an obession with first principles


Posted: Monday Mar 28th | Author: JohnO | Filed under: In the News | View Comments

So who’s to blame for the financial crisis?

“The American people, including banks, Congress, the administration, Freddie Mac and Fannie Mae, the media – they all subscribed to the idea that residential housing could not collapse …. The idea that a $22-trillion asset class in an economy that is only worth in aggregate maybe $55-60 trillion, which for two-thirds of people with their own homes was their major asset, and in many cases they borrowed very significant funds against something that would plunge in value – this was something that we all participated in.

“It was a collective delusion, that once adopted, spread through all kinds of institutions and instruments of finance so that the interdependence of these items, once the delusion became exposed, once it became apparent that the emperor had no clothes, swept through the economy with the impact and the speed of a tsunami. All kinds of things happened that you wouldn’t have thought possible because of this huge interdependence in markets.”

You didn’t mention the rating agencies.

“It includes them – there were a few people out there shoring up subprime, but basically it includes everybody.”
Warren Buffet

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