

The Minds Behind the Meltdown  - lclaude01
http://online.wsj.com/article/SB10001424052748704509704575019032416477138.html

======
damian2000
A better book is "The Big Short"
(<http://en.wikipedia.org/wiki/The_Big_Short>) its got some incredible stories
regarding the market for CDOs and the GFC. A few people in the know actually
saw it happening, bet against the whole system, and won.

~~~
jbarham
Lewis' sequel, "Travels in the New Third World", is also good, and especially
relevant given the current gyrations in Europe over Greece.

> A few people in the know actually saw it happening...

IMO you didn't need inside information to understand that the American real
estate market was a bubble as it was operating in plain sight. Sure if you
want to bet against credit default swaps, it helps if you have a hedge fund
behind you, but anecdotally I knew a number of people who didn't buy into the
property bubble on the way up, but saved their cash and bought a house at a
reasonable price after the bubble popped.

The Australian real estate is in a similar bubble, but it's remarkable to me
how few people recognize that here.

------
nextparadigms
The housing meltdown happened because there was a housing bubble, and the
housing bubble was mostly created by the Government trying to artificially and
aggressively influence the market so "everyone can have a home". That's the
source. That the banks got involved in it later on and wanted to make easy
money is just a symptom and an effect of the initial cause.

~~~
mdda
As someone actively involved in valuing and trading structured products, since
their first (below the radar) crisis in 2001-3, I really don't understand
where this idea about the roots of the problem being the government came from
: Except that it was manufactured by politicians for their own ends.

The housing bubble (IMHO) had much more to do with the rating agencies getting
overconfident in the validity of historical default data, and being lead by
the nose (by investment banks) into areas where the models were bound to fail.
One of the core modelling assumptions was that house prices could never
decline across the USA as a whole. Everyone in the food chain was happy to let
the rating agencies use this idea as a foundational assumption in the
modelling of RMBS - because everyone creating new structures (and providing
enormous numbers of mortgages) made money as long as the game didn't stop.

Also at fault were the regulators, who entrusted the Rating Agencies with
determining the leverage in the financial system, by using their ratings
('AAA', 'AA', 'BBB', etc) as the basis on which bank's capital was used.
Simply achieving a AAA rating (which was always possible : the Rating Agencies
published their models, leading quants at investment banks to optimize against
them) meant that banks could buy enormous quantities of the assets (since they
were basically risk-free for capital purposes). Oh - I could go on and on, but
most people will only read my first paragraph anyway...

Long story short : I'm frustrated that the financial crisis story is being
told and retold by politicians with an agenda, most of whom should have said
something at the time... And didn't.

~~~
sounds
I'll keep an open mind - who should have said what, when?

------
skylan_q
"The meltdown also revealed dangerous links in the financial system few had
previously realized—that losses in the U.S. housing market could trigger
losses in huge stock portfolios that had nothing to do with housing. It was
utter chaos driven by pure fear. Nothing like it had ever been seen before.
This wasn't supposed to happen!"

The author admits the link here. Then lists all sorts of erratic behavior in
the stock market. And ultimately fails to connect how quants caused an
unsustainable housing bubble.

~~~
StuffMaster
I believe that the quants actually warned against believing their equations
were infallible, but were ignored.

