Classic Greenspan:
federalreserve.gov
I like these juicy bits:
<<The development of our paradigms for containing risk has emphasized, and will, of necessity, continue to emphasize dispersion of risk to those willing, and presumably able, to bear it. If risk is properly dispersed, shocks to the overall economic system will be better absorbed and less likely to create cascading failures that could threaten financial stability. >>
ROFLMAO!!! Which risk... the unbridled borrowing binge by the entire US economy under your tenure??? You mean THAT risk?
The guy is totally insane:
<<Accordingly, for globalization to continue to foster expanding living standards, risk must be managed ever more effectively as the century unfolds. >>
You mean it's not the new economy and productivity gains??? You mean you need MORE RISK?
<Especially important in the United States has been the flexibility and size of the secondary mortgage market. Since early 2000, this market has facilitated the large debt-financed extraction of home equity that, in turn, has been so critical in supporting consumer outlays in the United States throughout the recent period of cyclical stress. >
Right, the ability to take on more risk is REALLY GREAT [sometimes]! Maybe... we don't know yet, risk is two edged. How can the continuation of economic activity through ever more debt necessarily be a positive till we see the outcome??? This is risk 101... and he doesn't see it?
<A major contributor to the dispersion of risk in recent decades has been the wide-ranging development of markets in securitized bank loans, credit card receivables, and commercial and residential mortgages. These markets have tailored the risks associated with holding such assets to fit the preferences of a broader spectrum of investors. >
What about this as a contributor to the INCREASE of risk.... dispersion??? Dispersion... let's see... more people taking on risk... wow, great! TIme will tell what that means... most likely means packaging ever greater risk into something marketable ... we'll see soon enough if the buyers were able to 'bear' it.
Help me out here finance guys... is this guy that naive? Perhaps this part explains the whole thing:
"The development of our paradigms for containing risk has emphasized, and will, of necessity, continue to emphasize dispersion of risk to those willing, and presumably able, to bear it."
"Presumably"---------Ahhhhh, nirvana. Thank the lord for words like presumably. Such a wonderful economic term...
I get it now: Presumably all the wonderful new derivatives and 'structured products' get risk into the hands who can afford to take it.
Of course as one who used to create them I can tell you that they are created so they can be sold, period. And the more that can be sold the more profit [and risk] can be created, period. You do what makes money, if you're getting paid enough to take on risk X but can't hold it long term... you create any vehicle you can to dump it on some chump: That's "structured finance".
DAK |
