I agree that its really easy for a system like the mortgage finance system to be transformed by a small group of influential people, but think its probably hard

I agree that its really easy for a system like the mortgage finance system to be transformed by a small group of influential people, but think its probably hard to predict or control how / how much that transformation will impact stuff downstream. I dont think the bankers who invented CDOs knew how real estate investors in socal or mortgage lenders in florida would respond, at least not the extent of the response. Of course that's just my opinion, maybe they did know. But they probably just saw this was a way to create a product that customers would buy and stopped there. A lot of banks had massive amounts of the securities on their balance sheets, if they knew exactly what they were doing their risk models would have been better I agree that thinking you can "magically" decrease risk is probably foolish, but some really smart ppl believe that they can model risk better than anyone, and with they deploy a lot of money based on that conviction. Sometimes they're ultimately right, but if they're wrong for long enough they still lose everything (see LTCM)