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[Tyrone Slothrop]

Originally Posted by sebastian_dangerfield

This discussion thread started with your assertion that a lawyer who worked in lending was most qualified to state what happened in 2008 re MBS. (You raised it as a question, but you were assuming that answer.)

And that answer is not wrong, usually. A person working closely with industry participants does know more than a regulator or someone suing people in the industry. Usually.

But the question that started this all was whether the banks were engaged more in fraud than mere victims of a bubble bursting. (This is a strange choice, as these aren't mutually exclusive and can run together, but forget that for now.)

If you accept the industry argument that the banks were more victims of a bubble than people engaged in wilful ignorance and fraud, you necessarily assert that a lot of people in the industry were incompetent or negligent. If a lot of people in the industry really didn't understand the products with which they were working, or the cash flows and credit risks underpinning them, might this be an exception to the rule that people within the industry know best what occurred in 2008? Might this be a situation where, if you believe the industry was caught as flat footed as it asserts it was, knowing what it knew about the housing market and securities derived from it at the time isn't really worth much?

Andrew Ross Sorkin wrote a book about 2008 called TBTF. He interviewed and culled quotes from largely industry insiders, and unsurprisingly, the book carries water for the industry and asserts the banks were more victims than fuckups or practitioners of IBGYBG. Numerous other books, too many to list, take a broader look (incorporating sources inside and outside Wall Street) at the housing market and MBS, and offer different a different verdict. They see a mixed bag of fraud, incompetence, and mania.

I'm not sure Wall Street is the best or exclusive source from which to judge what occurred in 2008 re MBS. It's one of many needed to ascertain what took place. So Ty might in fact be as good a source as any other on this.

One mistake people make when talking about the big banks is to think of them as cohesive institutions operating rationally, rather than as collections of highly paid individuals often acting on their own agenda and against institutional interests. Take a look at the criminal cases against bankers, for things like price fixing, and you see the bankers responsible for institutional risk completely failing to get the banks' employees acting in the best interests of the banks. Over time, the banks make a lot of money. From year to year, the individuals at the banks who make the most money can change quite a lot. There is a strong incentive to make your killing when you can. Hence IBGYBG.