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[ThurgreedMarshall]

Originally Posted by sebastian_dangerfield

What does "A bubble is a bubble" mean? That any time anything is called a bubble, people within it are absolved from responsibility for failing to see that it was a bubble? You cannot be asserting that bubbles are impossible to see while they are occurring. Again, as Charles Prince, head of Citi in the mortgage bubble, noted -- when the music's playing, you have to dance. He was a rather lousy executive and even he admitted knowing he was in a bubble. His defense was, "When everyone else is making cash on the bubble, you have to do the same."

I'm conflating MBS with the housing market because they are inextricably interwoven.



No one thought the r/e market could drop? People were saying it for years before 2008. And for fiance professionals who I'd assume have some schooling in probabilities, the argument that it could not drop because it had never dropped before is amazing. That a thing goes one way for an amazingly long period of time can be proof that it will continue to do so. But there's an even greater probability that its long overdue for an adjustment.

Why would housing, on the heels of a dotcom bust, and following so many jobless recoveries, be a unique market, immune to downturns? Because it never happened before is a really scary answer for a finance professional to have offered. But I agree with you that many indeed did think that, which is nuts.



I wasn't asserting that the MBS should have been marked down to its lowest value (when the downturn was at its worst). I was asserting that during the run-up, the credit risk of the mortgages which justified the value of the MBS was not accurate. It was in fact fraudulently or incompetently rated far better than it was.

Adder's suggestion that the MBS's valuation pre-collapse was close to accurate is just wrong. The middle and lower tier credit risks were lousy. The people who bought the middle tier stuff were either dumb, defrauded, cynical, or all three.



IBGYBG. Herding. Thinking they were going to win at a game of musical chairs. There are loads of reasons people suspend disbelief or just keep doing as they've been doing in bubbles.

It's way easier to just go with the flow and mint another bonus than it is to pull a Michael Burry or John Paulson style mother-of-all-shorts.

Whatever.

TM