[adsyoung]

And yet a lot of the interviews I've heard about the crisis indicate a lot of the people dealing in them and rating them did not understand them.

Telling people that they should try harder is unlikely to solve the problem in the future I think.

[stretchwithme]

I think it was the risks they didn't understand, not how the instruments worked.

[adsyoung]

Perhaps, but I would have put understanding the risks within the scope of understanding the instruments.

[jrockway]

Nobody really expected everyone to default on their homes at once. It was unprecedented.

[adsyoung]

Right, so they didn't really understand the risks involved.

It's not like thousands of people woke up one morning and independently, by coincidence, decided to default on their homes.

It's a long complex causal chain, with snow-balling effects and the like, that very few people had an appreciation for because the instruments involved were very complex and there were too many layers involved.

This lead to a very non-linear system where it was impossible to have visibility over the whole thing.

[anamax]

> It's a long complex causal chain, with snow-balling effects and the like, that very few people had an appreciation for because the instruments involved were very complex and there were too many layers involved.

You write that like it's unusual. It's not - it's how life works.

> This lead to a very non-linear system where it was impossible to have visibility over the whole thing.

Of course it's impossible. Complete visibility is the exception, not the rule.

If you want safe and visibility, buy T-bills.

If you want more return, you have to play against someone who thinks that you're incorrect and is willing to pay if they're wrong.

[adsyoung]

> You write that like it's unusual. It's not - it's how life works.

True. How about substantially more so than usual?

> If you want more return, you have to play against someone who thinks that you're incorrect and is willing to pay if they're wrong.

I suspect that doesn't describe what most of the participants in the game or those that were collateral damage thought they were doing.

If things were simpler, then perhaps the participants would actually understand what they are playing I guess.

Which means regulation, ratings and market forces that are intended to stop things getting out of hand might function somewhat better.

[stretchwithme]

Actually, there were people warning about it. Peter Schiff was one of many.

Housing prices doubled in many areas, far outstripping any increase in the rent they could earn.

And, probably the most powerful indicator of all, people went out of their way to make sure others were holding the bag on a supposedly safe investment. They did not believe it was safe either.