NYT reader writes an explanation of the financial casino, leverage and opacity that was the critical component of the 2007-09 Great Recession. Not to mention the fraud committed when rating agencies labeled financial dreck AAA. Dean Baker is correct that the inevitable pop of the housing bubble destroyed wealth and hammered demand in the economy, but the bubble was created by a financial industry that had its regulatory constraints removed. Neil Wilson New Zealand 2 hours ago Not exactly - the direct cause of the crash was the failure of hugely leveraged complicated financial instruments that no-one fully understood. Most were made up of property (or rather the finance for property) sliced and diced up and these instruments themselves stimulated the dreaming up of even more arcane secondary financial instruments based on speculation about the originals. Property that justifiably was high risk junk or near junk was repackaged as A grade investment quality, and property owners who would in saner times have been considered as high risk found themselves courted as being safe and solid and were deluged with money. Why? All due to the massive greed and arrogance of an out of control banking and shadow banking sector who regarded themselves as geniuses that could not get it wrong and who worked with willing fools in Congress to dismantle all meaningful legal safeguards and neuter any regulatory bodies. This is nothing new, and much better writers than me have written detailed evidence based accounts of the causes of the crash and contrary to the myth the financial sector peddles, it was not due to the little people irresponsibly taking out mortgages, but due to the ultimately ruinous greed of the financial elite. It is not for nothing that Warren Buffet called them instruments of mass destruction.
Posted on: Tue, 08 Jul 2014 11:32:39 +0000
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