re: #79 kirkspencer

1) A slowdown in housing sales plus the realization that significant numbers of people would be unable to refinance their mortgages led to the recognition that MBS pricing assumed liquidity, which was not an unreasonable assumption.

4) This recognition in turn caused banks, investment agencies, and other monetary agencies to hold a defacto suspension of convertibility resulting in a defacto $1.2Trillion decline in the total money supply. Exactly. this can’t be overstated. when psychology turns a trillion dollars into a trillion pieces of paper, regulation will not save you. this was a psychological failure.

5) To summarize, while regulation can be crafted to force CDO’s to hew to a minimum price level to prevent future meltdowns of this sort, no one party or group predicted how quickly and completely the CDO market could freeze based on psychology alone.

there, i did it in fewer than 5. we COULD have put regulation in place to stop it. saying that we foresaw this and simply chose NOT to put the regulation in place is fantasy. no one thought that a bubble burst would cause a total liquidity failure.