Financial crisis was avoidable

[washunut]

is it cost effective to set up an internal apparatus to do such risk assessment
only with the benefit of hindsight do you now see that the ratings were flawed
until the meltdown happened, only then revealing the poor quality of assessments which had been performed by the rating agencies, why would one have thought it prudent to conduct such ratings internally rather than accept the ratings provided by the agencies having a history of satisfactory evaluations?
in short, you are monday morning quarterbacking, here


unfortunately for the taxpayer who will absorb the resulting losses, so that the wealthy investors will not have to, the chinese were astute in their belief that the implicit backing existed
the government privitized the profits and socialized the losses
how smart was that

Are yiu really saying that someone buying a billion dollar package of debt should not do any homework? Is that the way you really invest, if an analyst says a stock is a buy you just buy it without an dur diligence. If so you will get the results you deserve.

No idea what you are saying in the second paragraph.

 

[phattonez]

Basically, they were lied to. Bad loans were packaged as good loans.

The whole deck of cards was based on the assumption that housing prices would keep rising. Low interest rates fueled this. Of course this boom would bust, it was only a matter of time. Asset devaluation was inevitable.

 

[phattonez]

Well, its a necessary to understand that investors are subject to the same sense of irrationality that all humans are. Of course, we will disagree about whether people are fully rational or not and I doubt we will bridge that gap in our individual understandings of human nature.

However, the underlying point is that not all economic behavior and profit seeking is automatically justified, meaning that the businesses doing what they do can in fact be a part of the problem. Just because some business seeks to get around some regulation does not mean it is the right thing to do. As a metaphor, just because thieves keep on breaking into houses and taking stuff does not mean that having a police force is unjustifiable. It is the same with government regulation.

Everyone bought into this because they thought that housing prices would keep rising. And this was a serious though. Most people had it.

It fell during the crash? Why? The price of finished goods fell because the demand was not there. A lower interest rate is usually acheived by more savings, aka more future demand. When you arfiticially lower that interest rate, you'll get the investment warranted by greater future demand even though that demand will not be there. Because the demand was not there, home prices fell since supply increased too much. Because the price of the finished goods fell, the price of capital goods fell. And there you have your financial crisis.