After the Financial Crisis: Consequences & Lessons
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Posted: 02.12.10, 01:57 AM
i see..so there is a mortage broker running after poor people, selling them a mortage which they are not going to repay (because of the increasing interest rates/no job = NINJA & Sub Prime Mortages) just because the mortage broker can sell his shit and his risk to wall street banks. So that's step 1, the mortage broker only wants to sell as many as mortages as possible. He bears no risk..so who cares about the quality.
The wallstreet banks bundle the mortages in MBS's, they pay the rating agencies to play the game along (if not FORCE them to play along)giving every product a AAA rating. After that the banks sell the AAA MBS's getting rid of their risk as well. So the banks also didn't care about the quality of the shit they were producing. So the mortage broker, the wallstreet bank and the rating agencies were all players in the same orgy. The whole game drove up the prices, until the bubble bursted.
There is no central coordination needed for such irrational rationality. The coordination is done by the $ and the ability to sell the risk. Wallstreetbanks are just like parrots. Like the CEO of CIT said: As long as the music plays you have to get up and dance, and the music is still playing. At Lehman they were short and long at the same time on the housingmarket as the bursting moment approached. One department was shorting and the other was trying to sell as much MBS's as possible.
At the end of the chain are the buyers of such products who were, obviously not aware of the risk they were taking. The MBS got a AAA rating so everything seemed ok to them.....
They got screwed by the wallstreetbanks and the rating agencies....
The invisible hand was never applicable to the financial markets. That's the BIG misinterpretation.
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