Can’t say first-hand if all that’s true, but if it were true, it wouldn’t surprise me.

I agree with you that until those who make such mistakes suffer the full punishment of the free market, they’ll keep doing it. The problem, of course, is that the perpetrators end up holding all of us hostage to a government bailout.

And to clarify, I think the original loans were bad. Repackaging them was also bad, but only a continuation of the original sin of writing them in the first place. You need to address the source, not the downstream. Why did these companies take these risks?

Brian takes the position I do, that it is fundamentally wrong and unsound to bundle bad loans for re-sales and future speculations, just as it is fundamentally wrong and unsound to pre-emptively invade another nation without immediate and overwhelming justification (meaning troops at the border and missiles at the ready, not tenuous stories of WMD and al-Qaeda). The operational success of doing something bad does not count for doodly-squat, end of story.

But as Ryerson says, the overwhelming American attitude of can-do says that you get nowhere for saying “This is not something that is prudent to do. We don’t want to go there.” Instead, you get brownie points for saying, “Aw hell, go for it. We’ll seek forgiveness later.” And we won’t stop being a Pottery Barn culture until we stop rewarding stupid activity because it’s brash and risk-taking. Risk is fine as long as it’s ethically justifiable. Beyond that, it’s stupid and criminal.

Why did most of us realize this only in retrospect? Because most of us aren’t all that unlike me — the kind of person Loring justly bemoans — the type of person who doesn’t have the patience to try to decipher the obfuscatory prestiloquadation spewed out by the salesmen at banks who needed to sell loans, the salesmen at Wall Street brokerages who needed to sell financial instruments, and the free market faithful who believe that there is nothing a bank or brokerage can do that is immoral, illegal, or even ill-advised if the short-term result is a profit.

Let’s consider all the historical financial crises that occurred when there were that many reporters chasing stories. I can think of a lot not prevented. I can’t think of any that were (though I’m sure there were some.) Though I agree with Loring that reporters attention might have made for a more informed citizenry which would be all to the good.

I think the underlying issue here is pretty common and pretty simple: greed versus prudence. To juice returns, people kept finding ways to make more and more aggressive loans. No money down puts the lender at huge risk if the housing market goes down. How you package those loans afterwards is a bit irrelevant if the loan was imprudent to begin with.

But, of course, these loans are clearly imprudent only because they’ve failed. Looking forward it is hard to call a housing bubble. Is it merely a hot market, or has it become overheated? When do you take your money off the table because you think you’re at too much risk? That’s the equivalent of market timing and the track record of market timers isn’t great.

I think many involved in the crisis failed to step back and do that clear-eyed risk assessment. If it goes bad, what will they lose versus what will they make if it continues? Having been involved in some of those kinds of discussions in a business setting, I think most people are optimists (or greedy if you prefer), and discount risks. It takes a lot of discipline in a business to respect and listen to someone who says “No, we can’t.” The natural inclination is continue to listen to and reward the hard chargers who keep saying “Yes we can” right off the cliff.