How the investment banks got into the mess they are in today

>If you want a technical reason why the investment banks got us all into so much trouble then this is an excellent read:

Recipe for Disaster: The Formula That Killed Wall Street

Basically the people using the mathematical models for investment risk didn’t understand them and how they would behave under all circumstances.

The weak link was that the level of mortgage risk was based on only 10 years of what amounts to a property boom, when that started to go south, the risks suddenly became obvious. From there it was a downward spiral in confidence.

I suspect the problem is now that they don’t have any trust worthy models to help them understand what they’ve got on their asset sheets. That leads to a massive risk adverse culture – for the moment at least.

The rest will be history…

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