[chrisjharris]

I don't disagree with the general sentiment that the GFC was a total disaster, and I'd certainly not argue against the idea that a system had developed that had poor incentives, with sometimes greedy and unethical people working in it. What kind of concerns me, though, is the way that poor decision-making is conflated with breaking the law, or the belief that a terrible outcome ex-post necessarily implies illegality. I don't really see this logic being applied in other walks of life - in most jobs, if you are incompetent, or even incompetent and amoral, you wouldn't expect to be prosecuted.

For the most part I'd not see the GFC as a morality tale but rather a kind of weird emergent phenomena whereby one area of the economy became so big and complex that it was beyond's anyone's ability to manage, and the interactions of the millions of bit players in it - all of whom in their own way wanted to succeed and do well for themselves - led to this collectively disastrous outcome.

Which isn't to say that nothing illegal occurred - I'm not sure how you'd draw a boundary around the GFC but there were a number of securities fraud prosecutions in the years afterwards - but I think if you take the GFC and subtract all illegal behaviour, you'd still have the GFC.

[ping_pong]

The GFC is a direct result of illegal behavior. If you don't understand that, you don't understand the GFC. The major problem is that Wall Street investment banks were marking shitty debt as AAA when it was no such thing. Because it was marked as AAA, the bad debt was bought throughout the globe because pensions and funds globally wanted only AAA debt. They knew the debt was shitty even as they were marking them as AAA and they didn't care. Once the debt started blowing up, all of these companies that thought they had AAA debt ended up holding onto shitty debt and it put everything at risk.

It's pure unadulterated fraud. No one was punished.

[chrisjharris]

Well, those providing credit ratings (the rating agencies) were not the same as those selling the debt (investment banks). But more than that I think it's unwise to be so certain about intent - how do you know they were deliberately getting the ratings wrong, and not making a giant mistake? The rating agencies did very badly from the crisis, so it's hard to argue that they also saw the whole thing coming with premeditation.

I also think your explanation of the GFC overlooks what was an extremely multi-factorial situation. Most explanations would allocate some causality to changes in regulation, changes in global debt dynamics. Securitization aside, it was the peak of a huge borrowing/lending boom not unlike numerous previous financial market crashes.

[sumedh]

> became so big and complex that it was beyond's anyone's ability to manage,

No that is now true, people wanted to regulate derivatives but Alan Greenspan and others who were in power decided not to.