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Financial Whirlpools by Karen L. Higgins

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Chapter 10

The Risk Tiger Pounces

Financial Market, Risk, and Securitization

Securitization severed the critical link between borrower and lender. Once a lender sold a mortgage to Wall Street, repayment was someone else’s problem.

McLean and Nocera1

We built this giant machine, and it was making a lot of money—until it didn’t. We didn’t know why we were making so much money. We didn’t have the risk tools to understand that risk.

Larry Fink2

Imagine for the moment that you are seated in a darkened auditorium awaiting the spectacular finale of the magic show you had heard so much about. The curtain rises. Hypnotic music, flashing lights, and twirling dancers fill the stage. With dramatic flair, the magician calls your attention to a large cage. ...

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