Worried that I’ll just sit on another post until it gets too stale to add, I’m just sharing some notes.
AIG offered 85bb loan to keep afloat; Fannie Mae and Freddie Mac both “nationalized”; WaMu fails; key economic problem due to super risky loans; able to take greater risk because of more advanced financial modeling; also securitization; latter allows portfolios of lending assets get created and sold/exchanged; risk is averaged (?) is security; creates adverse selection problem (real risks hidden); calls for action include greater regulation of banks; tighter lending practices; bailing out banks and borrowers; these are dressing over underlying problems; what are incentives for risk, both lenders and borrowers?; tighter lending practices counterproductive to fed policy subsidizing mortgages; better idea demolish tax incentives to borrow for buying house; many other good reasons (stupid, stupid policy); next sell of fannie and freddie assets, liquidate; congress needs pass this, never happen; too much stupid law to support stupid policy to encourage people to buy houses; problem on banking side isn’t securitization (although does create challenges); banks took lending strategies they would have never taken years prior; betting with other peoples money - principle-agent problem; need better corporate governance; for long run’s sake shareholders should bear all risks; where was oversight by boards? remove executives from boards, past executives; small start but important.
Addendum: I said Lehman Brothers and not AIG (corrected). A downside of posting initial notes.