An Economic Epilogue

The following essay was first given as a lecture at the conference “The Burden of Our Times: The Intellectual Origins of the Global Financial Crisis” at Bard College in 2009. It was later published in The Intellectual Origins of the Global Financial Crisis, ed. by Roger Berkowitz and Taun Toay (2012).

For many, the Great Recession was characterized by a series of acronyms, marked by intentionally opaque jargon: ABSs — asset backed securities; CDOs — collateralized debt obligations; and the now infamous CDSs — credit default swaps. Even for industry insiders, these structured products marked relatively new “innovations” in finance. A more efficient means of risk sharing had been born, or so it was argued, and further testament to the superiority of American (read as, “jungle”) capitalism.

While the build up to the recession(s?) characterized structured products (a euphemistic catch-all terms for the aforementioned acronyms) as a means to facilitate efficiency, the crash painted such products in a far different light. At best, structured products were complex instruments to extract high fees from clients in exchange for risk spreading; at worst, structured products were the ingenious instruments of criminals, drunk on greed and statistical software. In either case, they were not what they appeared — at least if you valued the input of rating agencies.