Can you blame Wall Street for being confused? Each mortgage security polluting our economy often holds hundreds of loans from dozens of states.
Loans got bundled into layers according to default rates and repayment schedules, each batch dependent on what happened in the others.
In case that wasn't squirrelly enough, Wall Street bought and sold insurance contracts whose values were ultimately tied to different parts of the unfathomable mortgage pool.
"I'd like to know what those damn things are worth," Federal Reserve Chairman Ben S. Bernanke said a year ago this week.
Wouldn't we all.
Whatever happens next, Bernanke's words are our new motto. Not just for mortgage bonds. For mortgages. For credit cards. Insurance and annuities. Automated teller privileges. Utility bills and rent-to-own plans. Payday loans. Cable and wireless contracts.
Let's simplify transactions of all kinds so buyers and sellers can really, transparently see what they're worth.
Enough with teaser rates and mortgages whose principal balances get bigger with time.
Enough with banks that process big, balance-busting checks first so they can charge overdraft fees on little checks that post afterward.
The heck with expiring frequent-flier miles and credit-card rates that soar when you miss a payment. No more nuisance fees. Down with weasel clauses and booby traps.
Obfuscation usually works against consumers and for business. But corporate America outsmarted itself with 21st-century mortgage bonds and derivatives.
Bernanke didn't know what the things were worth? Neither did the geniuses who created them or the chumps who bought them.
Wall Street defended the complexity as a way to spread investment while distributing the risk of default.
"As is generally acknowledged, the development of credit derivatives has contributed to the stability of the banking system by allowing banks, especially the largest, systemically important banks, to measure and manage their credit risks more effectively," then-Federal Reserve Chairman Alan Greenspan said in 2005.
Hoo boy.
What Greenspan and everybody else forgot was that healthy economies and efficient pricing don't work without good information. Free markets are great, but information failure is a well-recognized form of market breakdown.
