This is a reassuring companion to the bail out announced yesterday. An honest and clear assessment of the excesses of the CDO market (among other financial innovations) will lead one to conclude that banks, originators, credit rating agencies, mortgage brokers, and borrowers (yes borrowers too) were far to eager to perpetuate the glut of liquidity fueled leverage-consumption in the form of home “ownership” over the last half-decade.
In addition, lax regulation and underwriting by buyers of these products led to an all-too-easy ability for banks to “remove risks” from their balance sheets so as to avoid capital requirements intended to prevent bank failures.
Paulson’s public acknowledgment that such an arrangement is simply unacceptable and unsustainable is to be admired as one of tempered admonishment with an eye to constructive reform.
If only all leaders could show such balance in their public decision-making we might be able to avoid future catastrophes like the one we are continuing to witness today.