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Glasgow, Ky | NVDave,
Thanks for sharing the Bloomberg article and your personal observations regarding the subprime melt down. Your explination of the derivatives market and the use of the B-S model to validate the actions of the financial sector helped me better understand how this thing came about.
One thing you wrote is a simple but profound observation regarding how this thing evolved........you stated it is "the abuse of mathematics to dissuade people from their own common sense".
It all comes down to 3 things causing this whole mess.
1. Greed....by those selling the derivatives and those buying them
2. Trust.....people trusted the financial companies recommendations
3. Common sense.....if it sounds too good to be true it probably is. See 1 above
This is also an example of the importance of having the right people in right positions. It is obvious many of the school board members in the Bloomberg article did not have the proper skills to be making decisions regarding complex financial instruments. One thing I have learned the hard way in life is if you don't understand something you need to have enough business knowledge to know who to ask for counsel. Everyone who claims to be an expert is not. Even if they are they might not have our best interests at stake when they advise us. We must be wise enough to discern this.
Thanks again for taking the time to share this with us.
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A sideshow to the mortgage/liquidity mess
