Economics, Part II

I like to turn Robert’s economics articles up-side-down. They make so much more sense when you do that.

So, out there we have a set of holders of mortgage backed instruments that they got through various middle men from borrowers of poor financial strength. The current holders ought to have done their due diligence before they bought in — if they did not, we have no sympathy over their fates. So let us assume that they did.

Clearly they saw the risk of a market wide event affecting a very large number of people, lots of those being voters. Clearly they researched the history of political response to such situations. Clearly they saw the serious risk of the rules being changed underneath them. They saw that, they understood that, and surely they priced that into their bids. Thus, if the rules are changed underneath them, they are not suffering any consequence the risk of which they were not paid to take. One could go as far as saying that a lack of political intervention would be an unforeseen windfall for them. That would be a subsidy they do not deserve.

Actually, the investors likely did not have full information available, but had to rely on the representations of the financially engineering banks and the ratings institutes. Investors should have priced such a lack of knowledge in too, but might have a case against the middle men if they were defrauded.

That being said, I have not read and I do not intend to read the specifics of the proposed plans. In fact, paying attention to the promises of political candidates in right races is a waste of time — they will promise you anything. It is in their blood.

Comments are closed.