Quote Originally Posted by tequila View Post
Please advise me how the inflation and subsequent destruction of the RMBS derivatives market was a precise assessment of risk and an outstanding allocation of capital to productive purpose.
Short answer, credit ratings were assigned with great precision in the initial securitization, but the models underlying resecuritization were flawed (leading to a reevaluation in 2008).

Once again, you take it for granted that the exercise of risk assessment is free of error. This is an insane proposition, for the same reasons in finance as it is on the battlefield.

Really? How did you produce that?
By making market for value delivered by services and goods and their expected performance in the future. There's value in ensuring that a bushel of wheat will trade at a certain price five months from now. This is what derivatives fundamentally secure.

And why did you get so bad at producing it since 2008?
Bad? What do you mean bad?

As for massive credit lines, I think Ben Bernanke has a lot more to do with that than you.
With $1 trillion in net assets, the Federal Reserve is one of the single largest actors in the financial markets, but that's three orders of magnitude smaller than notional value of the derivatives market.

Do you think that the events of 2008 or 2011 constitute a sustainable environment?
I think trying to determine sustainability from two snapshots is insane.