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Wall Street's apologists have been pointing fingers at various scapegoats for the financial crisis and continuing economic troubles.  One excuse has been that the complex equations used in the financial industry were flawed, unknown to the executives and traders.  A recent blog article at the Scientific American website disputes this.
[http://blogs.scientificamerican.com/...]

(Of course, I'd ask: "Does that mean Wall Street executives have ordered their companies to stop using mathematics which are too complex for executives to understand and evaluate?")

The author writes, "Wall Street killed itself in a time-honored fashion: Cheap money, excessive borrowing, and greed.  And yes, there is an equation one can point to and blame. This equation, however, requires nothing more than middle school algebra to understand and is taught to every new Wall Street employee. It is leveraged return."

In the early 2000's, low interest rates made it possible to borrow money cheaply in order to invest in areas with higher rates of return [but higher risk].  When interest rates rose (at smooth dependable increments) in the mid-2000's, this game should have been suspended.

However, what really happened:

2005 and 2006 were record-breaking years on Wall Street. Assets were at historical highs and lending was also. Leverage at major financial had grown from around 20 times capital to 35 times. The easy money was gone, but management felt profits had to keep pace.

Chuck Prince, CEO of Citibank, in a now infamous quote said, “When the music stops, in terms of liquidity, things will be complicated. But as long as the music is playing, you’ve got to get up and dance. We’re still dancing,”

They were precariously balanced and it wasn't that hard to cause a chain reaction.

  *   *   *   *   *   *   *   *

There are other scapegoats not covered in the Scientific American article.

Conservatives also tried to blame home buyers for buying homes that were beyond their budgets.  There are several problems with this claim.

First, the real estate industry was jacking up prices to unbearable levels prior to the crisis.  Part of the reason people had trouble making payments on their mortgages was bloated prices.

The claim also suggests home buyers should have had a more accurate understanding of what would be affordable in the long-run.  Sure, it would be better if everyone was an expert at everything, but we're not.  When someone is looking to buy a home and both the real estate professionals and the bank professionals tell them a mortgage is right for their budget, it's not so unreasonable to believe it.  A wise consumer may realize that the real estate professionals are just looking for a bigger commission which they get to keep even if you can't make your mortgage payments and have your house foreclosed.  But the bank's mortgage department supposedly has the job of deciding who can and can't afford a mortgage, and not giving mortgages to people who are likely not to make payments to the bank.

Part of the reason people had problems paying their mortgages was banks used mortgages which started at a reasonable interest rate, but which after a few years jumped to a high interest rate.  Ideally, people should have understood this and its implications, but not everyone is clever enough to figure out all the misleading language tricky businesses use.  (Back in the 1990's when looking through the apartments for rent ads, I saw an ad for "apartments you can own as cheaply as renting".  I got the prospectus and read it.  I did the math and discovered the payments listed as "cheap as renting" only covered the interest charges on the financing - at the end you'd suddenly have to pay the entire principle.  Yes, I figured it out, but I once took a college math class as an "easy A".  I'm not an average guy.)

Let's not forget, we're talking about the kind of unscrupulous bankers who fabricated documents in order to foreclose on people's homes when the bank failed to keep, lost or never had documentation they were the ones who provided the mortgage.

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