[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.

[anamax]

> I suspect that doesn't describe what most of the participants in the game

This case involves folks who wanted to make billion dollar bets on the housing market. It involves folks who had personal attention from Goldman Sachs. (In other words, we're not talking a Schwab IRA with a $10k balance.)

If these folks can't be held responsible for their investment decisions, who can?

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

You're assuming that complexity was relevant even though there wasn't even a correlation.

Note that no one is forcing folks to do complicated deals. Moreover, simple deals are available.

I trash Warren Buffet fairly often, but he's correct when he says that you shouldn't invest in something that you don't understand. Folks who violate that rule should lose their money.