Friday, September 26, 2008


Now, as to the bailout, well …

Who knows? I've spent hours each evening reading up on this as much as I can and tuning into the Bloomberg channel for the hearings and analysis and I'm none the wiser. Okay, not 'none the wiser', but still unsure. I guess if it's absolutely necessary then it's absolutely necessary.

It seems incredible to me that the simple home mortgage, which I and most people understand full well, was somehow transformed into a complex web of incomprehensible investment and insurance products that somehow failed to include the reality that at the root of these products were loans to individuals that had to be repaid or homes that had to be sold off where there were defaults. A whole load of houses that nobody wants, that's what the government is about to buy. And, well above the market rate for houses nobody wants.

It reminds me of the time (I can hear you - here we go again - the old guy's getting nostalgic) it reminds me of when the Space Shuttle exploded. Next day or a week or a month later (I can't recall now) I, along with my other classmates, was sitting waiting for our Physics class when in burst our teacher in an agitated state. He started ranting about the O-Ring and how "could they be so careless, so stupid". I think he promised to hunt down any of us who was ever involved in an oversight of such basic physics. (Rubber becomes brittle at low temperatures - duh!)

Anyway, that's what I was getting at. The Shuttle was a complex machine with thousands of smart people involved in its construction and maintenance, but still one basic rule of physics was ignored with catastrophic consequences. Same goes for all these mortgage-backed securities et al. Somewhere on Wall Street they forgot that if you lend money to a lot of people who are considered a poor risk you might end up with a lot of bad debts on your hands.