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You are approximately right, but I don't think that they deliberately crashed the economy. I think that they were hoping for something to turn up and had good r

by sgt101 10y ago

You are approximately right, but I don't think that they deliberately crashed the economy. I think that they were hoping for something to turn up and had good reason to think it would - after all, long term capital finance got bailed out, why not mortgage backed securities? The lesson is that the risks of finance need to be sufficiently crystalised that behaviour is moderated, the problem is that economic growth has come to depend on risky finance.

enraged_camel 10y ago
>>You are approximately right, but I don't think that they deliberately crashed the economy. Deliberately, no. But they knew it was unsustainable. Many industry insiders, as well as outside observers, likened the system to a house of cards. And when you play with a house of cards, you know damn well that it will come crashing down sooner or later.
- totalZero 10y ago
  That doesn't make any sense. The derivative products were rated AAA. Banks bought these products and put them on their balance sheets. Why would they knowingly throw away money? Three investment banks totally collapsed, and several more barely survived.
  - enraged_camel 10y ago
    >>That doesn't make any sense. The derivative products were rated AAA. Those ratings were created as a result of significant conflict of interest. You should read John Bogle's treatise on the subject (he's the founder and retired CEO of The Vanguard Group): http://johncbogle.com/wordpress/wp-content/uploads/2006/02/Princeton-4-30-09.pdf http://johncbogle.com/wordpress/wp-content/uploads/2006/02/P... "Market participants—now dominated by speculators, not investors—also joined the parade of miscreants, and our professional security analysts failed to do their job of appraising company balance sheets, largely ignoring the huge credit risks assumed by the new breed of bankers and investment bankers. And let’s not forget our credit rating agencies, which happily bestowed AAA ratings on securitized loans in return for enormous fees that were paid in return by the issuers themselves. (It’s called “conflict of interest.”) Yes, there’s plenty of blame to passaround."
- nl 10y ago
  This is approximately correct. I think it is worth noting the subtleties around "they", though. Some people thought it was unsustainable. Others were dumb and didn't. Many didn't care and just wanted to be paid, now.

by sgt101 10y ago

enraged_camel 10y ago

>>You are approximately right, but I don't think that they deliberately crashed the economy. Deliberately, no. But they knew it was unsustainable. Many industry insiders, as well as outside observers, likened the system to a house of cards. And when you play with a house of cards, you know damn well that it will come crashing down sooner or later.

totalZero 10y ago
That doesn't make any sense. The derivative products were rated AAA. Banks bought these products and put them on their balance sheets. Why would they knowingly throw away money? Three investment banks totally collapsed, and several more barely survived.
- enraged_camel 10y ago
  >>That doesn't make any sense. The derivative products were rated AAA. Those ratings were created as a result of significant conflict of interest. You should read John Bogle's treatise on the subject (he's the founder and retired CEO of The Vanguard Group): http://johncbogle.com/wordpress/wp-content/uploads/2006/02/Princeton-4-30-09.pdf http://johncbogle.com/wordpress/wp-content/uploads/2006/02/P... "Market participants—now dominated by speculators, not investors—also joined the parade of miscreants, and our professional security analysts failed to do their job of appraising company balance sheets, largely ignoring the huge credit risks assumed by the new breed of bankers and investment bankers. And let’s not forget our credit rating agencies, which happily bestowed AAA ratings on securitized loans in return for enormous fees that were paid in return by the issuers themselves. (It’s called “conflict of interest.”) Yes, there’s plenty of blame to passaround."
nl 10y ago
This is approximately correct. I think it is worth noting the subtleties around "they", though. Some people thought it was unsustainable. Others were dumb and didn't. Many didn't care and just wanted to be paid, now.