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Originally Posted by sebastian_dangerfield
They knew that even a small uptick in delinquencies would set off a disastrous chain reaction.
And they knew the fundamentals behind the loans were lousy. ...
And yet almost all of the big banks played along with the charade: Housing will never go down.
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To which they would (and did) respond: if that's true, why were the lowest tranches most likely to still be on the banks' books?
Sure, agency problems with the people doing the deals getting their's regardless of what happens down the road were a factor. But far from the only factor. "They all knew" is revisionist bullshit. People actually are dumb.
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Oh, and the shmucks who bought that credit default coverage from Cassano?
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A lot of it was to make synthetic CDOs, no? Oh, yeah, right, the fact that there were lots of buyers for ever more complex crap also belies the "everybody knew" story you're selling.
