> and sub-prime mortgages aren't inherently a bad thing.
Correct.
> ...but didn't push banks to lever the loans 10x, securitize, sell and repeat over and over again.
Yeah, but I'm not going to pretend like I wouldn't. Worst case scenario is that my failed bets get paid out by the future productivity of the entire working population, and the distressed assets get transferred to the balance sheets of special purpose vehicles also funded by taxpayers.
The way markets work is that there is a certain opportunity work $X based on the actual (not idealized) consequences of setting up a series of transactions. If incentives are such that there is a market opportunity worth $600B by selling subprime mortgages and socializing the risks, then eventually somebody is going to capitalize on that market opportunity, regardless of how immoral it is. If only one person does it, they make $600B. If 10,000 people do it, they each make $60M, modulo inequality within the market. The only thing that being moral gets you - other than warm fuzzies, which unfortunately you cannot eat - is larger wealth inequality that happens to benefit the person who is most immoral. (In fact, I wonder if one of the other drivers of inequality today is that by-and-large, most Americans are nice, decent, moral, hardworking people, which means that the market opportunities available to scumbags are only capitalized on by a tiny minority.)
The only way to avoid immoral behavior is to fix the incentives so that it doesn't pay off. In this situation, that means either make it uneconomical to sell (perhaps by penalties like jail time), or to not allow the sellers to socialize the risks (perhaps by not bailing them out when they failed). The former means that low-income borrowers can't buy homes; the latter means that the financial system would've imploded. Personally I think Obama would've been better off taking the latter course and letting the banks fail, but the point is TANSTAAFL and whichever course you to take will require some sacrifices, whether in equality, stability, or trust.
Correct.
> ...but didn't push banks to lever the loans 10x, securitize, sell and repeat over and over again.
Yeah, but I'm not going to pretend like I wouldn't. Worst case scenario is that my failed bets get paid out by the future productivity of the entire working population, and the distressed assets get transferred to the balance sheets of special purpose vehicles also funded by taxpayers.
And I get to keep all the performance fees.