How can you not love this Alan Kohler guy?
This is the issue at the heart of the heart of the
financial crisis now enveloping the world. Loans were securitised and
turned into investments rather than assets of institutions that have a
regulated capital buffer and, in extremis, government support.
Government backing is never explicit, but everyone knows that banks are almost never allowed to fail, especially big ones.
Investments in mortgage securities are an entirely
different matter. The trouble is that the differences have not been
made clear to the investors.
As Alan Greenspan said in his testimony to Congress
last night: “With … home prices rising, delinquency and foreclosure
rates were deceptively modest. Losses were minimal. To the most
sophisticated investors in the world, (mortgage securities) were
wrongly viewed as a ‘steal’.”
Unsophisticated investors didn’t stand a chance.
Indeed . . .
The Greenspan putz
Business Spectator, 7:48 AM, 24 Oct 2008