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This seems to me to be naive at best. Risks were obscured due to the mathematical structure of CDOs, not by hiding money transactions. You could spend all day

This seems to me to be naive at best. Risks were obscured due to the mathematical structure of CDOs, not by hiding money transactions. You could spend all day real time looking at the fact that few of the mortgages in your CDO are failing, and then when they fail systemically, you could watch in real time that a lot of assets that were thought to be pretty robust are not. Your argument seems to be simply that radically more data would enable better predictors. Whether that is true or not, it's unclear whether bitcoin et.al. could help much with delivering that data. If we agree to a contract that I will pay you 5 bitcoin tomorrow in return for 4.9 bitcoin today, that contract is not publically available on bitcoin. Nor is, the fact that a certain money stream is part of a mortgage. So unless you force every contract to be public, blockchain technology will not help you that much. And if you force every contract to be public, then you don't need a blockchain.

trevelyan 9y ago
> Your argument seems to be simply that radically more data would enable better predictors. The point is that transparency enables markets to accurately price risk and prevents the sort of market paralysis that caused the liquidity crunch. Yes, it's true that people COULD have spent weeks figuring out the status of at least some of the CDOs on the market. But in reality no-one was reading 200 page long prospects that listed the exact mortgage originators and housing complexes of their CDOs. Buyers and sellers did not necessarily even have this data in peer-to-peer marketplaces. Financial institutions and their brokers bought securities based on their ratings, and dumped them ASAP once it became clear the entire sector was poisoned and they were doubtless overvalued. > unless you force every contract to be public, blockchain technology will not help you that much Smart contracts are public BECAUSE blockchains are open access. All parties can see the transfer of tokens on the network for the contracts that matter to them. No-one in the public necessarily knows what any contract represents, but if I am sold one I can monitor it in real-time. That was not possible with mortgage backed securities in 2007.
- jhwang5 9y ago
  See, every CDO trader already knew where things were trading, and could already derive all implied default rates already. Information dissemination / transparency wasn't the issue. It was people's wrong model assumptions that were the issue...
  - trevelyan 9y ago
    The problem with this is that overall losses were nowhere near 65 cents on the dollar -- only 20 percent of US mortgages were subprime at the peak of the GFC. If the market was rational and had full insight into the performance of its securities, losses would have been no more than 20-35 cents on the dollar. That is enough to cause a major crisis, but it wouldn't trigger the paralysis of the global financial system.
    - jhwang5 9y ago
      So now you are shifting the argument to a market information problem to a market irrationality problem. Typical.
      - trevelyan 9y ago
        Typical of what? It is impossible for the market to be rational without information. Rationality is predicated on it.
ric2b 9y ago
Bitcoin would prevent the immoral bailouts that happened after the burst and that told the industry "don't worry, you're too big to fail, feel free to try harder next time".

trevelyan 9y ago

> Your argument seems to be simply that radically more data would enable better predictors. The point is that transparency enables markets to accurately price risk and prevents the sort of market paralysis that caused the liquidity crunch. Yes, it's true that people COULD have spent weeks figuring out the status of at least some of the CDOs on the market. But in reality no-one was reading 200 page long prospects that listed the exact mortgage originators and housing complexes of their CDOs. Buyers and sellers did not necessarily even have this data in peer-to-peer marketplaces. Financial institutions and their brokers bought securities based on their ratings, and dumped them ASAP once it became clear the entire sector was poisoned and they were doubtless overvalued. > unless you force every contract to be public, blockchain technology will not help you that much Smart contracts are public BECAUSE blockchains are open access. All parties can see the transfer of tokens on the network for the contracts that matter to them. No-one in the public necessarily knows what any contract represents, but if I am sold one I can monitor it in real-time. That was not possible with mortgage backed securities in 2007.

jhwang5 9y ago
See, every CDO trader already knew where things were trading, and could already derive all implied default rates already. Information dissemination / transparency wasn't the issue. It was people's wrong model assumptions that were the issue...
- trevelyan 9y ago
  The problem with this is that overall losses were nowhere near 65 cents on the dollar -- only 20 percent of US mortgages were subprime at the peak of the GFC. If the market was rational and had full insight into the performance of its securities, losses would have been no more than 20-35 cents on the dollar. That is enough to cause a major crisis, but it wouldn't trigger the paralysis of the global financial system.
  - jhwang5 9y ago
    So now you are shifting the argument to a market information problem to a market irrationality problem. Typical.
    - trevelyan 9y ago
      Typical of what? It is impossible for the market to be rational without information. Rationality is predicated on it.

ric2b 9y ago

Bitcoin would prevent the immoral bailouts that happened after the burst and that told the industry "don't worry, you're too big to fail, feel free to try harder next time".