could make it through again. No one expected the markets to seize up overnight. Add to that lax underwriting and ratings, and you have a time bomb waiting to explode.”
The value of a product is in the service it provides. Marking up a product to increase profits does not increase its value beyond the moment. The industry forgot the original intent of subprime mortgages was to give otherwise qualified borrowers a “second chance at homeownership.” Once the service behind the product was obscured, all bets were off—literally. When the markets “innovated” mortgage products that required no investment or down payment or credit risk from borrowers, the question for the industry should have been the following: “What value do these unsupported loans, which we are wrapping into complex securities and hedging with derivative products, contribute to society beyond a small group on Wall Street?” Since that question was neither asked nor answered, the market time bomb was set to explode. I asked Jeff the Lehman trader if he thought the crisis would enlighten the Street. He replied emphatically: “No, the Street has a short memory. Regulation may have to keep the memories fresh. The human element is too far removed.”
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