Madness of Crowds

Kevin Drum reads Noah Millman's look at the structured finance debacle.

The really short version: investors lost their minds. With other people's money.

Millman's opening paragraph:

Indeed, this dark forest is a hard thing to speak of. As readers of this blog may recall, I’ve spent the last several years working in an industry now credibly blamed for bringing on what is almost certainly the worst economic crisis since the Great Depression. Not only have I been working on Wall Street, but I work in structured finance. While I wasn’t at the epicenter of the crisis – I didn’t put together mortgage securitizations, and I don’t work for one of the big firms – I was certainly using some of the same financial technology, and trading the same products, as the businesses that were at the epicenter.

The moral of this story: the market is a ho. Don't trust a ho.

Right wing economists especially promoted the notion of the wisdom of the marketplace, but that is at best an exaggeration. Like other human institutions, the markets are subject to human error and the madness of crowds.

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