Hey, Lets Look at More Financial Sector Charts!

OK, I know burn-out is setting in.  I certainly think that explains, in part, why the House voted for a demonstrably worse bill than they voted against the week before.  But John Moore has a number links to an interesting set of charts from the Milken Institute on the financial meltdown.

They hit on many of the things I discussed earlier, but put a greater emphasis on 1) securitization, and the effect it had on good underwriting standards and 2) on interest rates as a driver of the housing bubble.

Update:  And an interesting post on the link between credit default swaps and short-selling.  My personal view is that credit default swaps will someday be looked at like earthquake insurance -- nice premiums today, but too much systematic risk, too much certainty that in 10 or 20 years there will be an event that forces nearly every policy to pay simultaneously, wiping out the insurer.  You can't get earthquake insurance, and you nearly can't get hurricane insurance, and I think the default insurance market may go the same way.  Or, as a minimum, the price is going so high few people will buy it.  This is not a market failure, it is a market lesson learned and adjustment to reality.

Update #2:  Even more from economists on the rush to bailout.


  1. Mesa Econoguy:

    All risks are insurable. All.

  2. jsalvati:

    er, I think that actually would be a market failure.

  3. ErikTheRed:

    @Mesa - true, but perhaps not at a price anyone is willing to pay (yet) :-)

    I keep hearing the problem blamed on low interest rates creating ARMs that spiked people's payments. As far as I'm concerned, if people (and banks) were assuming crazy-low Fed rates forever, then they're idiots and they got what they deserved.

  4. dearieme:

    Are all risks insurable with an insurer who will be around to pay out?

  5. foxmarks:

    All risks are insurable. The premium may vary. And the insured has a stake in verifying both the prudence and overall exposure of the insurer.

    “Market Failure” is not the same as business failure, or even widespread failure to perform on contracts. If there were a coercible allocation of resources more efficient than CDSs or earthquake insurance, how would you know? One would have to price risk without the benefit of market information. Maybe the occasional total wipe-out is the optimum allocation in the real world. It reminds people to actually pay attention to their contracts and counterparties.