The market might have learned a simple lesson: Don't make loans to people who can't repay them. Instead it learned a complicated one: You can keep on making these loans, just don't keep them on your books. Make the loans, then sell them off to the fixed income departments of big Wall Street investment banks, which will in turn package them into bonds and sell them to investors.
In his book "The Big Short," Michael Lewis discusses the lessons learned from the financial crisis, particularly regarding lending practices. He highlights a fundamental takeaway that should have been clear: avoid giving loans to individuals who lack the means to repay them. However, the realities of the market revealed a more complex strategy. Financial institutions opted to continue extending loans to risky borrowers, but rather than holding onto these debts, they...
