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by big_curses
1931 days ago
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I would argue that the original original sin is the fact that the government would bail out the banks writing these mortgages. The fact that the banks knew this encourages them to do take reckless actions in the name of profit. Why wouldn't they? There's no downside for them. It's another case of the government attempting to help the economy, but only hurting it. |
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My point being that it's the wrong takeaway to get mad at shorts for calling something bullshit and getting reward for it, and it sound rather irrational to me.
The dog / cat shit pile was junk mortgage bundled into a CDO and getting a AAA rating, in which pension funds buys it thinking it's safe. In the absence of the shorts, those mortgage would have gone into default, the CDOs would have become worthless, or downgraded, forcing pension funds to sell.
It's still the people holding the bag. The shorts weren't the ones initiating the bad behaviour, they made money on someone else's bad behaviour.
And of course, the government bailed the FIs out just the same.