Excellent Subject and Commentary ............................................................................... Is a black swan black .... Another known on WS is legal largesse....They know the swan is black...and is not even the slightest shade of gray.... The cost of legal largesse in time, duration, expense, and effort....the big and planned out versus the small and unsuspecting....wins a high percentage of the time.... There is no right....no wrong....as long as you make money....and can keep most of it.... .................................................................................... Risk Drill.... Customer A....20 percent down payment....standard amortization....20 year loan.....verifiable income and verifiable excellent credit record...with third party guarantees versus Customer B....5 percent down.....5 year teaser with a double up payment in 3 years....income and history not verified.... Well now ....if I package 100 Bs....I can call it a AAA label....same as an A....besides , we do not really really care because we just do the forms....make a big vig....place it with a AAA believer.... Hey....We are done....and since there is no open market....we can put any value we can LEGAL LARGESSE justify....
Probably the best lesson to learn from the whole fiasco ... this most definitely isn't the begining and it sure ain't the ending.
Its been going on for decades. The large banks cartel in all countries play brinkmanship with the Govt (assuming they don't de facto own the govt) knowing that the system and banks can't be allowed to fail. Realpolitik lesson is the banks get what they want.
There are FRMs (Financial Risk Managers). Traders besides FRMs should know how to manage risk and not put all your eggs in 1 basket. I guess when it's not their money and the firms money, risk should be ignored. At the end of the day, someone had to sign off on it. Look at the Soc Gen scandal where that trader blew all that money. However, that was a different scandal where the trader was hiding his trading from the managers. This subprime mess was very transparant, but yet no one did anything about it.
I don't think we should use black swan language here. Housing bubble bursting is not an unexpected outlier event. Housing markets have ballooned and burts in repeated cycles again and again. It was an easily foreseeable risk that was simply ignored for the sake of a profit.
There was a housing bubble in the early 1990s. I remember speaking to some alumni from my college, who started building houses in the early 1990s and he went bankrupt