@gozinsa
"Pray tell, how did we got into the mess originally in 2007?"
The signs were there (to me) in 2002. I (me and my team) built a traded credit model which very closely replicated what the rating agencies were doing in the US. We were horrified and the low risk estimates. We jokingly committed to get out the industry, but I stayed until 2006...
I didn't have a lot of power in that situation. I talked to the traders, who agreed with me and kept the inventories at low levels. We didn't escalate an issue which, for the bank I worked in, wasn't a serious issue.
Meanwhile the financial regulators where running around making sure that counterparty credit on derivatives wasn't going to be a big problem, which it wasn't, and they totally dropped the ball on traded mortgages.
Why the warning signs were ignored, and by whom, is not a simple story. Some of us were worried in 2002. Others still thought it was fine in December 2007.
Since 2009, the consensus has been much more disciplined and unified. There has been a universal commitment to ensure that the banking system would never go that close to the edge again. This has manifest itself in progressively hight regulatory capital ratios.
Do I know better that the HC gold forum? On this subject: yes!
