I have been listening to talks about toxic assets for three years and I still don't get it. Please help!
I always thought that the idea of bundles (you link a lot of good houses with one or two risky-toxic ones) was very good: it is the way to go because it limits the risk. Also, we all know that the price of houses can level or fall because it happens every time that an average house costs more than two median salaries can afford. I know that: it was a big problem when I was still in Paris in the 80s. So of course bankers take that into account.
I have been in school long enough to know that you can estimate how much risk you can take, and banks do that every day, so what happened? I read that the banks did not care because they insured their risk.
Fair enough.
Now it is the insurance's business to estimate risk. How are they going to make money on your life if they don't know when your prostate is likely to lose its ... its spongicity? They got tables, they push a button, and they know how much of a risk you are. Estimating the risk is what they do for a living, right? And they are widely used to the theory of bundles: they bundle the risk of a hurricane in coastal zones with the risk of tornadoes inland. It is their profession to estimate the risk and to bundle it to their advantage. It is all about statistics, whether you buy, or sell, or if you are a a banker and in the end, even more so if you are an insurer.
So, if you would stop throwing to my face words like greed and toxic assets, which look like they explain the crisis but don't, and tell me what really happened, I would be grateful: I don't get it. There are always toxic assets, being in life insurance or in housing or in car insurance. That is what estimating risk is about. I am under the disquieting impression that we are treated like a bunch of idiots. It is simple: I want to know who cheated.
I always thought that the idea of bundles (you link a lot of good houses with one or two risky-toxic ones) was very good: it is the way to go because it limits the risk. Also, we all know that the price of houses can level or fall because it happens every time that an average house costs more than two median salaries can afford. I know that: it was a big problem when I was still in Paris in the 80s. So of course bankers take that into account.
I have been in school long enough to know that you can estimate how much risk you can take, and banks do that every day, so what happened? I read that the banks did not care because they insured their risk.
Fair enough.
Now it is the insurance's business to estimate risk. How are they going to make money on your life if they don't know when your prostate is likely to lose its ... its spongicity? They got tables, they push a button, and they know how much of a risk you are. Estimating the risk is what they do for a living, right? And they are widely used to the theory of bundles: they bundle the risk of a hurricane in coastal zones with the risk of tornadoes inland. It is their profession to estimate the risk and to bundle it to their advantage. It is all about statistics, whether you buy, or sell, or if you are a a banker and in the end, even more so if you are an insurer.
So, if you would stop throwing to my face words like greed and toxic assets, which look like they explain the crisis but don't, and tell me what really happened, I would be grateful: I don't get it. There are always toxic assets, being in life insurance or in housing or in car insurance. That is what estimating risk is about. I am under the disquieting impression that we are treated like a bunch of idiots. It is simple: I want to know who cheated.
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