The recent hurricane in the financial markets is blamed on mortgage loans to people unable to make their payments but is not blamed on people hiding these loans in Blue Ribbon packages while selling them offshore as top rated bonds.
I think the media failed miserably during the recent drop in global stock markets. Fear topped the headlines, editorials sent blame to all the wrong places, pundits invented diatribe that seldom identified the errors or the players.
Still details are lacking; we do not know the names or the divisions where our money has shrunk, but there are investigations underway in the offbalance sector of banks and financiers.
Banks and financial firms have two faces, core activity where activity is regulated and offsheet activity where activity is market driven – so-called free enterprise. Risk tolerance has been evolving in this area for several decades with most central regulators gradually inserting warning flags and balance sheet risk indicators rather than outright rules or constraints.
Ingenious packaging can make a quick fortune. Inventing financial products, not for the shopping center loan store but for the institutional trader, is one of the most promising careers on earth. The field is seldom discussed in public.
Here’s a column, Liar’s Loans, at the BBC written by Robert Peston that describes the architecture of this recent market bump and identifying a few companies involved, though none of the individuals. There’s nearly 150 comments after only a few hours, most yammering about greed and nonsense politics.