Matt Moscardi

How Models Caused the Credit Crisis

I disagree with the premise that "models" were the smoking gun of the subprime crisis. The real issue is much more mundane - greedy people and corporations. IndyMac underwriting bogus mortgages to unqualified homeowners smacks of pure greed, not "the model said so." When the loans were repackaged, even then it wasn't "the model," it was a lack of oversight, foresight, and understanding by the eventual purchasers - institutional and retail investors alike - what it was they were buying. Whether by stretching the truth or just plain lying, the end purchaser was unaware of the process, because the middlemen, in this case the Street and the IndyMacs of the world, wanted the quick buck.

It's the same story all the time. In the end, it will take a massive ideological overhaul of the Street, one that promotes corporate accountability and sustainable business practice over short term gains, to fix it. So really, it will never happen. Every 10 or 20 years this will happen again (see the real estate bust in the 1980s).

(Here's where I take a moment for shameless self promotion) To that end, I say invest sustainable, green, and socially responsible (see my website). It's not a solution, but at least it's a start, and you can sleep a LITTLE better!