The Best Paragraph I’ve Read In A Long Time

Dealbreaker’s Matt Levine synthesizes everything I’ve been trying to say about the non-victims of the financial crisis in a single, beautiful paragraph that illustrates the other side of the “those evil banks sold crappy products” meme – which is, of course: WTF were the BUYERS of these crappy products thinking?   I’ve answered this before, at length:  my answer is that they were greedy and lazy – they didn’t do their homework and they got buried as a result.  Here’s Levine:

“One thing that would probably be fun would be reading the internal emails sent around at the places that bought terrible RMBS CDOs in the end times of 2006-2007. What did they say? Was it “these mortgages are worth twice what Morgan Stanley is selling them for! We are ripping their faces off”?  Was it “I looked through a representative sample of the mortgages underlying the collateral in this deal and I think the yield more than justifies the risks”? Was it “my asset-level diligence was light because my macro view is that house prices will go up a lot in the next 18-24 months”? Was it “we have to invest $100mm somewhere and this gets 2bps more yield than other AAA-rated options”? Was it “I don’t know that much about mortgages but I sure am glad we can trust our friends at Morgan Stanley to put us in such a high quality product as this here CDO”? The possibilities are endless and, I think, fascinating: each trade has two sides, and each side has a view, even if that view is sometimes more of a vacant stare.”

See, once you can answer Levine’s hypothetical question about the internal emails of the buyers of  toxic debt, you can actually figure out what the root causes were and fix them (if they need to be fixed at all…  as I noted in a recent post, making bad loans isn’t – and shouldn’t be – against the law).   This discussion seems to lead inevitably to a debate about the ratings agencies, which have seen very little in the way of reform.

Read the rest here:

MS Finalizes Its Entry In The “Who Said Worst Things About Its Own Products” Competition

Very much related:

Carney: Defending Morgan Stanley’s Mortgage Trade

-KD

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