Quote:Yep, agree. Sounds like the sub-prime CDO problem. I think the reason banks are willing to take risks is because they either believe the risks are insignificant (i.e. borrowers will not default easily), or that they can transfer/diversify the risks away through the packaging you mentioned. I guess that's why there was a call to separate investment banking from traditional banking so that there would be no conflict of interest and that the corporate banking division would not be able to re-package loans to sell to their investment division.
Though I still believe this will NOT solve the problem as banks will somehow creatively find a way round this obstacle and somehow continue to try to re-package risk away, rather than engage in "true blue" prudent lending.
A more permanent solution is to introduce personal liability for the bankers the next time a similar financial crisis of 2008 happens. When buildings collapse, civil engineers get charged for criminal negligence. When planes crash, aerospace engineers get charged for criminal negligence. Incompetence and ignorance is no excuse. Why should bankers get different treatment?
Unfortunately, the reality is that in 2008, guilty bankers got golden parachutes after crashing the world financial system. Check out the severance packages of the CEOS of failed Wall Street investment banks in 2008. In 2009, Wall Street paid themselves record bonuses after taxpayers bailed them out a year ago. Small wonder the "Occupy Wall Street" movement was born in 2010.
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Trust yourself only with your money
Trust yourself only with your money