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There were failures of due diligence by both the institution responsible for the final selection of the instruments and the institutions that purchased them. If
by isleyaardvark 16y ago
There were failures of due diligence by both the institution responsible for the final selection of the instruments and the institutions that purchased them. If I buy a house insurance policy from someone, and they don't bother to check if the house is on a flood plain, why should they get to complain that they have to pay out when the water hits?
The problem is when the seller does not reveal that sort of information to the buyer. There are a variety of existing laws covering that sort of behavior, for example: lemon laws and laws covering full disclosure in real estate.
This relates to the idea of asymmetric information in free markets. Not revealing pertinent information doesn't help anyone. It's fraud.
- bd_at_rivenhill 16y agoYou need to understand that with this sort of product, there is always somebody betting against you, and if your models aren't good enough to make you indifferent to the fact that the guy on the other side got to choose some of the securities in the pool, given that you get to see what's in it before you place your bet, then you shouldn't be dealing in instruments that are this complex in the first place.