The benefits of the U.S. financial system’s innovative new tools were claimed without sufficient evidence. Just because there were a lot of clever swaps and new securities, and just because they had not yet crashed and burned, did not mean they could not or would not. It takes long-term real-world stress testing in a wide variety of conditions—through up and down real estate markets, up and down economic cycles, low and high interest rates, low and high inflation, and other conditions—together with various combinations of all of these, to warrant the kind of confidence these financial
...more
