Packing risky mortgages into opaque derivatives under weak regulation enabled the financial crisis

Evidence

Investment brokers bundled the bad home loans with safer ones and sold the bundles, called derivatives, as mortgage securities to pension funds, mutual funds, insurance companies, and other investors worldwide. The value of the packaged jumble of loans and the risks they posed were difficult to estimate. They were sold under weak regulations that were unenforced and easily circumvented. In his book The Return of Depression Economics and the Crisis of 2008, the economics Nobelist Paul Krugman (2009) characterized the lack of regulatory oversight as “malign neglect.” Warren Buffet (2003) called the derivatives “financial weapons of mass destruction.” — Albert Bandura, Moral Disengagement, 1492

Categorization

• XREF: Connects to the general theme of moral disengagement through collective responsibility dispersion and organizational structural barriers to awareness. — connects to: Financial crashes correct overextended finance relative to depressed industrial production — Alex Callinicos, Against Postmodernism: A Marxist…, 530; Compressed decision time makes financial markets prone to cascading collapse — David Harvey, The Condition of Postmodernity: An…, 1938; Loan securitization concentrated risk rather than eliminating it. — Mark Blyth, Austerity: The History of a Dangerous…, 80 (+17 more)