“These two government-sponsored enterprixes (GSEs) do not write individual loans; instead, they buy and sell mortgages in teh secondary market, providing a flow of liquidity to the nation’s lenders.” James R. Barth, “The Rise and Fall of the U.S. Mortgage and Credit Markets” (2009).

Returning to #5, how does your hypothetical respond to my question? What if no bank would ever have loaned to the car company directly because its balance sheets were already in shock that it would not lend but directly to the government with the underlying guarantees. Isn’t that where GM and Chrysler were when the government stepped in? They couldn’t otherwise get financing because they were too close to insolvency? If that’s the case, where’s the crowding out? Would you have preferred that the government just gave the money away with no chance of repayment? I’m sure that would probably have been just as bad or not worse to some people.

yes and no,
I uphold that there are situations when it is perfectly understandable that somebody acts in an unpardonable way – still it remains an unpardonable way and the big mistake my generation (born in 1942) made is that we were so much into witch hunting our elders that we missed the chance to hear in detail how the slippery slopes work in real life. We just made them mum and that in a way is also unpardonable and my excuse is that to this day the callous way the few still alive talk about it makes it impossible for me to listen and to ask even today. It probably feels different if you grow up with them as teachers, instructors just everybody you have to act respectful towards as if it is learnt however diligently from afar. and btw other than most historians I do not think it was as easy to say no as they claim, after all amidst all the group pressure you couldn’t know that there were others having said no and gotten away without harm. (Schiller says in Don Carlos “Gewalt ist für den Schwachen stets ein Riese” Violence is to the weak one always a giant) But the other fact remains that the population got euthanasia stopped while “knowing nothing” about what was done to “minorities” – the one lesson we should draw from it though is when the mighty start to like nutty ideas of the big brains they mean it – for way too long those who could have changed things (Germans and foreigners alike) thought that that foaming shouting utterly ridiculous person Germany had made its chancellor was somebody that could be gotten rid off with ease.

There were a lot of regular folks following the herd but in the beginning a lot of destitute and desperate and probably also rogue folk assembled under the Nazis’ banner and created quite a terror in assembly halls and in street fights. No matter how and why they first joined most of those who chose to stay in had a choice. The labour market was good again no reason to stay with the rabble if one was opposed to harrassing and beating up and killing people.

I have no trouble understanding how some lazy (in every sense of the word) people, who were overpaid, and had no loyalty to the people they owed a fiduciary duty to, would take the legal but unethical route of piling up AAA rated junk, long-term consequences be damned.

I would rather say: The big brains + regular folks following the herd.

Imagine you’re a low rank worker at Auschwitz during WW2. Your job is to open a valve to let a mortal gas flow into a chamber. You don’t see what’s happening in that chamber. You have a wife and kids. All the people around you just obey orders. You would probably put yourself and your family at risk if you didn’t. But you do know you’re opening the valve for a gas to kill people.

How bad are you? Maybe 90% of mankind would just follow the herd if put in that situation.

If all people in that situation revolted and refused to do their job, the Holocaust could not have happened. At the same time all those people could reasonably deny responsibility.

what do you expect? in every patent workshop I have been, there were at the most between 10 and 15 percent who were really interested/fascinated in the subject and it didn’t matter one bit whether they were lawyers or paralegals – it was not a class thing

- there are too many people in too many jobs which leave them cold and since being cool and detached and laid-back is the fashion of the day diligence which once might have make them perform is ridiculed. Get all fired up about something worthwhile and all you’ll hear will be ts, ts, ts – and in a way the cool ones are right, when they get fired only their finances are in shambles but their heart stays intact.

- therefore actually reading stuff before one talks about it? “you gotta be kidding” – so and so has a brillant summary that’s all I need to know
- consume your stuff pre-chewed and pre-digested is today’s way of doing it

we had a certified auditor/accountant, an if possible even more lofty person than a notary, sitting in Lebanon making Lebanese government stamps out of potatoes – yes the same way kids do in kindergarten

- via the resulting documents investment offers were made for gas bottles for cooking stoves to be brougth to Lebanon financed probably predominantly by German doctors in order to save them taxes (because the income of doctors under socialised medicine is so poor they have to do something to evade the high income tax burden for top earners)

the scam blew up when some clerk came up with the uncouth idea of checking the total number of gas bottles in Lebanon against the bottles the scam proposed to sell – guess which figure was higher!

But there are others whose responsibility is precisely to understand how the car works but when these are so lazy they do not even read the major instruction manual, the Basel II regulations then of course everything breaks down. And I tell you 99% of the so called experts discussing these issues have evidently not taken their time to sit down and read that document, and this, at least from what I was reading from the sponsors of this blog a couple of weeks ago, includes them.

on a strictly human basis I think I understand what a major contributing actors was:
these people would have lost face or feared to lose it would they ever have admitted that they do not fully or even vaguely understand the models they operate with.
At least in the corporate world I have lived in it is very very difficult to acquire knowledge of newly introduced basic skills once you have reached a certain level – whom are you going to ask? the mechanic who installs the computer who helps us clerks understand all kinds of trickinesses of details – what if the guy is going back to his workshop and tells how stupid you are and so on – you cannot go to a normal cheap evening class learning basics –
no you have to keep up that you are in possession of superior knowledge and ability. If you do not whoever is ever going to believe you again that you are financially literate. Underlings do not make such fine discretions. We constantly alternate between sucking up and watching out for opportunities to cry “the emperor is naked” – unless the emperor is the rare person who can confess to what he/she doesn’t know from a position of strength and integrity he is bound to walk on brittle legs.

still he shouldn’t sell himself for exorbitant money without bringing in exorbitant results – sustainable results …

YES! Just watch Antiques Roadshow for examples of this. There’s always someone who paid a pretty penny for a piece of junk. And because they didn’t do their due diligence – because they thought they knew so much more than they really did, they’re left holding a costly piece of junk.

But imagine if the people dealing in antiques who failed to properly price objects weren’t the ignorant consumers, but the experts in the field – who used their expertise to create a false market for highly priced junk – and then when left with a store full of junk they could no longer sell, they turned to the US government to pay for it all. And when the government hands them a check, they continue their pursuit of junk, instead of reform their business practices.

I still cannot understand how such financially literate people in so many areas of the financial sector (mortgage brokers, bankers, investment bankers), who were paid such extraordinary sums of money, allowed the accumulation of such mountains of junk on their balance sheets. The sheer volume of garbage they packaged up to sell remains astonishing.

They had no major reason to, AIG had an AAA rating.