They weren't given loans because they were incapable of figuring out they were bad loans due to insufficient data they were given bad loans because there was money to be made by giving out bad loans and bundling into mortgage backed securities. They deliberately crashed our economy as part of an effort to inflate their bonuses because they just don't give a fuck about you. me, or America.
You are approximately right, but I don't think that they deliberately crashed the economy. I think that they were hoping for something to turn up and had good reason to think it would - after all, long term capital finance got bailed out, why not mortgage backed securities?
The lesson is that the risks of finance need to be sufficiently crystalised that behaviour is moderated, the problem is that economic growth has come to depend on risky finance.
>>You are approximately right, but I don't think that they deliberately crashed the economy.
Deliberately, no. But they knew it was unsustainable. Many industry insiders, as well as outside observers, likened the system to a house of cards. And when you play with a house of cards, you know damn well that it will come crashing down sooner or later.
That doesn't make any sense. The derivative products were rated AAA. Banks bought these products and put them on their balance sheets. Why would they knowingly throw away money? Three investment banks totally collapsed, and several more barely survived.
>>That doesn't make any sense. The derivative products were rated AAA.
Those ratings were created as a result of significant conflict of interest. You should read John Bogle's treatise on the subject (he's the founder and retired CEO of The Vanguard Group):
"Market participants—now dominated by speculators, not investors—also joined the
parade of miscreants, and our professional security analysts failed to do their job of appraising company balance sheets, largely ignoring the huge credit risks assumed by the new breed of bankers and investment bankers. And let’s not forget our credit rating agencies, which happily bestowed AAA ratings on securitized loans in return for enormous fees that were paid in return by the issuers themselves. (It’s called “conflict of interest.”) Yes, there’s plenty of blame to passaround."
I think it is worth noting the subtleties around "they", though. Some people thought it was unsustainable. Others were dumb and didn't. Many didn't care and just wanted to be paid, now.
