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> architects of the financial crisis regularly dine at the White House Is this empty rhetoric really necessary? There were no architects. It took over two deca

> architects of the financial crisis regularly dine at the White House Is this empty rhetoric really necessary? There were no architects. It took over two decades of government (mis)regulation, whole banking ecosystem of incentives and repackaging, not to mention plenty of people willing to take loans they knew they wouldn't be able to pay back to bring about the crisis. Same with some great moral wrong of downloading a stack of papers and making them public. Many paid for by the public or even already publicly available.

lilsunnybee 14y ago
Magnetar http://en.wikipedia.org/wiki/Magnetar_Capital http://en.wikipedia.org/wiki/Magnetar_Capital
- JumpCrisscross 14y ago
  Asset managers wanted exposure to certain credits. CDOs created a liquid vehicle for those credit exposures. Because of market inefficiencies the prices of the liquid CDOs went much higher than the underlying mortgages (equivalent to you adding up the constituents of the S&P 500 and finding the index trades much dearer than the stocks because of, say, a financial transactions tax that makes trading the stocks individually difficult). Arbitrageurs attempted to correct/take advantage of the mis-pricing by turning the underlying assets into CDOs. Sometimes, due to the difficulty of procuring the underlying assets, synthetic CDOs were created that quacked like regular CDOs but were made of plastic. Synthetic CDOs use swaps to amplify the underlying assets' credit exposures - these swaps need two sides, a long and a short. In the midst of the housing boom it was difficult to find people willing to bet against the housing market. Issuers decided to let the short side help construct the reference portfolio of the synthetic CDO on the assumption that if houses are safe as houses it's the same as letting a gambler choose which of the casino-provided dice are rolled. It's easier to say Magnetar was evil, but as usual, the truth is substantially more nuanced (or, banal, from higher up - market inefficiencies and artificially advantaged participants, i.e. federally protected banks, mixed to produce enormous yet fragile superstructures).
gammarator 14y ago
Wall Street's side bets on the mortgage market dwarfed the actual value of the real estate in question. "And why did synthetic C.D.O.’s become popular? One reason was that the subprime companies were starting to run out of risky borrowers to make bad loans to." http://www.nytimes.com/2010/04/17/business/17nocera.html?hp http://www.nytimes.com/2010/04/17/business/17nocera.html?hp Everyone shares responsibility, sure: but culpability is proportionate with the harm. Individual mortgage holders are a rounding error in this analysis.

lilsunnybee 14y ago

Magnetar http://en.wikipedia.org/wiki/Magnetar_Capital http://en.wikipedia.org/wiki/Magnetar_Capital

JumpCrisscross 14y ago
Asset managers wanted exposure to certain credits. CDOs created a liquid vehicle for those credit exposures. Because of market inefficiencies the prices of the liquid CDOs went much higher than the underlying mortgages (equivalent to you adding up the constituents of the S&P 500 and finding the index trades much dearer than the stocks because of, say, a financial transactions tax that makes trading the stocks individually difficult). Arbitrageurs attempted to correct/take advantage of the mis-pricing by turning the underlying assets into CDOs. Sometimes, due to the difficulty of procuring the underlying assets, synthetic CDOs were created that quacked like regular CDOs but were made of plastic. Synthetic CDOs use swaps to amplify the underlying assets' credit exposures - these swaps need two sides, a long and a short. In the midst of the housing boom it was difficult to find people willing to bet against the housing market. Issuers decided to let the short side help construct the reference portfolio of the synthetic CDO on the assumption that if houses are safe as houses it's the same as letting a gambler choose which of the casino-provided dice are rolled. It's easier to say Magnetar was evil, but as usual, the truth is substantially more nuanced (or, banal, from higher up - market inefficiencies and artificially advantaged participants, i.e. federally protected banks, mixed to produce enormous yet fragile superstructures).

gammarator 14y ago

Wall Street's side bets on the mortgage market dwarfed the actual value of the real estate in question. "And why did synthetic C.D.O.’s become popular? One reason was that the subprime companies were starting to run out of risky borrowers to make bad loans to." http://www.nytimes.com/2010/04/17/business/17nocera.html?hp http://www.nytimes.com/2010/04/17/business/17nocera.html?hp Everyone shares responsibility, sure: but culpability is proportionate with the harm. Individual mortgage holders are a rounding error in this analysis.