What a dismissive, awful, terrible way to phrase this.
Having parents that were nearly the victims of one of those upside down mortgages, it's not that simple. They didn't ask for a 400k mortgage. They asked for a home they could afford. When the bank, that they have trusted their entire life, says, 'you can afford this much per month', they had no reason to question that.
They're unsophisticated people, who trusted the system not to fuck them. And that's precisely what it tried to do.
While I get that people need to take control of their own money, when the people responsible for looking after your money, the actual, literal bank tells you you're good, why wouldn't you believe them?
The bank doesn’t have a fiduciary duty to mortgage customers.
If someone wants someone responsible for looking after money and large purchases, they need a fiduciary financial advisor, not their bank.
The fact that people think the bank is supposed to look after money is part of the problem. The bank is just a vault. Not only are they not responsible for helping someone pick a mortgage and house, they aren’t even competent to do so.
I can’t imagine some retail bank even employing people who could competently assess individual debt/income ratios.
The training is that individuals should have financial literacy enough to know what banks do and don’t do well. And to recognize cross-marketing.
I knew tons of people who made dumb decisions in the 00s and bought way too much house. The bank letting them was part of the problem. But people being stupid was a big part too. I knew families making $50k/year buying $400k houses and refinancing every six months for cash out to pay the mortgage. The bank shouldn’t have done that. But people were really stupid to do this once much less multiple times.
But some banks thought they could lower their underwriting standards and get away with it because they could shift the risk to larger financial entities by selling the mortgages. And a lot of non-banks got in on the mortgage underwriting game for the same reason.
And bank customers liked it. Who doesn't like to be told that you're in better financial shape than you thought? That should be good news.
My point above was not to defend what banks did, but to point out that, even though banks were in the legal right to lower their underwriting standards, it did not work out well for them or their customers (or anyone else, really). And a lot of the downside came later, in the form of bad reputations, burdensome regulations, etc.
Maybe there were lots of hapless old people who were misled by some bank they mistakenly trusted for years.
I don’t think so, the many examples I personally knew from that period were getting loans from specialized banks that set up mortgage shops, like Washington Mutual.
The book (and movie) The Big Short digs into this how regular people were overextending.
To clarify, the banks were bad actors by offering and participating. But reasonable people were avoiding the situation until the whole system tipped over. Someone borrowing at 40% debt to income or higher should never have done that, even if they trusted their local banker who was saying it was fine. Finance requires personal responsibility and people need education to help make these decisions (and they shouldn’t get this help from someone with a vested adversarial financial interest).
They would have terrible sales numbers and get fired in the first month. Wells Fargo's training was that the more financial instruments a customer had with the bank the better.
Shouldn't be possible. Most of the messages to the orderbook, by orders of magnitude, would be market makers doing add/cancel, which isn't something that comes from RH anyways.
How often is one particular user going to send in an order? 10 times a day if they're particularly busy? Doesn't touch the sides. The internet facing gateways can be scaled up easily if that's even needed, they aren't latency sensitive. The inside towards the exchange can be made extremely fast.
I've built systems that do this.
[1] https://www.cnbc.com/2020/03/09/robinhood-app-down-again-dur...
This is not totally correct.
2008 was caused by banks giving out extremely risky mortgages (the banks knew they were risky mortgages) and then packaging them up into giant bundles and magically calling them AAA stable real estate investments and selling them forward to other banks/pensions/401ks.
Banks are responsible for assessing the risk on a mortgage, not the customer.
If a broker has a technical problem processing a trade, they deserve to be blamed.
It’s one thing to handle “a trade.” It’s another thing to handle everyone trying to trade at exactly the same second. We already saw broker apps have issues this week just on handling the buy volume. The sell volume will be far higher.
And I mentioned counterparties too. Even if the technology works, you can’t sell if everyone else is selling too.
The risk of not finding a counterparty to which to sell is different - and real - which is why I did not disagree with that aspect of your post.
If we hold a social media company liable for not being able to scale fast enough shouldn't a company offering financial services be held to at least that level of standard?
Maybe it wasn't intended, but this comes across as particularly harsh victim-blaming.
Yes, the firms got some blame (and a bailout), the customers lost their homes.
Edit: I now see the retraction/clarification you just posted to another commenter. Cheers.
I mean read the top comments in the top WSB posts today. It ain’t about sticking it to the man. It’s about making money, fast.
That is a pretty gross oversimplification and completely dismisses the variety of "companies" that had a hand.
Subprime lending was just the foundation, but it took investors to investors to buy those securities, and ratings agencies to assign favorable risk ratings to those securities.
Actually that is impossible. This is a short squeeze. If you forget to sell your share then the short sellers are fucked because they still have to buy yours.
At some point the word will go out that it’s over—“we won”—and everyone will rush to sell their GME and take profits.
It’s not possible for all those people to succeed. Broker apps like Robinhood will be absolutely overwhelmed with sell orders, many of which will run into technical problems and/or no counter parties. A lot of people are going to be pissed off and blame the brokers.
People buying in late will have the most to lose and maybe the least understanding of what is going on. I mean, this story was a “breaking news” red banner on WashingtonPost.com yesterday. Not everyone buying GME today understands the social movement /r/wsb angle.
Ultimately brokers are worried about getting sued by people or companies who lose a lot of money in ways that will look preventable in hindsight.
Edit to add: the 2008 financial crisis was caused by financial firms selling a lot of crazy mortgages to people who could not afford them unless housing prices went up forever. When the crisis hit, the firms got the blame, not their customers. Companies learned that helping their customers shoot themselves in the foot can come back to bite them, even if it was all legal and what customers wanted at the time.