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December 07, 2007


Dave Braithwaite

Man, are you good! I love to read your clear analysis. When can we vote for you as presidennt.

Alex Censor

You wrote in part --
"...totality of the problem is that inane mortgages were made with greed as the sole purpose. Everyone already knew how to make good mortgages and how to construct good MBS and credit derivatives they simply cast the models aside for short-term gain...."

Surely that's the root of the problem. But part of the complexities Krugman may be alluding to may be this: The buyers of these securitized loans in secondary markets were understandably relying on wall street secondary buyers (not the first level greedy mortgage predators who took their commissions and passed of the loans) to do their due dilligence. In a sense relying on the general credibility of doing business in the USA (as contrasted to buying some kind of new securitized debt from, say, Nigeria or you-name-it-bannana-republic. In one case a small German bank has gone under from investing in these securitized loans.

The greed is surely the root. But it took governments, government regulators, and wall street analyists being asleep at the wheel for this to happen. The buyer at the secondary and tertiary levels may perhaps not fairly be characterized so much as greedy as blind -- and the blindness in part due to the layers of complexity and multiple layers of "trust" that prove to not be what would be hoped.

Who could have anticipated that a small German bank could be brought down by the greed of mortgage granters in the USA? It takes and overly opaque and complex system for that to happen and be essentially unanticipatable.

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