Securitized Products Were Too Good of an Idea to Pass Onby Seth Klarman
It's not amazing that securitized products were created. There are huge financial incentives for the people involved. What's amazing is that anybody actually bought them. That's because they're created with a one-dimensional idea of what the economy and the world are going to do. If you have nothing but good times, then securitization makes tremendous sense. But securitization, for all of the commingling and diversification it gives you, also gives you a lack of transparency. So if you have an environment like the one we have now, the assets that have been securitized actually make you worse off than if they were just held as whole loans. The unanswered question is how did the smartest people in the world who run the major Wall Street firms not understand that these products were toxic and end up getting caught with them on their books?