No danger?
Certainly not. Massive amount of activity in a complex, new (new in this context meaning not old enough to have previously gone through a major crash, or at least not very common before any previous crashes) type of financial instrument is always risky.
Its the new and complex part that's most of the danger, not as much the "unregulated" part. Prudent regulation can reduce risk, but regulation is far from always being prudent, esp. on new complex instruments. And regulation often drives the search for newer and complex instruments as people try to get around regulations and effectively do what they wanted to do anyway when the regulations forbid doing it more directly and simply.
Another point is that the actual exposure to risk from these swaps is far less than the nominal total of $45 to $74tril.
Message 24961801
but all those corrupt primary loans were made by FULLY PRIVATE companies.
Under a system of perverse incentives created by government action, including (but not limited to) Fannie and Freddie, the CRA and extensions of and regulatory activity based on the CRA, heavy tax incentives on housing (primarily, but probably not limited to the deductibility of mortgage interest, and the basically unlimited capital gains exemption for primary residences).
If there was more regulation, there may just have been more perverse incentives created. Its not the volume of regulation or regulatory enforcement that is the problem (in most aspects of the financial markets, including the mortgage market, there was plenty of each), but poor regulations, laws, and government created structures. |
