This belief causes me to be a little irked when people compare the cryptocurrency ecosystem to the 2008 financial crisis.
How many homes did $PICK_A_COIN build?
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A related belief: financial engineering is a serious engineering discipline, contributes substantially to consumer welfare at all economic levels, and therefore should not be employed as a slur, particularly by engineers.
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As long as I’m on the topic: the finance industry employs hundreds of thousands of technologists and, while engineers generally deride their level of competence, a single US investment bank ships more software for harder problems than probably every e.g. YC company combined.
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Of course they're reasonable -- no one goes out and structures these things for fun. People wanted them, and they wanted them for good reason: they disintermediated and made tradable housing risk.
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Everyone rails against MBS and complex structured products, but if the banking industry packed up its ball and took it home, these same people would start complaining about 7%+ interest rates on their mortgages.
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This seems like you attribute the underpricing to an “honest mistake”, as opposed to incentive structures set up to lead to pressuring credit rating agencies to knowingly inflate scores.
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The honest mistake was to believe what the credit rating agencies said.
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And that was only by the big banks. I did work for a small hedge fund that specialized in mortgage backed securities in 2006. We made software to show how many loans were 30, 60, 90, 180 days past due. They couldn't imagine doing it another way. They stayed in business.
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I would change "underpricing" to "deliberate mispricing", but otherwise agree completely.
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Don't forget massive leverage on that risk. A huge chunk of '06 & '07 CDO's were synthetic.
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