expanded voting rights (includes a ban on state and federal gerrymandering in time for the 2010 midterms), the DREAM Act, also get passed in this faster-moving Congress since the Obama administration is anticipating losses in the 2010 midterms due to the economy, and some constitutional amendments as well in that short span of time since they can do so. Because of a better and recovering economy by November 2, 2010, the Democrats lose less seats. If Osama Bin Laden is killed in late October 2010, the Democrats resoundingly win the midterms and gain seats, a rare occurence.

There are far stronger banking regulations. I expect Glass-Steagall to be reinstated, and a lot of CEOs jailed in turn with great public fury against them and with a far stronger CFPB.
 

hammo1j

Donor
As for what would happen, well, you would see what happens when banks fail, which is that creditors are compensated via tier, and that means depositors get paid first, but at that point, I believe the threshold was only 100K. This would have some pretty steep effect on the upper middle class. The process of unwinding unguaranteed asset values would have a disastrous impact on the entire economy, especially considering how much investment had gone into said assets in the buildup.

It seems like that is the case. Checking the US websites your deposit is insured provided you are in the scheme. In the UK I assume the same thing but it is more universal. And that is the right order for things to happen.

Now certainly the US authorities would guarantee that the staff of the bank are retained to manage the depositors until they can be moved to another bank. And indeed they say that they will try to recover amounts beyond the insured amount ahead of bond holders etc.

So in theory, provided that assets are not that far down from liabilities, the depositors stand a good chance of getting their money back without invoking the government guarantee. Now it would be the shareholders that lose (as is the plan in an ideal of Capitalism) and conspiracy theories thus abound.

Now I am not a conspiracy theorist or a financial expert though I do know that banking is misrepresented as a one way street to riches. So maybe there is a problem that I dont perceive. Maybe the liabilities were so great that it could bankrupt the government in meeting its insurance obligation. But interestingly after the crisis even the Northern Rock loanbook performed adequately. (or was that the confidence injected in at the time).

Take the UK - there were Banks that had been crippled through property mainly in Ireland; Halifax Bank of Scotland and the Royal Bank of Scotland (incl Nat West) (which also took on an unfortunate risk with Abm Amro).

In contrast you had Lloyds a very conservative organisation and HSBC (really a global bank) that had been bitten by the quest for returns with Household insurance and Barclays. They would have stood to pick up the business of the riskier loaners.

So was it really so endemic that the wicked (who dont know that they are wicked) had to be saved at the expense of the prudent?

Seriously I would be open to a generic argument, but I do know that finance is a multi headed beast and that may be the reason, much as I personally would love to blame it all on Shape Shifting Lizards because it is so much more satisfying on a human level.

Any ideas, anyone?
 
If the banks failed shareholders would lose their money. Creditors would be settled by tier.

The loans and employees would have to go somewhere and would be snapped up by stronger banks at a fire sale as Barclays did with Lehmans.

This would all be disasterous, but not catastrophic...So the result would have been utter chaos with the austerity years being a truly great depression.
That's the conventional wisdom. I've heard a contrary view, which says the banks could've been wound up & shut down in orderly fashion, without them crashing, using existing tools, & without giving a $700 billion gift to the crooks who organized the Crash in the first place.:mad:
 
The problem is that back in the old days (way back) you had the banks giving out money based on real assets like machinery, real estate...

But already in the 30s a large part of the assets (loans) of the banks were guaranteed by shares handled in the stock exchange. As they plummeted the assets of the banks simply vanished.

Same in 08. The loans the banks had out were to a large extent either between banks or backed up by financial instruments which all relied on trust into the other party to repay the loan or the value of the financial instruments to at least be stable.

If those two assumptions prove faulty the assets have more or less disappeared and the bank is broke. A more orderly closing can only happen if people have trust in anybody keeping the bank afloat for such a process and here we are back to... exactly the government.

The situation today btw is more or less the same 80% of the global balance sheet of the banks is not backed up by anything real.
 
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