Letters to the Editor
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All in Moderation
When the current crisis started unfolding over a year ago, I was optimistic that our financial system would stand firm, and that the risk being spread by derivatives and securitization was a good thing. I think I was wrong. I'm ever the optimist, and failed to realize how rampant short term greed is in the world at large.
I still believe that securization and derivatives are good thing with moderation. In the ideal world the packaging and slicing of risk allows people to better deploy capital, and better deployment of capital means greater economic growth. However as the crisis has ebbed and flowed, what I've most observed is that people have used securities to pass the buck with the greedy taking a cut at each level.
Flippers pass the risk to mortgage brokers who then pass it to mortgage banks who then pass it to investment banks who then pass it hedge funds, pension funds, and the like. The smart ones buy derivatives to hedge the risk along the way, and in the end someone is left holding bag. Accusatory fingers point in every direction, but in the end no one is willing to take responsibility.