Filed under: Blogs, Rants and raves

The always-insightful Herb Greenberg had a terrific blog post today that everyone should read: Fools Rush In: Too Smart for Their Own Good.

The markets are jittery, and it seems that investors’ fears are being realized: The problems in the credit markets weren’t contained to the subprime sector. Why did it happen? As Greenberg writes, and he’s 100% right, everyone was way too confident. Consumers thought they could handle debt loads they couldn’t, and lenders thought they could too. Banks and funds thought that by bundling together loans into collateralized debt obligations, everything would work out peachy. Right. And if you believe that, I have a hedge fund you might be interested in: Long Term Capital Management.

To paraphrase the title of one of my favorite business books, genius fails — with great frequency actually. And if something seems like a dumb idea, it usually is. Couldn’t people figure out that lending people money to buy houses (or handbags or yachts) that they couldn’t afford wouldn’t end well? Packaging them into CDOs didn’t make it any smarter.

Greenberg writes:

Happy days were here again, and Wall Street’s wizards had figured out yet another fail-proof magic potion that would let this party last forever.

Unfortunately for them and everybody else: While it was supposed to be fail proof, the magic potion wasn’t fool proof. And as it turns out, from Wall Street to Main Street, the fools there were aplenty.

Yup.

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This entry was posted on Friday, August 10th, 2007 at 6:44 am and is filed under Stocks Money News. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.