On Mon, Jun 13, 2011 at 8:29 AM, Nico Williams <n...@cryptonector.com>wrote:

> I particularly agree that CRA and Frannie primarily set in motion the
> market dynamic that led to either the bubble itself or its ultimate
> size, or both.  There's straightforward evidence: total up the amount
> in securities sold by Frannie and the amount they were left holding
> and the amount pumped in by the feds, and you're up to on the order of
> $1 trillion, which is a large portion of the losses in the bubble's
> popping.  Of course, the losses have been larger than $1 trillion
> (because the $1 trillion provided the necessary momentum to get the
> bubble inflating and stay inflating, but much more liquidity flowed
> from elsewhere so as to not miss out on the "opportunity"), so one has
> to consider whether Frannie was along for the ride in a bubble that
> wasn't their fault, or whether Frannie caused the bubble.  But any
> time you have a government taking such enormously distorting actions
> it's difficult to argue that they couldn't have been the cause of the
> crash -- one has to be suspicious of artificial market distortions.

The good old market played a role here too. There are lots of investors
whose risk profile dictates that they should be in "safe" investments, e.g.
pension funds and old people. With the interest rates held on the floor, and
Greenspan and Bernanke sitting on their chest, those safe investors started
to buy up mortgages, because mortgages were big dumb investments and
everyone paid their mortgage.

After a while you run out of big dumb mortgages, and we did. So the pressure
was on to create more of them. Once everyone has a mortgage, or maybe two,
you start lending to folks with a risk profile that wasn't so hot anymore.
The whole tranching process masked the fact that this was happening because
you could still issue AAA bonds out of these and everyone bought in.

tl;dr: everybody gets to wear a hat that says "dummy", whether private,
public or individual.

ObCrypto: sorry, got nothing.

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