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You're the banker, so you will know a lot more about this, but it appears to the layman that part of the point of developing all these derivative products is partly to spread the risk, but also to render it so complex and opaque that risk analysis becomes virtually impossible.  Bank stopped analysing the actual assets and traded on each others reputations (and credit ratings) instead, in much the same way as people buy brands because they have a good reputation (carefully crafted by the marketing people) but which may actually consist of very crappy product.

It is this dislocation between high finance and the actual productive economy which needs to be addressed because otherwise good businesses fail for lack of finance and bad business which are well marketed to financiers get all the capital.

Risk analysis is a skilled and expensive business and requires an understanding of the real world - if banks have a value, it is that they are good at allocating capital to worthwhile projects.  When they stop doing this they become no better than casino operators.

notes from no w here

by Frank Schnittger (mail Frankschnittger at hot male dotty communists) on Mon Mar 23rd, 2009 at 07:54:27 PM EST
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