By now everyone knows that Mortgage backed securities were the iceberg to our Titanic economy, the real question is why? Would you believe it is as simple as a one line mathematical formula?
Irresponsible bankers, insurers and investors basically said that we are going to arbitrarily declare every investment as low risk by grouping investments into ponderous groups. Not really managing risk so much as making it impossible to ACTUALLY determine the risk.
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Really the straw that broke the camels back is CDS (credit default swaps). Because in 1999 we allowed for them to exist again and completely unregulated. These were outlawed after the great stock market crash in 1929. They grew to over $62 trillion. YES $62 trillion for insurance that the housing market wouldn't fail and if it did banks would pay the investor.. Many banks sold these. If the public really understood that $62 trillion was bet against the housing market and banks sold them to savvy investors people would be in the streets with pitch forks.
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