If you made a seemingly legitimate investment only to learn you were the last investor in a Ponzi scheme would you keep paying earlier investors after it became clear no one new was joining the scheme?
Put differently, since about 1993 households supplemented income with debt leading to the a wealth illusion in the US. The wealth illusion being the perception that household income was growing much faster than it really was due to increases in credit and mortgage debt. This false wealth fueled consumption and made the overall economy look stronger than reality.
One effect of this was the appreciation of housing prices. Many who bought housing near market peaks in 2007 - 2008 were unwittingly buying into the top of a debt fueled national Ponzi scheme about to go bust. Those last purchasers were disproportionately left holding the bag while earlier home buyers either maintained profits or were left comparatively unscathed.
This consumer debt event was not a normal market pricing phenomenon, nor was it part of a normal debt cycle. Instead it was driven by a confluence of events including lax central banking policies, misguided government policies, and inappropriate financial incentives for debt originators. The result was a credit fueled prosperity cycle that was sure to end poorly. Towards the end the key players became mortgage originators, MBS resellers, and MBS purchasers whose inability to properly access the risk and misaligned financial incentives produces heaps of bad debt while driving housing prices to their final highs.
So, we collectively experienced an undeserved period of prosperity that retrospectively was certain to end poorly. At the time this was not well understood (or at least acknowledged) by the most sophisticated agents (central banks, mortgage banks, etc.) - and certainly not by the average home buyer. However, one aspect of this bubble was certain - whoever entered last would be hurt the most.
Let me state - I'm highly sympathetic to the personal responsibility argument. That said, I believe there is more complexity to this situation - namely that there is some truth to the reasoning that peak price home buyers were defrauded by a systematic failure not of their making yet are expected to disproportionately experience the pain.
An obvious criticism would be they knew they were purchasing a risk asset. Yes, they did - however no reasonable estimate of risk available in 2007 would have suggested 50% declines were possible nor did the so called sophisticated market participants properly price this risk. Indeed, few saw this coming until late in the 9th inning.
I must say, this reads like the Bill of Goods sold to the Citizenry to bail out this mess.
There were plenty of people who DID accurately assess the entire risk who were ignored by the greedy who had the reigns.
There's been documented evidence of various whistleblowers who were ignored at banks who were allowed to fail and those still in operation. People in those organizations willfully ignored those warnings.
Why? No consequences. They're not personally bankrupt for their bad calls today, they're not in jail, and government recapitalized their businesses at a loss to the entire Citizenry. They're still driving Bentleys.
Even Joe on the Street was "sophisticated" enough to know his house shouldn't have been worth double what he paid for it, but kept his yap shut because he was itching for a jackpot. Complicit in the scheme.
This whole thing has always been about the lack of repercussions from Day 1. Once the government backed the loans, it was Game On.
Just one example... This guy made over $100M a year, and his settlement for his wrongdoing was just over $60M.
http://m.aol.com/dailyfinance/defau...rtgage-meltdown-deal-crisis/&icid=dsk_df_news
Wonder if he's "sipping bad Scotch on his dirty linenoleum floor" as Cramer likes to joke on his money show. Kinda doubting it. You're all paying for his indiscretion and lack of morals. How about the Board of Directors members that hired him and oversaw his actions? Any of them not working in finance anymore? Ha. Right.
Those whining that the rich make too much, ought to be more concerned about HOW they made it, than worried about the amount or the "gap". If this guy skates, they all do.
An example of public opinion manipulation for money...
I can make a pretty good case for Warren Buffett pushing buttons in the American psyche causing him to be the Grandfather of the Tea Party, too... if you think about it.
What better way to ensure you'll remain a multi-billionaire than to be one and go on TV saying you think all the rich people should pay more in taxes?
Brilliant chess move, really. Drive Tea Party madness, topple the House by over 60 members to the supposedly fiscally conservative side and block such legislation that would tax you to death, by just making up a nice little story about your secretary. Wasn't easy either, he had to travel to go on every financial/business show in the country. Willful decision.
The shows, of course, want you on the show because they're in awe of your business prowess. Not even realizing they just got used. Probably haven't thought about it yet to this day.
Guaranteed win at arms length. The guy is amazing. (Note how he quieted down after the Congressional elections?)
And that story wasn't meant to be political, more than it was to point out that the ruthless money managers will manage with every tool in their quiver.
*Including manipulation of public opinion.*
Which is what I believe your assertions that "the sophisticated couldn't even figure it out", stem from. Manipulation.
It's a lie. They knew exactly what they were doing. And still do. And they will beat you with their lawyers and bought and paid for politicians. Every time. Until you start throwing them in jail.
