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by grandalf
6192 days ago
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Ironically, the borrowers just acted according to incentives, as did bankers. Everyone knew fannie/freddie would get bailed out if mortgages went south, and this fact drastically reduced anyone's incentive to care about how risky MBSs were. There is moral hazard created by the way bankruptcy law works (for people who are significantly underwater) and also in banking regulations (and GSEs). |
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People always behave the way they're incentivized (unless it's egregiously immoral).
I've always found it pretty easy to predict the eventualities of markets based on how the system works. You can't predict the twists and turns along the way, but you usually know what the end looks like. Sadly though, not when.
On average people behave pretty predictably...