Barry Ritholz responds to one narrative of the 2007 financial collapse

Barry Ritholz writes in his column in the Washington Post:

To many people, the 2008-09 financial crisis was a complex, fast-
moving news story and an anagram-laden, horrifying collapse. Such events often give rise to false histories, myths and ideologically driven narratives.

It is vitally important that we understand what really happened. Let’s put to rest some of the sillier ideological narratives that have been pushed by partisans. And let’s start here: Five years on, it’s clear that the collapse of Lehman Brothers signaled a deep and enduring global financial crisis. Lehman’s failure did not, however, cause the crisis.

The low rates had sent bond managers scrambling for higher-yielding fixed-income paper. They found that yield in securitized subprime mortgages, a novel financial product. Three elements made this possible:

Dan here…these are three elements discussed…worth a look:

  • The first was ultra-low yields.
  • The second was a new class of lenders — Greenspan called them “financial innovators” — that were not traditional depository banks but were mortgage originators only.
  • The third element was the corruption of the ratings agencies.