
Dear Occupy Wall Street: Are You Sure You're in the Right Place? - xvirk
http://freakonomics.com/2011/09/30/dear-occupy-wall-street-are-you-sure-youre-in-the-right-place/
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Finnucane
"Suddenly they saw these mortgage-backed securities yielding 10% and
immediately bought them up. They were greedy! But weren’t they just trying to
find safe returns for their investors? "

Why did they think a 10% return was safe? Because the credit rating agencies
stamped all the bonds AAA. And despite the massive failure of these agencies
to do their one job, they're all still in business.

" Financial Accounting Standards Board (FASB) changed GAAP accounting rules so
that you could no longer mark a mortgage-backed security according to your own
statistical analysis. You had to start marking it down as soon as there were
the slightest defaults and the paper started trading at lower values (this is
called mark-to-market)."

The banks resisted the change from mark-to-model to mark-to-market as long as
possible for one simple reason: Their solvency depended on maintaining the
fiction that the sewage on their books had any value. Even Bernanke and
Paulson got into the game, trying to convince Congress it was worth buying
these bonds up because, someday, there would once again be lemon-soaked paper
napkins.

"And what about the banks who bundled together these mortgage-backed
securities? I don’t know, you and I asked for those securities through our
401(k) plans. So they were just responding to demand, right?"

They were, but also lying their asses off about what was in those bonds.

