Who Knew?

I suppose that I shouldn't keep harping on this subject, but every time that I read that one of the banks is in deeper than anticipated, I keep coming back to the idea that the folks that got us into this mess either knew and didn't care or are just plain stupid (read my stuff from a few months back about how the banks work and how deals get done and who, if anyone, really understands how to analyze MBS).

The Sunday Times had an article about the Wall Street physicists. I didn't bother reading it, because I am aware that most recent PhD's can't get a job in academia and they can't teach because they don't speak English very well. But, if they can program and do regression analysis, then come on down to the Street and build some complex derivatives! The point is, these people are supposed to be smart.

This is the last time that I'll say this - none of these dopes really understand risk. They let very limited models make the decisions for them. This includes the rating agencies. When the models say that the risk of doing a deal is acceptable, then ratings are assigned and the deal gets placed (or financed and held).

In reality, any idiot could have seen this disaster coming. All that was required was to do the most basic analysis related to mortgage qualification, e.g., the process of stressing a borrower's income to make certain that P&I payments can be met. In addition, some thought should have been given to median income as compared to the median cost of housing in all areas of the country. Either of these simple calculations would have quickly revealed that the market was way overdone.

Think about it, if a humble and lovable bike shop owner can figure this stuff out, how come the professionals could not? HUH?

I want to know who is going to jail and when? I also want to know which members of congress (not the fun kind) got money from which members of the Wall Street/Mortgage Bankers Association/American Bankers Association/Securities Industry Association/and on and on trade groups, better known as lobbies.

Do you really think that the people who enabled this whole mess are actually going to fix it?

THINK!