I'll maintain the "fire" metaphor/analogy and ask a simple question:
Who sold gasoline to people known for playing with matches?
Those same institutions also reaped enormous commisssions from those sales.
Many subprime buyers had trouble with paying their cell phones and other bills - yet were given mortgages.
Wall Street thought nothing of it because their "formulas" anticipated ever increasing home values - does that make sense?
There was an institution once, that had a faulty formula. When reality caught up, the fed feared a "financial armaggedon." That institution was LTCM.
How many times larger is the current crisis than LTCM - a single player?
As for the current stock market's condition - it makes sense. Since 1980, we have tweaked - several times - how we measure inflation, and also how we measure unemployment. Hence, our GDP and outlook is much rosier than the reality. As a result, the securities markets are also affected. See these charts:
http://www.shadowstats.com/alternate_data
I think we are experiencing, right now, a 1970s style recession - which is saying, a rather severe recession. Nonetheless, our government tells us otherwise. Maybe we'll come out of this mess by fooling most of the population by avoiding panic - maybe not. Maybe reality gets so brutal, and people notice the disconnect between their daily lives and the government's and Wall Street's outlook. - and they vote in a powerful demagogue. These are unusual times - it's anyones guess. I think all our trading strategies will be put to a severe test.
We are in unchartered waters.
