Quote Originally Posted by carl View Post
Fuchs:

Like I said, the whole thing boils down to bad home loans. Everybody piled in but if those loans had been repaid at the rates good home loans were, the problems would not have happened.
No, that was just the weak spot where the construct broke.
The basic problem was resource misallocation.

The banking sector is supposed to serve the national economy as a mediator for efficient resource allocation. It failed grossly, and that's how the problems and vulnerabilities were set up in the first place. The exact point where the fracture began which lead to the break is of little interest.

Of much greater interest is whether and how the banking incompetence in credit allocation and risk management can be tackled and what exogenous factors amplified the problems (loose money by Fed, useless SEC and Fed oversight, mandated loans, ...).


You cannot prevent a repeat of the crisis by tackling the subprime mortgage issue only. The roots of the problem would simply manifest themselves elsewhere, maybe in towns going bankrupt or another dotcom bubble or a raw materials speculation bubble etc.).