Page 1 2
 Based on these characteristics, it could be argued
that the behavior of the individual players in the
mortgage value chain was not so irrational after all:
The borrower thought that thanks to low interest
rates a nicer and more expensive house had become
affordable. The mortgage broker was incentivized
to process as many applications as possible. The
lender looked at past data and became convinced
that housing prices would continue to go up. The
investment bank tried to meet an increasing demand
for mortgage-backed security. The bond insurers
trusted the AAA ratings of the credit agencies. The
investment funds were attracted by – compared
to plain vanilla products – high returns. Didn’t they
all just follow the script, maximize the short-term
revenues, believe in the numbers, venture out and
jump on the opportunity, exploit their individual
small part of a divided value chain?
The United States has dealt with credit crises before
and will also find a way out of this one. It will likely be
economically painful, but after all another important
“key ingredient” of our society is that failure is an
accepted possibility. Sure, many things went wrong
and remained undetected before the subprime crisis
could reach this stage and would eventually amount
to the truly global crisis it is now. However, in the end
it was an unfortunate combination of many different
elements in an incredibly complex process that was
believed to be manageable and beneficial for everybody
by dividing it in very small pieces. Everybody saw
fast-growing trees, nobody seemed to be aware of
the forest that was developing. And because holistic
perspectives cannot be imposed, regulators and
politicians are strongly encouraged to first analyze the
situation from many different angles and then to think
very carefully before starting to discuss new legislation.
 Previous Page | Top
|
