Thursday, October 16, 2008

Friedman and Seidman: How matters

"I have a friend who regularly reminds me that if you jump off the top of an 80-story building, for 79 stories you can actually think you're flying. It's the sudden stop at the end that always gets you.

When I think of the financial-services boom, bubble and bust that America has just gone through, I often think about that image. We thought we were flying. Well, we just met the sudden stop at the end. The laws of gravity, it turns out, still apply. You cannot tell tens of thousands of people that they can have the American dream - a home, for no money down and nothing to pay for two years - without that eventually catching up to you. The Puritan ethic of hard work and saving still matters. I just hate the idea that such an ethic is more alive today in China than in America . . .

The bank writing the mortgage got away from how because it was just passing you along to a bundler. And the investment bank bundling these mortgages got away from how because it didn't know you, but it knew it was lucrative to bundle your mortgage with others. And the credit-rating agency got away from "how" because there was just so much money to be made in giving good ratings to these bonds, why delve too deeply? And the bank in Iceland got away from how because, hey, everyone else was buying the stuff and returns were great - so why not?"

-excerpt from IHT article

No comments: