To: forceOfHabit who wrote (101211 ) 2/12/2009 12:45:41 PM From: Hawkmoon 1 Recommendation Read Replies (1) | Respond to I'm just a poor dumb trader. Too much economics makes my head spin and reminds me of arguing over how many angels can dance on the head of a pin. Lesson 3: Prevention. We got into this mess because financial development advanced way ahead of not only regulators and government officials, but the actors in financial markets themselves, including the geniuses who created the innovative financial products that we have now come to know (and fear) by their acronyms – CDOs, MBSs, CMOs, and the greatest villain of all, CDSs! that government made two huge mistakes in (a) directing regulators to ignore products like CDSs, by pretending that simply by an act of law they could be declared not to be standard securities or a form of gambling (both of which they were!), and (b) instituting and enlarging the implicit government guarantee backing the fast expansion of mortgage giants Fannie Mae and Freddie Mac. Had the wisdom of people like Mrs. Brooksley Born prevailed in the late 1990s, the CDS market would have been at least supervised, if not regulated. This alone would have saved us enormous pain today, because the jump from the mid-billions problem that sub-prime mortgages were to the mid-trillions debacle we are suffering occurred largely due to the casino-like setup in which AIG and other financial companies conducted the CDS business.
