[bwanab]

You are correct in most of your points, but it's worth pointing out that for the 25 or 30 years prior to 2007 mortgage defaults did tend to be uncorrelated. During that entire time frame, if you were a trader who chose to insure yourself against black swan events, you were not likely to have kept your job for long since the cost of that insurance would have been prohibitively high cutting deeply into your profits.

There's a great line (one of many) in Andrew Ross Sorkin's book "Too Big To Fail" in which Jamie Dimon, the CEO of JPMorganChase told Hank Paulson, at the time the Treasury Secretary, "You've got to make us do it". It's essentially the prisoner's dilemma. It would be advantageous for all the banks to institute a given change, but none of them can do it by themselves without being chewed into little pieces by the others.