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The rating agencies initially defended their AAA ratings by saying that default rates had been very low during the good years. No kidding. Did anybody think there might be bad years? “To look at the performance in good years as a predictor of what may happen in bad years is not a robust way to do a calculation,” says Hamilton.

“With the benefit of 20/20 hindsight, the rating agencies were asleep,” says Starr. As others have pointed out, everybody conspires during a bubble to keep the bubble going forever.

In his book Infectious Greed, Partnoy explained that banks snap up the ablest financial analysts, and the various funds get the second best. “To put it charitably,” said Partnoy, the analysts that wind up at the rating agencies are “not the sharpest tools in the shed.”

But the same could be said for the big Wall Street firms that sold the gelato bonds and the purported investors who bought them. The characterization, too, applies to the slick salesmen who peddled the exotic and predatory mortgages and some, if not most, of the home buyers who snapped them up. And what about the Federal Reserve and the federal regulators? They looked the other way as fraudulent lending proliferated.

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Comments

VanjaJames Jan. 2, 2008 @ 5:27 p.m.

Glad I never did too much with that real estate license....

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Robert Padilla Jan. 3, 2008 @ 5:12 p.m.

I saw this coming like a bad case of mexican heartburn; however, who doesn't wish they jumped on the gravy train 10 years ago when the market was soft/affordable/and open to the average blue or white collar Jane/John. Bubble or no bubble bad deals and bad financial decisions are born everyday. Do your homework and you might make a good one or a least walk away with shirt on.

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Don Bauder Jan. 31, 2008 @ 11:02 a.m.

It's going to get worse. Best,Don Bauder

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Don Bauder Jan. 31, 2008 @ 11:05 a.m.

It's the old dilemma: 1. Buy when the blood is running in the streets, but: 2. Don't try to catch a falling knife. In the case of San Diego real estate, there is blood in the streets, but the knife has further to fall. Best, Don Bauder

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Anonymous Feb. 11, 2008 @ 12:47 p.m.

In the late nineties, everyone urged me to buy stocks as a surefire money maker.

So I bought property instead.

When they told me that property was a surefire investment, I sold mine.

I think political change is something that is now similarly undervalued in our market.

Most people tell me it's a waste of my time and money...hmmmm. Maybe they're wrong about that. Maybe that's the best investment of my time and money today.

We live in interesting times, my friends.

(yet another sdblogger)

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