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THE HIDDEN GAME REVEALED – PART 6

3.2 The Sub Prime Mortgage Bubble – Part 2

So, who is caught holding the “hot potato”? Th e securities are for the most part held by mutual funds, banks, and insurance companies spread over the globe.  The managers of these funds have been well compensated for their returns over the last decade. Those investors who are holding shares in these funds will take the hit.  Who are these people? They are pensioners, professionals, and teachers, etc.. In other words, you and me. To make matters worse, when the investment houses, insurance companies, and banks are bailed out, it is the taxpayer, you and me, who are on the hook, once again.

Meanwhile, our young couple have lost their home and declared personal bankruptcy. The pensioner holding the mutual fund units has lost a good part of their nest egg. The taxpayers are saddled with a debt which will take several generations to pay off . Who are we to blame?  Whom do we hold accountable? The loan officer? He was just doing his job – meeting his quota trying to sell as much product as he possibly could. The mortgage company?  Their mandate was to place their funds with homeowners and manage the risk. They did just that. They signed up the homeowners and then sold the debt. What more could they do in fulfilling their responsibility to their shareholders? The management of the investment houses involved? They were acting on the professional advice of their qualified experts in the research department. The experts they relied upon? They were only following the advice of what all the economists were saying.

Finally, we come to the economist, the man behind it all. He will tell us, absolutely truthfully, that all of his  recommendations were based upon an extremely sophisticated mathematical model which had been designed by some of the best minds in the field to take every imaginable contingency into account. He will then proceed to tell you that it would have worked had it not been for certain unforeseeable events (such as the extent of human greed).

So, in the end, what is the answer to our original question: Who is to blame? “Nobody”, they tell us! It is an economic anomaly: the exception that makes the rule.  It is like an act of God, something that simply defied prediction. We just have to accept that these things will happen from time to time; it is part of the self-correcting mechanism that makes capitalism so great.

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