Alot of what you say is so right; do read Time’s article on this issue from a randian perspective http://www.time.com/time/politics/article/0,8599,1842879,00.html

http://en.wikipedia.org/wiki/Principal-agent_problem

about the CEOs, a friend commented over dinner last night that there is a book why it is necessary to give CEOs such contracts but he can’t remember the name.

I’ll probably have to dig it out. It would be an interesting read to see the justification considering all the shit that has happened.

what gave me the idea that investors were the ones seeking out more esoteric investments with higher returns was this commentary

http://www.thisamericanlife.org/Radio_Episode.aspx?episode=355

i think it was probably true on both sides. that some investors (the greedier ones) were seeking out higher returns cos US treasury bills were at a ridiculous 1% and the banks themselves were aggressively selling to more innocent people as you put it.

its a principal agent problem. some of these people probably knew it was a bad idea but did it anyway to increase their sales, effectively creating this huge bubble that screwed the investors and their parent companies when the bubble burst.

i do agree with the part about inflation eroding the purchasing power of our savings and that this crisis is not over yet. analysts have been calling a market crash for years and almost everyone just brushed them off as crazy or delusional seeing as how the us economy was growing at such a breakneck pace. fundamentally it was all wrong. with so much debt, the us economy was running on a huge bubble and it is utter chaos and pandemonium now. short of all the government intervention i think the financial system would have failed this week. comments?

oh.. one more thing. i know its a huge moral hazard to pay the CEOs huge severance fees but for most of them, its part of their contract. it was what the company had to do to get these supposed talents at a time where good leadership was needed.

“the investors who had a massive appetite for high returns mortgages and CDOs fueled the demand for more mortgages that put pressure on the banks to seek out more mortgage clients.”

I disagree with this. I think the finance people (i.e. the pple in the middle/ the bankers) they aggressively created both supply and demand for these toxic investment products. What i mean is – they went to sell more mortgages, repacked them and went to look for more ‘innocent’ investors to buy these products. For example, there were many times I was approached by people trying to sell me more of these products claiming they were good investments. It wasn’t like there were investors seeking out more esoteric financial products to put their money.

a possible bank: http://en.wikipedia.org/wiki/IndyMac_Bank

With regards to the savings being wiped out – we haven’t had a proper bank run yet and savings are insured up to a certain amount. So you don’t see the total wiping out of savings from say a bank that is like POSB. I admit, wiping out was probably the wrong word as wiping out implies total loss.

However, we probably haven’t seen the end of the crisis. Either your savings get wiped out by hyperinflation because it seems that printing more money is really the only way they can get out of all that debt or we see some proper bank runs after all these financial jujitsu and taichi stops working and then the losses are realized.

Beyond banks, a lot of money was lost by institutional investors who held these financial products.

Thanks for being a reader and now a commentator.

Oh…and i do agree with you…there were greed on all sides of the equations. However, I’m one to believe that the people who invested and saved were the ‘most innocent’ of the victims. A lot of people don’t really understand the financial products they sign up for. Some people thought they were saving when in fact they were investing without capital preservation guarantee.

Seriously, I find executive compensation to be the one thing that needs to be regulated.

It has been shown that high paying does not equate to high performance. But investors have no choice as it is the norm and they don’t have an alternatives to choose.

while i agree with you that the homeowners were greedy themselves and have to bear some responsibility for this mess, most of the investors who got wiped out have to bear the brunt of the responsibility.

they were greedy too, probably more than those who mortgaged their homes. either they were too greedy and knew that this was dangerous but did not bother or they were not duely diligent to find out about the nature of the investments that they bought into.

from what i have read, a large portion of these loans were aggressively sold to people who had no means to refinance them. sure, they had a large role to play in this mess by living beyond their means but it takes two hands to clap.

the investors who had a massive appetite for high returns mortgages and CDOs fueled the demand for more mortgages that put pressure on the banks to seek out more mortgage clients.

from my readings so far, i am unaware if anyone did not invest in these toxic mortgages and CDOs but got wiped out by depositing their money in the wrong bank. do enlighten me if you know of any