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« Why Did the Mortgage Crisis Happen, Part 2 | Main | Why Did the Mortgage Crisis Happen, Part 4 »

May 09, 2008


Clement Wan

For what it's worth, you may be interested in two additional theories to why the problems happened and started:

(1) Arbitrage that really wasn't as it discounted the liquidity risk thus providing an incentive for i-banks to hold highly leveraged tranches of the securitized debt that you cover in part in your post:

(2) A 1995 amendment to the 1977 Community Reinvestment Act (CRA) - creating the incentive to push the risk of what was traditionally held by banks off into securitized assets - which you also allude to though not specifically talking about the CRA:

Incidentally, I didn't note it the last time but I do enjoy reading your blog.

Best regards,

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